|
Moody's Investors Service, Inc.
The system of rating securities was originated by John Moody in 1909. The purpose of Moody’s Ratings is to provide the investors with a simple system of gradation by which the relative investment qualities of bonds may be noted.
Moody’s Investors Service:
Write-up Regarding the City of Indianapolis
The Aaa rating assigned to the debt of the City of Indianapolis reflects a strong and diversified economy, well-maintained financial position, and a unique debt profile featuring significant amounts of debt backed by the moral obligation (MO) of the city. Significant downtown redevelopment underway for most of this decade is in its advanced stages. Projects undertaken have been designed to expand the city’s historic role as the state’s capital and a regional business and distribution hub and enhance its status as a major convention and tourist center. Financial management is also very strong and expense trends reflect the current administration’s privatization goals. The city has successfully controlled budgetary growth while building reserve levels and preserving taxing margin.
The city’s debt profile is unique, as more than half of the overall debt, or approximately $390 million, is composed of tax increment financing (TIF) revenue bonds backed by the MO pledge. The majority of this debt was used to fund the Circle Center Mall, a major retail project, which is the anchor of the downtown redevelopment program. Given the city’s strong credit standing, and the growth exhibited in both the city’s general economy as well as the TIF areas’ tax bases, Moody’s does not view these contingent liabilities as a definable weakness at this time.
The stable credit outlook for the city’s debt reflects Moody’s view that the strengths exhibited by the city’s robust economy will continue to create an attractive environment for business and residents, providing for a high quality revenue base for the city’s bondholders. The outlook also reflects the success of the city’s downtown tax increment district and our view that this moral obligation debt will remain self-supporting in the near term. Over the long-run, however, Moody’s future reviews will focus on underlying trends within the TIF district. This self-supporting debt will become increasingly difficult to sustain given the reliance of future growth to meet the ascending debt service requirements of the moral obligation debt. This may be a source of future fiscal pressure if the city chooses to appropriate funds to cover any potential shortfall of TIF revenues to meet debt service requirements.
Opportunities/Strengths and Risks/Weaknesses of the City of Indianapolis
Opportunities/Strengths
- Indianapolis’ status as the state capital provides a measure of economic stability, as the government sector is a large part of the employment base. The city is a major regional transport and distribution hub due to extensive highway, rail and air facilities.
- Successful downtown revitalization has been spearheaded by major public and private investment, including retail shopping (Circle Centre Mall), considerable new and renovated office and hotel space, major sports and convention venues, expanded parking capacity, and numerous restaurants. Downtown is also home to a diversified group of large employers and major convention facilities. Job base growth has generated new demand for downtown residential housing.
- Labor force growth has been strong and at the same time, unemployment levels have fallen to 2.5% from a peak of 5.9% in 1992. Moody’s expects continued employment growth based on Lilly’s recently announced plans to invest an additional $1 Billion in new facilities, creating as many as 7,500 new jobs, as well as additional new jobs stemming from expansion of the United Air Lines’ maintenance facility in coming years.
The consolidated city-county government ("Unigov") exhibits considerable financial stability from a combination of high reserve levels and a high degree of control over budget growth. The current administration’s initiative to introduce privatization and competition in delivery of certain municipal services has generated considerable cost savings in the city’s budget.
Risks/Weaknesses
- Impact of impending property tax reform in unclear. A recent court decision mandating reforms to the "True Tax Value" property tax assessment system has potential to disrupt operations negatively in two ways: either directly via a loss of taxable value, or the possible wake of tax appeals following valuation adjustments.
- Major city-county government involvement in public-private projects has been financed with approximately $390 million of tax increment financing (TIF) debt that is also backed by a moral obligation (MO) of the city. This structure increases the city’s leverage in the event of an economic downturn, as shortfalls in TIF revenues could necessitate appropriations from the city for MO debt service. Such a turn of events could magnify negative financial pressures
|
