Gilbert’s general obligation bonds move from ‘AA’ to ‘AA+’

bolbert-arizonaStandard & Poor’s Ratings Services recently announced that it is raising its long-term rating and underlying rating (SPUR) on Gilbert, Arizona’s general obligation (GO) bonds from an ‘AA’ to an ‘AA+’ and it’s community’s improvement district bonds to an ‘A+’ from ‘A’.

The report details that the upgraded ratings reflect their assessment of Gilbert’s strong local economy, management conditions, and financial and budgetary practices.

“Gilbert is a beautiful, thriving community. This is great reflection of all of the amazing accomplishments the community and its government continue to achieve,” says Budget Director, Dawn Buckland.

The report found, “Gilbert’s local economy is strong, with per capita market value and projected per capita effective buying
income at roughly $82,600 and 103% of the national average, respectively. The town serves an estimated population of 222,300 in Maricopa County 35 miles southeast of Phoenix. Gilbert has experienced significant growth due to its access to the Phoenix metropolitan statistical area (MSA) and favorable land and housing prices.”

Other report findings:

Residents benefit, in our view, from participation in the broad and diverse Phoenix MSA, which we view as a credit strength. Maricopa County unemployment was 6.7% in 2013.

Gilbert’s management conditions are, in our opinion, very strong with “strong” financial practices under our Financial Management Assessment methodology, indicating practices are, in our opinion, strong, well embedded, and likely sustainable. Strengths of the assessment, in our opinion, include strong revenue and expenditure assumptions in the budgeting process, strong oversight in terms of monitoring progress against the budget during the year, five-year long-term financial and capital plans, and a formal policy of 90 days’ working capital, which is roughly about 25% of general fund expenditures.

We consider Gilbert’s budgetary flexibility very strong, with available reserves at $69.6 million, or 63.9% of operating expenditures in fiscal 2013. Preliminary fiscal 2014 results indicate an increase in available reserves to around $75,000. The town has reported available reserves in excess of 30% of general fund expenditures for the past several years, and we understand it anticipates maintaining a similarly high level of reserves.

In our view, Gilbert’s budgetary performance is strong overall, with a surplus of 13.7% for the general fund and a surplus of 7.2% for the total governmental funds in fiscal 2013. Fiscal 2014 preliminary data indicate another surplus in the district’s general fund, although a deficit in total governmental funds. While the fiscal 2015 budget indicates a general fund deficit in fiscal 2015, the district often budgets for deficits but has posted a general fund surplus for each of the past five years.

In our opinion, very strong liquidity supports Gilbert’s finances, with total government available cash at 175% of total governmental fund expenditures and at 8.2x debt service. Based on past issuance of debt, we believe that the issuer has strong access to capital markets to provide for liquidity needs if necessary.

In our view, Gilbert’s debt and contingent liabilities profile is adequate. Total governmental fund debt service is 21.3% of total governmental funds expenditures and net direct debt is 153.5% of total governmental funds revenue.

The relatively rapid amortization of debt is a credit strength, in our opinion, with approximately 75% repaid over the next 10 years. In our opinion, the net debt to market value is low and a positive credit factor at 2.8%. The town participates in the Arizona State Retirement System, Public Safety Personnel Retirement System, and Elected Officials’ Retirement Plan and contributed 100% of the annual required pension contribution in fiscal 2013. The town also contributes to its other postemployment benefit (OPEB) plan. The combined pension and OPEB costs accounted for 4.8% of the total government expenditures in fiscal 2013.

We consider the Institutional Framework score for Arizona towns with more than $500,000 in federal awards expended in a year as strong.

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