Fitch Affirms Suwanee, GA's GOs at 'AA+'; Outlook Stable

Fitch Ratings has affirmed the following general obligation (GO) ratings of the city of Suwanee, Georgia (the city):

--$13.4 million GO bonds series 2006 at 'AA+'.

In addition, Fitch affirms the following rating:

--$4.5 million Suwanee Urban Redevelopment Agency (the agency) revenue bonds series 2006 at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are backed by the full faith, credit, and unlimited taxing power of the city. The revenue bonds are special limited obligations of the agency, payable and secured by installment payments made by the city to which the city has pledged its full faith, credit, and unlimited taxing power. The city's obligation to make installment payments is absolute and unconditional, and not subject to appropriation or abatement.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: Management's conservative budgeting practices, consistent operating results, maintenance of reserves well above policy levels, and detailed financial monitoring and forecasting reinforce the city's financial flexibility and strong financial performance.

SMALL CITY BENEFITS FROM PROXIMITY TO ATLANTA: Suwanee, approximately 30 miles from downtown Atlanta, has cultivated a sizeable business presence clustered around the I-85 interchange. Also benefiting the city is its accessibility to road, rail, and air transportation infrastructure.

SOUND SOCIOECONOMIC INDICATORS: The city's unemployment rate has remained well below the average of the state and nation. Residents have above-average income levels compared to the state and nation, and high educational attainment.

MODERATE DEBT BURDEN AND CARRYING COSTS MANAGEABLE: Debt levels are expected to remain moderate due to the city's use of recurring revenue to fund capital needs and lack of additional borrowing plans. Low carrying costs benefit from pension funding in excess of the ARC, its over-funded position and the lack of other-post-employment benefit (OPEB) obligations.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including further development and maturation of the economic base while maintaining a strong financial position and a favorable debt profile.

CREDIT PROFILE

Located in Gwinnett County (rated 'AAA'; Outlook Stable), Suwanee is approximately 30 miles northeast of Atlanta on several transportation corridors including Interstate 85. The small city, with a 2013 population of 17,688 residents, experienced exceptional population growth in the last decade, which has since slowed.

STRONG FISCAL MANAGEMENT

Suwanee has a solid history of conservative budgeting, and its consistently strong reserve levels are evidence of prudent financial management. The unrestricted general fund balance at year-end fiscal 2014 equaled $8.3 million, or a healthy 73% of spending. This is well above the city's fund balance policy requiring maintenance of at least four months of operating expenditures and transfers out, which Fitch deems conservative. Suwanee used general fund reserves of $249,000 (2.2% of spending) for the Buford Highway reconstruction project, consistent with their history of making transfers out to the capital reserves fund for pay-as-you-go capital spending. This fund ended with $1.3 million in unrestricted fund balance currently assigned for capital projects, which is available for general fund spending by written resolution from the city council.

Fitch views favorably that approximately 30% of general fund revenues are from property taxes which are not subject to statutory caps or limitations on growth. The city has maintained or decreased the millage rate for each of the last 12 years.

The fiscal year 2015 budget was balanced and increased spending by 5% from fiscal 2014 mainly due to salary raises, funding two master plans, and growth in health insurance costs. The budget maintains a flat tax rate and a 4.4% tax base increase based on reassessments and new construction. The city projects the fiscal year 2015 ending general fund balance will remain very healthy at $8.2 million or approximately 69% of spending. Given the city's history of strong financial performance, Fitch expects operations to remain positive and reserves to remain in compliance with policy.

DIVERSE TAX BASE BENEFITS FROM PROXIMITY TO ATLANTA

Suwanee was traditionally an agricultural area; however, the city has cultivated a strong business presence that now includes Dish Network, Hewlett-Packard, Mitsubishi Electric, Quality Technology Services, and Southeastern Freight. Economic development is an area of continued focus for Suwanee. The city is in the process of reconstructing the Bufford Highway to promote development in downtown Suwanee and updating the Downtown Suwanee Master Plan which includes $8 million in capital improvements over the next five years.

A considerable commercial and industrial presence represents approximately half of assessed value and growing. Fitch sees this as a credit positive as it helps mitigate demand on the small population of residential property owners. The city also accesses its non-residential economic base via the levy of various business taxes including franchise fees and an alcoholic beverage tax which account for approximately 37% of general fund revenues. These revenue streams have proven a stable source of income and have increased in each of the past four years.

Benefiting commercial growth are the city's positive economic characteristics, proximity to Atlanta, and access to extensive road, rail, and air transportation infrastructure. The city's unemployment rate as reported by the Georgia Department of Labor as of February 2015 was a very low 4.0%, compared to the state (6.3%) and nation (5.8%). The poverty rate is lower than the state and nation.

FAVORABLE DEBT PROFILE

The city's overall debt levels are moderate at $3,827 per capita and 2.4% of full market value. Amortization is average with 53% of outstanding principle repaid within 10 years. Debt levels are expected to continue to decline as the city has limited infrastructure demands and no additional long-term borrowing plans.

The fiscal 2015 through 2019 capital improvement program (CIP) totals $31.5 million (including the Downtown Master Plan) includes no new debt. It is funded through a variety of sources including proceeds from a voter-approved countywide one-cent special purpose local option sales tax (SPLOST) and accumulated reserves. The current SPLOST program was implemented in 2014 and approved for 3 years. The CIP conservatively does not assume continued SPLOST funding beyond the current program, though the public has historically supported these initiatives including the November 2013 referendum which passed with 58 percent in favor of extending the tax.

LIMITED OTHER LONG-TERM LIABILITIES

The city administers a single-employer defined benefit pension plan and has made payments well above the actuarially required contribution (ARC) despite the plan's overfunding. Fitch calculates that the plan is overfunded at 152% of liabilities based on a 7% investment return. The city plans to continue to make payments above the ARC in order to maintain a consistent pension funding level based on a certain percentage of payroll. Fitch views the high level of plan assets relative to liabilities and overfunding of the ARC positively. Pensions ARC requirements have decreased each year since 2010 and are now less than 1% of spending. Suwanee does not offer other post-employment benefits (OPEB). The city's fiscal 2014 carrying costs for debt service and pensions are a low 11.9% of governmental fund spending.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985215

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Fitch Ratings
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