Public Financial Management, Inc. (PFM Grou)_City Credit CharacteristicsPFM"
The PFM Group
Public Financial Management, Inc.
PFM Asset Management LLC
PFM Advisors
Mr. Michael C. Van Milligen, City Manager
City of Dubuque
50 West 13th Street
Dubuque, Iowa 52001
Mr. Van Milligen:
801 Grand Avenue
Suite 3300
Des Moines, IA 50309
515 243 -2600
515 243 -6994 fax
www.pfm.com
August 3, 2011
To provide a more thorough response to the question raised by Council Member Joyce, we have put
forth a written summary of the City's key credit characteristics and pricing trends; each will be discussed
in greater detail herein.
General Obligation Credit Rating Discussion
The City's general obligation debt is rated Aa1 by Moody's Investor Service ( "Moody's "). Moody's cites
the City's growing economy, its role as an economic and service center to the region, and its ability to
leverage additional revenues as key considerations in the premium rating. Only approximately 6% of all
cities rated by Moody's have a rating higher than the Aa1 rating assigned to the City.
As articulated in a 2009 rating methodology report for General Obligation Bonds Issued by U.S. Local
Governments, Moody's lists four broad rating factors along with their relative weights in determining
the City's overall credit rating:
1) Economic Strength (40 %)
2) Financial Strength (30 %)
3) Management and Governance (20 %)
4) Debt Profile (10 %)
Economic Strength
Reflective of its 40% weighing, the economic strength of a locality drives the ability to generate
adequate financial resources such as property taxes, sales tax revenues and other revenue streams
which, in turn, generate the funds needed to fund operational and debt service needs of the bonds.
With approximately $3.6 billion of actual property valuation for assessment year January 1, 2010, the
City compares to other Iowa credits well as it relates to economic strength. The City's tax base has
grown by approximately 4.5% annually over the last five years, with continued growth expected as a
result of residential expansion due to the addition of employment opportunities. In addition, the City
carries a strong actual valuation per capita of $61,651.
Financial Strength
Financial Strength is the second most important factor at 30 %. Financial strength is measured by
balance sheet liquidity, operational flexibility and budgetary operations. Traditionally, financial strength
is articulated by comparing the general fund balance to general fund revenues with 30% as the optimal
percentage target. At the end of June 30, 2010, the City had a total general fund balance of $13.8
million or 26% of general fund revenues. Moody's notes that while the balance levels are within policy
parameters established by Council, they have been reduced from previous levels due to funding of
capital projects.
Dubuque Pricing Review
August 3, 2011
Page 2
Despite a decline in fund balance, the City has favorable revenue raising flexibility, as significant
expenses are levied under the $8.10 limit that could be levied under a separate trust and agency levy. In
addition, the City has not utilized its emergency levy.
Management and Governance
Management and Governance with a weight factor of 20% speaks to the City's revenue and expenditure
forecasting, budgeting practices, budget monitoring procedures, debt management and capital planning
processes and governance structure. Historically, the City excels at all levels as it relates to these
factors. The City Council has demonstrated a continuing track record of prudent and fiscally conservative
budgeting practices and strong financial results.
Debt Profile
Finally, the debt profile of the City contributes to 10% of the overall rating. The debt burden measures
the financial leverage of the community by comparing the amount of debt outstanding to the
community's net actual valuation of property. Currently, Moody's considers the City's overall debt
burden to be above average but manageable, with 69% of general obligation bond principal paid in ten
years.
The table below summarizes the City's economic and financial profile as compared with median values
for other cities in the State that carry a rating by Moody's Investor's Service. The City's values have been
shaded to correspond with the closest median value for each category; while there is some variance, the
table indicates that most of the City's statistical values are consistent with median values for the Aa1
rating category.
Comparison of City of Dubuque to Moody's 2010 Iowa City Medians.
City of
Dubuque
Rating
Total Entities per Rating
Aar
4
Aa.1 Aal Aa3
9 14 8
Al A3 A3
8 3 2
Aal
Financial Statistics & Ratios
Total General Fund Revenue ($000)
$51,498
$20,313
$13,121
$6,273
$3,431
$3,878
$1,498
$ 53, ±.?2
GF Balance as %of Revenues
30.8%
26.8%
34.0%
36.6%
33.3%
20.0%
33.4%
26.0%
Unreserved GF Balance as %of Revenues
30.2%
25.7%
32.2%
36.6%
32.2%
20.0%
25.0%
16.2%
Undesignated, Unreserved GF Bal as %of Rev
MI, 27.3%
25.1%
32.2%
36.3%
30.0%
20.0%
39.2%
4.7%
Debt Statistics & Ratios
Direct Net Debt as %of Full Value
pi 1.8%
2.3%
2.3%
1.7%
2.7%
2.3%
1.0%
s2fii
Direct Net Debt Per Capita ($)
$1,202
$1,205
$1,240
$1,307
$1,215
$1,088
$58
$ 1,620
Debt Burden (Overall Net Debt as % Full Value)
2.7%
3.1%
2.8%
3.9%
4.1%
3.4%
N/A
3.1%
Overall Net Debt Per Capita ($)
$1,828
$2,099
$1,877
$3,361
$1,766
$7,176
N/A
$ 1,908
Debt Service as %of OE
6.1%
5.2%
5.4%
8.5%
4.9%
5.8%
10.1%
0.5%
Payout within 10 Years
jib., 93.0 %.
87.2%
88.5%
91.8%
87.7%
51.7%
64.6%
68.696
Tax Base Statistics & Ratios
Total Full Value ($000)
$5,071,604
$3,272,413 $1,236,423 $859,162
$378,413
$441,169
$137,877
$3,553,387
Full Value per Capita ($)
$67,985
$59,044 $58,932 $68,756
$49,883
$47,860
$42,942
$ 61,651
Average Annual Increase in FV ( %)
6.1%
5.2% 5.4% 8.5%
4.9%
5.8%
3.3%
5.6%
Top Ten Tax Payers as %ofTotal
16.6%
13.7% 17.2% 18.8%
19.3%
N/A
N/A
13.7%
Demographic Statistics
Population 2000 Census
56,476
36,145 23,917 10,345
6,682 9,509 3,384
57,637
PCI as %of U.S. (2000 Census)
99.3%
90.9% 88.6% 94.2%
83.7% 91.1% 87.7%
84.5%
MFI as %of U.S. (2000 Census)
113.9%
112.2% 90.6% 107.4%
88.9% 87.1% 90.4%
88.1%
Population Change 1990 -2000 ( %)
9.3%
5.6% 3.4% 14.6%
5.0% (2.7 %) 2.2%
(0.1 %)
Median Home Value (2000 Census)
$129,600
$102,500 $79,550 $111,600
$75,400 $73,200 $62,200
$ 117,900
Poverty Rate (%) (2000 Census)
11111 14.0%
9.5% 10.0% 6.8%
7.5% 11.9% 9.2%
10.6%
T.)
Dubuque Pricing Review
August 3, 2011
Page 3
Pricing Results
The City's General Obligation Bonds, Series 2011A ( "Series 2011A Bonds ") and Taxable General
Obligation Bonds, Series 2011B ( "Series 2011B Bonds ") sold on August 1, 2011 at a true interest cost of
3.30% and 3.58 %, respectively. Bid results, as well as the City's pricing in general, are discussed in
greater detail below.
Competitive Sale Process
Historically, the competitive bidding process has reduced borrowing costs to the City. The City's superior
Aa1 rating allows its bonds to be sold on a competitive basis, with the final underwriter chosen on the
day sale based on proposed interest costs to the City. This process is facilitated by the circulation of the
City's disclosure document and credit rating to a broad list of underwriters on a national basis to invite
bid proposals. From time to time, the City is contacted by local institutions with an interest in providing
the bonds to citizens in the community.
The City is a highly -rated borrower, and the competitive bid process regularly attracts several
institutions to compete for its bonds, typically resulting in more aggressive bids. Regarding the Series
2011A Bonds specifically, nine bid proposals were received, representing 23 underwriting firms located
in 13 states throughout the country. The difference between the high and low bid was 0.10 %. For the
Series 2011B Bonds, the City received three bid proposals representing 18 underwriting firms located in
15 states, with a 0.31% spread between the high and low bid. The City's consistent bidding results and
significant underwriter participation indicate that the City is receiving optimal benefit from the
competitive sale process.
Pricing Performance
The graph on the page that follows depicts the pricing performance of the Series 2011A Bonds and the
Series 2011B Bonds compared to historical pricing, as well as the appropriate index. The Series 2011A
Bonds are compared to the average performance of the City's tax - exempt, non -urban renewal bonds
sold since 2007. The "Average Exempt Spread" represents the difference between the yield on the City's
bonds and the comparable yield on the MMD AAA index on the day of sale. As indicated, the City has
maintained an average spread within 0.20% of the index, which is indicative of a premium double -A
credit.
The taxable market is significantly more volatile, thus the taxable bonds are being compared only to the
bonds sold in 2010. The "Prior Taxable Spread" shown in the graph on the following page is a
comparison to prevailing Treasury yields at the time of issuance. The Series 2011B Bonds priced with a
lesser spread to Treasuries than in the previous year, but a greater variation in taxable spreads is
expected due to the dynamics of the Treasury and municipal markets.
PEW
1.40%
1.20%
1.00%
0.80%
0.40%
0.00%
-0.20%
Dubuque Pricing Review
August 3, 2011
Page 4
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2 3 4 s 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Average Exempt Spread
Years mMaturity
2011A Spread Prior Taxable Spread 20118 Spread
To summarize the City has demonstrated prudent fiscal management, and has experienced steady
growth in valuation and sustainable economic development. The City's management practices are
looked upon favoraby by both Moody's and potential investors. As a result, the City has achieved and
maintained a premium credit rating that translates into significant underwriter participation in its bond
offerings, and has allowed the City to fund its capital improvement plan at very low borrowing costs.
Please don't hesitate to contact us if we can provide additional detail or be of further assistance.
Public Financial Management, Inc.
Tionna Reed Pooler
Senior Managing Consultant
Jon Burmeister
Managing Director