Moody's Investors Service has upgraded the City of Lawrenceville, GA's general obligation unlimited tax (GOULT) rating to Aa2 from Aa3. Concurrently, Moody's has assigned an Aa2 issuer rating to the city. The issuer rating reflects the city's ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. The GOULT rating applies to various revenue bonds that were issued by the Lawrenceville Building Authority, GA but backed by the city's GOULT pledge. This action concludes a review that was initiated on November 3, 2022 in conjunction with the release of the US Cities and Counties Methodology. The city has about $91 million in outstanding debt as of June 30th, 2021. The ratings under review outlook has been removed.
RATINGS RATIONALE
The Aa2 issuer rating reflects the city's solid financial position that is characterized by strong fund balance and liquidity ratios. The city's financial operations are heavily influenced by its currently healthy gas and electric utilities, which combined account for around two-thirds of the city's total revenue. The city utilizes gas and electric revenues to fund general governmental operations, and these operational subsidies are considered annually when determining gas and electric rate increases. While the city's reported reserves contain a sizeable amount of unspent bond proceeds and illiquid cash associated with future electric utility commitments, reserves remain strong (a liquidity ratio of around 35% and available fund balance ratio of around 50%) after backing out these restricted sums. Reserves could fall slightly moving forward as the city plans to cash finance its capital needs over the next five years; however, Moody's expects reserves to remain in line with the rating category due to the city's use of dedicated annual revenue streams to address capital needs.
The city's financial health is supported by strong economic momentum and its location within the rapidly growing Atlanta (Aa1 stable) metropolitan statistical area (MSA). The MSA has experienced robust growth in recent years, with real GDP growth routinely outpacing the nation. The regional economy is diverse with transportation, professional services, education, healthcare and government all being represented. Locally, Lawrenceville's economy is rooted in healthcare, retail, and some manufacturing - all of which has experienced growth in recent years. These trends are helping drive population growth and strengthening the city's income and wealth metrics.
The city's reported long-term liabilities are relatively modest; however, the city has a substantial amount of off-balance sheet debt associated with its supply contracts with the Municipal Electric Authority of Georgia (MEAG) and the Municipal Gas Authority of Georgia. Including the city's off-balance sheet debt, which carries a general obligation pledge of the city, the city's long-term liabilities ratio is around 250% of annual revenue-a level that is comparable to similarly rated cities nationwide. The city's associated fixed costs ratio (which also includes off-balance sheet debt) is around 15% of annual revenue. The city does not plan to issue any new debt over the next five years and anticipates funding its $105 million capital improvement program on a pay-go basis with dedicated sales tax, electric, gas, and other revenues. The city does not provide a defined benefit pension plan. The city offers a single-employer defined benefit OPEB plan funded on a pay-as-you-go basis. While OPEB liabilities are gradually growing, their annual costs remain relatively low.
The Aa2 rating on the city's contract-backed revenue bonds is placed at the same level as the issuer rating because the city has pledged, via an intergovernmental contract, its full faith and credit and unlimited taxing power for repayment of the bonds. The bonds are backed solely by payments made by the city, and the city has covenanted to levy and collect taxes (unlimited by rate or amount) in an amount sufficient to pay for debt service on the bonds.
RATING OUTLOOK
Outlooks are not typically assigned to cities with this amount of debt outstanding.
FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS
- Trend of surplus operations that build reserves to levels commensurate with higher rated cities
- Moderation of long-term liabilities ratio, including off-balance sheet debt
FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS
- Material decline in reserves due to operating deficit or large one-time uses
- Increase long-term liabilities ratio and/or associated fixed costs ratio
LEGAL SECURITY
The contract-backed revenue bonds issued through the authority are backed by the city's pledge to make contract payments sufficient to pay principal and interest on the bonds. The city's obligation to make these payments is absolute and unconditional and shall constitute a general obligation. The city has covenanted, pursuant to an intergovernmental contract, that it will include in each of its annual budgets an amount sufficient to make contract payments each year and to levy and collect taxes from year to year in an amount sufficient to make such payments.
PROFILE
The City of Lawrenceville is located in Gwinnett County (Aaa stable) in north central Georgia, approximately 25 miles northeast of Atlanta. The city provides general governmental services like public safety and works, along with several business-type activities that include natural gas distribution, electric distribution, and stormwater.
METHODOLOGY
The principal methodology used in these ratings was US Cities and Counties Methodology published in November 2022 and available at https://ratings.moodys.com/api/rmc-documents/386953. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions.
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