OREANDA-NEWS. Fitch Ratings has affirmed the following Pleasant Ridge, Michigan (the city) bonds at 'AA-':

--\$1.975 million series 2003 unlimited tax general obligation (ULTGO) bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are backed by the full faith and credit and unlimited taxing power of the city.

KEY RATING DRIVERS

SATISFACTORY FINANCIAL POSITION: The city's unrestricted reserve position is sound as a percent of general fund spending, but nominally low.

LIMITED FINANCIAL FLEXIBILITY: Independent revenue-raising capacity is constrained by state-imposed property tax limitations, which, compounded with the city's small size, creates a very limited margin for error. Positively, voters recently demonstrated strong support for two new millages and the extension of an existing millage.

SMALL, WEALTHY RESIDENTIAL AREA: The city is a very small and largely built-out residential community with above-average wealth and education levels.

LIMITED BUT GROWING TAX BASE: Taxable assessed values continue to post moderate growth as a result of an active local housing market.

MODERATE DEBT LEVELS; UNDERFUNDED PENSIONS: Debt levels are moderate and capital needs are largely covered by dedicated millages and a sizable, restricted capital fund. The city continues to make 100% of its annual required pension contributions to an underfunded state plan. Fixed costs related to debt service and post-retirement benefits are affordable, but trending upward.

RATING SENSITIVITIES

RESERVE MAINTENANCE: Maintenance of sound reserves is critical to the preservation of the current rating and Outlook, given the vulnerabilities associated with the city's small budget and lack of financial flexibility.

CREDIT PROFILE
Pleasant Ridge is a mature residential community located approximately nine miles north of downtown Detroit, covering 1/2 square mile with roughly 2,600 residents.

STABLE BUT VULNERABLE FINANCIAL POSITION
The city has experienced consistent structural balance over five consecutive fiscal years, with fund balance draws in fiscals 2013 and 2014 related to unbudgeted events (election costs, storm clean-up, and the pay-out of compensated absences to two retiring senior employees). Fitch believes that the otherwise minor nature of these one-time events that produced the recent fund-balance draws underscores the city's financial vulnerabilities: its small budget size, lack of financial flexibility, and resulting slim margin for error.

The drawdowns reduced unrestricted general fund balance from a recent high at fiscal 2012 year-end of 30% of general fund spending (\$673,000) to a still sound 16.8% (\$436,000) at fiscal 2014 year-end. While the reserves are sound on a percentage basis, the dollar amounts are very small. Management projects fiscal 2015 operations to track slightly better than its \$1,900 budgeted surplus.

The city is heavily dependent on property tax and state shared revenues, at 62% and 19% of fiscal 2014 total general fund revenues, respectively. The city is currently operating at the maximum allowable millage rate under the Headlee Amendment, resulting in limited ability to independently raise revenues.

Fitch believes the strong voter support in November 2014 for two new millages and a millage extension underscores a favorable political environment for raising tax revenues through voter approval, if necessary. Overall expenditure flexibility is limited by the size of the city's budget, and Fitch believes that any material expenditure reductions would likely have an impact on the city's ability to provide services.

SUBURBAN COMMUNITY WITH HIGH WEALTH LEVELS
The city's highly educated residents access higher-wage employment opportunities across the greater Detroit metropolitan area. Resident wealth levels are nearly double the state and national averages. Education levels are also significantly above average with a high 65% of residents having a bachelor's degree and 32.9% having an advanced degree compared to 28.8% and 10.8% nationwide, respectively.

The city is largely residential in nature and essentially built out. The city's assessed value (AV) has posted steady, albeit modest gains over the past several years, the result of an active local housing market. However, the 1994 Proposition A restrictions have limited growth in taxable values to 1%-3% over the past several years. The fiscal 2015 AV totaled \$134 million. The city's tax base is not concentrated and the top 10 largest taxpayers are all individual residents.

MANAGEABLE DEBT BURDEN; UNDERFUNDED PENSIONS
The city's overall debt burden is moderate at \$5,386 per capita and 3.9% of market value, although the majority of the city's overall debt is overlapping from a local school district. Amortization of city tax-supported debt is above average with 63% of principal retired in 10 years.

The city maintains a segregated capital asset fund (SCAF) established as the result of a state settlement payment related to the condemnation of city-owned property to construct Interstate 696; the city has restricted the money for capital expenditures. The SCAF had a fiscal 2014 fund balance of approximately \$3.3 million. Interest from the SCAF fund and two capital improvement-dedicated millages are expected to cover nearly all of the city's capital needs for the near future and the city does not anticipate further borrowing.

The city participates in the state's Michigan Municipal Employees Retirement System (MERS), contributing 100% of its required contribution annually. The city's portion of the state plan was funded at a below average 60% as of Dec. 31, 2013 using an 8% investment assumption. The estimated funded ratio falls to a weaker 54% assuming Fitch's more conservative 7% discount rate. The unfunded actuarial other post-employment benefit (OPEB) liability was a modest \$4.2 million (1.3% of market value) as of Dec. 31, 2013. There are no plans to prefund the obligation, but the city has reduced OPEB benefits for new hires, which is expected to help moderate the future liability.

Carrying costs related to debt service, pension contributions, and OPEB pay-go were an affordable 13.3% of total fiscal 2014 governmental spending. While this amount has been gradually increasing, a move of all new hires to a defined contribution retirement plan and the elimination of OPEB for new workers should reduce overall benefit liabilities over the long-term.