OREANDA-NEWS. February 29, 2016. Fitch Ratings has assigned a rating of 'AA' to the following general obligation (GO) bonds to be issued by the city of Clarksville, Tennessee (the city):

--\\$19.37 million GO public improvement bonds, series 2016A, series 2016B and series 2016C.

The bonds are expected to be sold competitively on March 15. Proceeds will be used to fund various capital projects and to refund the outstanding series 2006 bonds for an estimated net present value savings of \\$188,000 (8.8% of refunded par).

In addition, Fitch affirms the 'AA' rating on \\$33.1 million of outstanding GO bonds, series 2006 (pre-refunding), series 2011, series 2012 and series 2014.

The Rating Outlook is Stable.

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

KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: Reserves have been consistently maintained above the city's prudent 20% fund balance policy. Conservative forecasting and timely monitoring have helped the city achieve favorable budget results. The city has broad legal revenue raising capacity and a very competitive property tax rate.

FORT CAMPBELL SIGNIFICANCE: As the largest employer in both Tennessee and Kentucky, Fort Campbell plays a vital role in the regional employment and economic picture. Federal budget cuts have had a minimal impact on Fort Campbell to date.

MIXED DEBT PROFILE: Key debt ratios are moderate. The city's five year capital plan includes sizable needs in public safety and streets, partially attributable to rapid and sustained population growth. Pension and other post-employment benefit (OPEB) liabilities are not a material credit concern. Variable rate debt exposure is high relative to total debt.

RATING SENSITIVITIES
CAPITAL PROJECT AND DEBT MANAGEMENT: Fitch expects the city will continue to manage risks associated with its elevated variable rate position and the execution of its capital plan in a prudent manner. Results outside of this expectation, including a material increase in debt burden, could pressure the rating.

CREDIT PROFILE
Clarksville is located along Interstate 24 approximately 50 miles northwest of the state capitol city of Nashville. Clarksville is the fifth largest city in Tennessee with an estimated 2014 population of 146,806, an increase of 10.4% since 2010.

RAPID GROWTH REFLECTS IMPORTANCE AS REGIONAL ECONOMIC CENTER AND FORT CAMPBELL ACTIVITY
The city continues to experience very strong population growth, more than triple the Tennessee annual rate for the 2010-2014 time period and double that of the U.S. The city enjoys a sizable economic impact from Fort Campbell. Fort Campbell is home to the prestigious 101st Airborne Division, the U.S. military's lone air assault division, and two Special Operations Command units. Fort Campbell supports a population of 29,000 soldiers and 53,000 family members. With 5,100 civilian employees, Fort Campbell is the largest employer in Tennessee or Kentucky. Additionally, the city serves as a regional center for education, anchored by Austin Peay State University and health care continues to be a growth sector.

The next largest employers within the city are the Clarksville-Montgomery County School System (3,900 employees), the City of Clarksville (1,426 employees), and Wal-Mart (1,363).

The city's November 2015 unemployment rate of 5.8% is slightly above that of the state (5.5%) and the nation (4.8%). While the city's population has seen 10.4% growth since 2010, the labor force has grown just 2.2% from November 2010 to November 2015, due in part to the city attracting retirees.

THE CITY'S FINANCIAL POSITION REMAINS A CREDIT STRENGTH
The city continues to adhere to a general fund unrestricted reserve policy that requires a minimum of 20% of operating expenditures and transfers out. At the close of fiscal 2015 the unrestricted general fund balance totaled \\$24.8 million or a high 29.8% of spending.

In fiscal 2015, the city originally budgeted the use of \\$5 million of reserves to balance operations; however, through conservative budgeting of both revenue and expenditures the city used a minimal \\$375,000 of general fund balance.
The fiscal 2016 general fund budget is balanced using \\$4.1 million in reserves. The city now anticipates using \\$3.5 million in fund balance ending the year with a still strong \\$21.2 million in unrestricted reserves. The increased use of fund balance anticipated this year is largely driven by higher public safety costs. Revenues continue to perform well with sales tax receipts up 5% (comparable to prior year growth, adjusted for a one-time increase associated with the expiration of a revenue sharing agreement with Clarksville-Montgomery County Schools). Management plans to continue utilizing reserves to balance the budget in fiscal 2017 in order to more closely align reserves with the 20% policy.

LOW TAX RATE AND STABLE TAX BASE
The city maintains ample revenue raising capacity. At \\$1.24 per \\$100 assessed value (AV) the city's fiscal 2016 tax rate is considerably lower than those of other large Tennessee cities. The city's property tax rate and levy amount are not subject to statutory or charter limitation.

The city's tax base has steadily grown as a result of population and valuation increases for 10 consecutive fiscal years. The top taxpayers are fairly diverse led by the Clarksville Health System (the Gateway Medical Center) at 4.8% of AV. The medical center is among the top 10 employers in the city and plays a critical role in the provision of essential health services for the broader region. The top 10 taxpayers make up 13.2% of AV.

DEBT LEVELS MANAGABLE BUT GROWTH-DRIVEN CAPITAL NEEDS ARE SIGNIFICANT
Debt levels are generally moderate and heavily influenced by the overlapping obligations of Montgomery County. Overall debt is equal to 3.9% of market value and \\$2,375 per capita. Fiscal 2015 debt service is affordable at \\$9.5 million or 10.1% of total governmental spending.

The city's 2015-2020 capital plan totals \\$134 million. Major capital needs identified in the plan include three new fire stations, two new police precinct buildings, additional police vehicles, a new library and community center, and various street projects. Specific funding sources have not yet been identified by the city, but additional debt will likely be issued.

HIGH VARIABLE RATE DEBT
Variable rate debt exposure remains high. The city has nearly \\$54.6 million in GO variable rate notes issued by the Clarksville Public Building Authority through the Tennessee Municipal Bond Fund (TMBF). TMBF has administered over \\$3.1 billion in local government borrowing since its inception in 1985. All of the variable rate debt, which is amortizing, has either a liquidity facility with Bank of America (Issuer Default Rating 'A'/Outlook Stable by Fitch) or is directly purchased bank-held debt. Variable rate indebtedness accounts for 44% of the city's \\$124 million in net direct debt. The city's financial profile exhibits good flexibility to respond to a spike in borrowing costs should one occur. The city has enjoyed consistent access to capital markets should refinancing be needed. The moderate overall debt service burden also limits the risk associated with potential interest rate variations.

SATISFACTORY PENSION FUNDING; CLOSED OPEB PLAN LIMITS FUTURE LIABILITIES
City employees participate in an agent multiple-employer defined benefit pension plan administered by the Tennessee Consolidated Retirement System (TCRS). The city makes annual payments to the plan as determined by the state that equal the annual required contribution (ARC) which was \\$7.5 million in fiscal 2015 or 8.1% of spending. The plan's net pension liability totaled only \\$15.1 million (or 0.17% of market value) as of the June 30, 2014 valuation date, or an estimated \\$23.6 million (0.26% of market value) substituting the plan's 7.5% investment rate of return for a Fitch-adjusted 7%. The city's retiree healthcare, dental, and life insurance plan has been closed to new employees since July 1, 2006. The city's OPEB liability is funded on a pay-as-you-go basis totaling \\$1.5 million in fiscal 2015, or 1.6% of government spending. Total carrying costs for debt service, pension and OPEB are a manageable 19.9% of general government spending.