OREANDA-NEWS. Fitch Ratings has assigned an 'AA+' rating to the following city of Baton Rouge, Louisiana public improvement sales tax revenue bonds:

--$40.64 million refunding bonds, series 2016A-1;
--$1.54 million refunding bonds, series 2016A-2 (taxable);
--$5.02 million series 2016A-3.

All series of bonds are scheduled for a negotiated sale on or about April 6, 2016. Proceeds will refund a portion of the city's outstanding public improvement sales tax revenue bonds for interest savings and finance improvements to the parking garage at the Baton Rouge Metropolitan Airport.

Fitch also affirms the following rating:

--$74.7 million City of Baton Rouge public improvement sales tax revenue bonds, series 2007A, 2008A-2, 2008B, 2010A and 2010B (pre-refunding) at 'AA+'.

--Implied unlimited tax general obligation (ULTGO) bond rating of Baton Rouge and East Baton Rouge Parish Consolidated Government at 'AA+'.

The Rating Outlook is Stable.

SECURITY
The city of Baton Rouge public improvement sales tax revenue bonds are payable from net proceeds (after administrative and collection expenses) of a 2% sales-and-use tax levied and collected within the city.

KEY RATING DRIVERS
CITY SALES TAX COVERAGE STRONG: Projected coverage on the city sales tax revenue bonds following this offering is healthy at over 13x, as this is a primary operating revenue source. Collections have posted a nearly 15% cumulative increase over the past three years.

SOUND FINANCIAL PROFILE: The combined city/parish financial profile is a credit strength, characterized by solid operating reserves and conservative budgeting and spending practices.

SIZABLE LONG-TERM LIABILITIES: Pension and post-employment benefit liabilities are large, and the 'AA+' implied ULTGO rating assumes that addressing these obligations in the future will likely exert financial pressure and reduce operating flexibility.

MANAGEABLE DEBT BURDEN: Overall city/parish debt levels are moderate, and the rate of debt retirement is slightly above average. Several large capital programs are winding down, and near-term borrowing plans are limited.

DIVERSIFIED REGIONAL ECONOMY: Fitch considers the regional economy to be a positive credit factor given its location and diversity. The economy continues with its post-recession expansion and future growth prospects remain positive.

RATING SENSITIVITIES
ADEQUATE RESPONSE TO FINANCIAL PRESSURES: Reliance on economically sensitive revenues creates vulnerability to a material decline in this revenue source. Fitch would expect management to respond promptly to this scenario, which could be exacerbated by escalating outlays. Current healthy operating reserves afford flexibility to address operating pressures.

CREDIT PROFILE
Baton Rouge is the capital of Louisiana, located in the southeast part of the state. In 1947, voters in East Baton Rouge Parish and the city approved a consolidation of most of their local government services, one of the first local government consolidations in the U.S. The structure, which was initiated in 1949, includes a mayor-president and a 12-member metropolitan council. The independent cities of Baker, Central and Zachary also are located in the parish.

SOUND OPERATING PROFILE
Financial operations posted positive results in each of the past four years, boosting reserves after a series of drawdowns caused by revenue declines and drawdowns of reserves (largely for one-time outlays). The gains resulted both from a rebound in sales taxes, which are the largest operating revenue source, and moderate spending increases.

The general fund in 2014 posted a modest $986,000 surplus after transfers, and the unrestricted general fund balance at year-end totaled a healthy $110.5 million or 37% of spending. Preliminary 2015 results suggest a manageable $10 million draw on reserves, the result of one-time benefit and capital related expenses.

The 2016 budget includes the use of roughly $4 million (1.3% of spending) in reserves, consistent with recent budgets. This projection assumes conservative revenue totals, and previous experience suggests it is likely the gap will be closed by year-end. The budget also includes pay and benefit increases for eligible employees totaling $2.8 million. The city/parish has a policy of maintaining a 5% budget stabilization reserve and an informal reserve target of 20%-25% of spending, both of which are presently exceeded.

General fund operations are supported primarily by sales and gross receipt tax revenues, typically more than 60% of the total, while property taxes comprise less than 10%. Public safety is the largest expense item, totaling more than 50% of general fund spending in recent years. The reliance on inherently volatile sales taxes presents a credit risk, mitigated presently by the sound reserves.

CITY SALES TAX COVERAGE REMAINS STRONG
A 2% sales-and-use tax is levied for general municipal purposes within the city, which backs the city sales tax bonds; a 2% sales tax is also levied for general purposes on transactions in the unincorporated areas of the parish; this parish tax is not pledged to bondholders. Tax receipts rebounded from three consecutive annual declines in 2008-2010 to post gains in each of the past five years. Unaudited 2015 collections of roughly $103.7 million provide healthy projected maximum annual debt service (MADS) coverage (following this sale) of roughly 13.8x, well above the 3.0x additional bonds test (ABT) threshold. Coverage is expected to remain ample given limited future leveraging plans, a favorable economic outlook and the significant reliance on sales tax revenue for operations.

MANAGEABLE DEBT BURDEN, CARRYING COSTS
The city/parish presently has no outstanding general obligation debt. Management reports studies are currently underway to identify public safety and healthcare capital needs, but no borrowings are being contemplated at this time. The city/parish has large capital programs underway for both roads and the parish sewer system, each supported by separate one-half-cent sales taxes and by sewer user fee revenues for the utility.

Overall tax-supported debt is moderate at $2,088 per capita and 2.2% of market value. The city/parish has variable-rate debt exposure related to its road and street capital program, but Fitch considers the exposure manageable at roughly 11% of total tax-supported debt.

The city/parish contributes 100% of its actuarial annual required payment to both non-uniformed and police pensions. The two cost-sharing multiple employer pension plans combined have a somewhat weak funded ratio of 67% using a more conservative 7% investment return and, as a result, the recent trend of annual contribution increases will likely continue over the near- to medium-term.

No progress has been made to date on a sizable $948 million post-employment benefit liability. For 2014 the city/parish funded 30% of the actuarially required contribution (ARC). While the unfunded liability is minimal compared to taxable market value, the $68 million primary government ARC, if fully funded, would have represented nearly 14% of 2014 governmental fund spending. Total carrying costs remain manageable; 2014 debt payments, OPEB pay-go and pension required contributions totaled roughly 19% of governmental spending, which Fitch considers moderate.

GROWING POPULATION & DIVERSE ECONOMY
The local economy, while characterized by some concentration in the petrochemical industry, retains a fair amount of diversity through state government, higher education, financial services and healthcare. Wealth levels are above the state and slightly below the national averages. The estimated 2015 parish population is approximately 446,000, up 7% since the 2000 census.

Local employment levels have increased steadily after recessionary declines in 2010 and 2011, and the December 2015 parish unemployment rate of 4.1% was well below the 5.7% rate for the same period in 2014. The local rate was below both the state (6.3%) and national (5.2%) averages for the month. Fitch has some concern about recurring state budget pressures and possible local state job losses, but ongoing expansion in the area industrial and commercial sectors lessen this risk.

The list of new commercial projects for Baton Rouge is led by a new IBM software development center downtown that is scheduled to employee 800 workers by 2020. Also, construction continues on the Water Campus, a 35-acre research facility near the LSU campus dedicated to coastal water issues that eventually will include a staff of 4,000 researchers and staff.