Fitch Affirms Simpsonville, South Carolina's GOs at 'A+'

In the course of routine surveillance, Fitch Ratings affirms Simpsonville, SC's (the city) approximately $2.9 million in outstanding general obligation (GO) bonds at 'A+'. The Rating Outlook is Stable.

The 'A+' rating reflects Simpsonville's limited future capital needs, high debt burden partially offset by rapid amortization, and steady tax base. Also factored into the rating is the city's recent financial volatility and its limited, retail-focused economy, though residents benefit from the large, diverse employment base of Greenville County (GO bonds rated 'AAA' by Fitch). The Stable Outlook reflects Fitch's expectation that management's efforts to restore reserves to levels more consistent with historical norms will be effective.

The city's reserves have declined in seven of the past eight years as management used available fund balance for capital spending. Unreserved fund balances continued to decline even after they dropped below the city's policy of 20% of spending in fiscal 2006 and are not expected to meet policy levels for the next few years. Despite mid-year projections showing a surplus, fiscal 2008 ended with a drawdown for capital, decreasing reserves by over half to a limited 5.5% of spending. Unaudited fiscal 2009 results show an additional minimal drawdown. The city has taken significant steps to reverse the deficits and add to fund balance in fiscal 2010 including replacing the finance director and implementing a 20% millage increase, which required board approval under state law due its magnitude. The city expects to end the year with surplus increasing unreserved fund balance to over 8.5% of spending.

Simpsonville, located in Greenville County, is a small bedroom community with an estimated 2008 population of 17,144. Benefiting from its close proximity to the Southern Connector, a beltway south of the City of Greenville, Simpsonville's small but developing economy has experienced some growth, as evidenced by an influx of new retailers. The recent completion of Heritage Park has attracted a number of events and has developed into a driver for the local economy. While unemployment data is not available for the city, county unemployment rates have increased with the current economic downturn to 10.1% for July 2009, from 5.7% a year prior. Foreclosure rates for the city remain below the state and national averages.

Overall debt levels for the city are high, due primarily to overlapping debt of the county schools, although amortization is rapid. Future capital needs are minimal as the city has focused on maintenance and repair for the past few years. The city does not have a current capital improvement plan (CIP) and no additional debt is planned.

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