Fitch Rates Charlotte, North Carolina's GOs 'AAA'

Fitch Ratings assigns an 'AAA' rating to the City of Charlotte, North Carolina's (the city) $20 million taxable general obligation (GO) housing bonds, series 2009A. The bonds are scheduled to price competitively on Oct. 20, 2009. In addition, Fitch affirms all outstanding GO bonds. The Rating Outlook is Stable.

The 'AAA' GO rating reflects the city's broad, diverse economy with excellent long-term prospects for continued expansion in spite of some near-term weakening in employment and jobless statistics, above-average wealth levels, and excellent financial management. The city's strong financial policies ensure ample operating flexibility and position the city well as it faces weakening in some economically sensitive revenue streams. Overall debt levels have increased recently and are likely to increase further given the capital needs of the city and Mecklenburg County, especially for Charlotte-Mecklenburg schools, but should remain affordable.

Located in the Piedmont region of North Carolina, the city is the largest city in the state and includes 75% of the county's population. The city's population grew by a strong 36.7% during the 1990s and an estimated 24% since the 2000 census. In addition to in-migration, periodic annexations contribute to population and tax base growth. Per capita personal income levels in the county are well above state (by 35%) and national (18%) averages. The city's unemployment rate remains below the state average but grew considerably to 10% in August 2009 from 6.1% one year earlier. The city appears to be managing fairly well in the aftermath of job losses associated with the stressed local banking industry; Wachovia Corp. was headquartered in Charlotte. According to the city, Wells Fargo plans to relocate some workers to add workers to its Charlotte operations. Diversity in major employers should help further stabilize the economy. Major employers include the Carolinas Health Care System, Duke Energy, and the county school district.

The city's financial position and management are very strong. Management has instituted policies to maintain solid reserves and requires that the undesignated general fund balance equal at least 16% of the following year's budget, twice the state-recommended level of 8%. Fiscal 2008 was the sixth consecutive year of positive general fund operations and a $2.3 million surplus bolstered the total general fund balance to $149 million at the close of fiscal 2008. The unreserved portion of the fund balance, when added to the reserve required by state statute, equals 26.7% of expenditures, transfers out, and other uses. Additional reserves are available in the city's debt service fund. Performance in FY 2009, on a preliminary basis, is reportedly sound. Despite revenues underperforming relative to budget, officials expect to close the year well in excess of the 16% fund balance policy. The city typically utilizes excess reserves for capital spending but opted to reserve $7.5 million of the $23 million excess for economic contingency purposes in FY 2010. The remaining excess may be used either for capital needs or contingency purposes. The fiscal 2010 budget is conservatively balanced without an increase to the property tax rate. The budget incorporates further reductions to city expenditures and also contains a small reserve to provide flexibility in light of potentially weakening revenues and unforeseen expenses.

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