Fitch Assigns Initial 'BBB-' Rtg to Monroe, LA Sales Tax Inc Revs

Business Wire,  Sept 23, 2003  

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Business Editors

NEW YORK--(BUSINESS WIRE)--Sept. 23, 2003

Fitch Ratings has assigned an initial 'BBB-' rating to the City of Monroe, Louisiana (the city) $16 million sales tax increment revenue and refunding bonds (economic development projects -- Garrett Road economic development area), series 2003. In addition, a rating of 'BBB-' has been assigned to city's $11.4 million Garrett Road economic development area sales tax increment revenue bonds outstanding. The Rating Outlook is Stable.

The bonds are scheduled to sell the week of Oct. 27 via negotiation through Morgan Keegan & Company, Inc. The bonds are dated the date of delivery and mature serially on Mar. 1, 2004-2020. Optional and mandatory redemption provisions are specified in the prospectus. The bonds are special limited obligations of the city payable from and secured by pledged Garrett Road funds, which consist of a percentage of both state and local sales tax revenues collected in the area in excess of base year sales taxes collections. Proceeds will be used to refund the outstanding sales tax increment revenues bonds for savings, to finance various infrastructure projects, and to pay issuance costs.

The 'BBB-' rating reflects the ongoing expansion of retail activity in the area, increasing sales tax revenues and improving coverage levels, and the advantageous location of the development area. Offsetting credit considerations include exclusive reliance on the state component of pledged sales tax revenues, the inherent volatility of the revenue source, and an uneven history of oversight of the development area business activity. Recently adopted policies and procedures should help the city better coordinate oversight functions and revenue transfers with the state tax office.

The city formed an economic development corporation in 1996 to generate a development plan for the Garrett Road project area and to manage the project. The area comprises roughly 2,000 acres and lies along the Interstate 20 (I-20) frontage approximately one mile east of downtown Monroe; approximately 40% of the area lies within the Monroe city limits. Project improvements include engineering, construction, reconstruction or relocation of roads and highways, drainage, sewer and other public infrastructure within the area.

Pledged revenues consist of 40% of state sales tax and 60% of city sales tax revenues collected on retail sales and services within the area, over and above the amount of state and city sales taxes collected in calendar year 1994. While the state component of pledged revenues is transmitted quarterly to the trustee for debt service payments, the city uses its share of pledged revenues for ongoing operations. While this is a negative credit consideration, state revenues historically have been sufficient to make debt service payments, and future coverage projections applying only state revenues appear satisfactory as a result of new businesses and retail growth in the development area.

Over the past several years businesses have capitalized on the advantageous location of the development area along the I-20 frontage road with the construction of numerous retail stores, restaurants and lodging facilities. Recent additions to the taxpayer list in the Garrett Road area include Lowe's, Home Depot, Target, Residence Inn by Marriott, Courtyard by Marriott, International House of Pancakes, Sonic and AT&T Wireless. Other principal taxpayers include Toys R Us, Basic TV & Appliance, and Monroe Mack Sales. City officials report that businesses scheduled to open within the next three months include Bed, Bath & Beyond and a Nissan/Kia auto dealership.

Growth in state sales tax revenues has accompanied the recent addition of businesses to the area. Despite a 3% dip in 2001, state sales tax revenues have averaged annual increases of more than 20% over the past five years. State revenues are on track to register an increase of more than 30% for 2003, with a total projected revenue increment of more than $1.8 million. Based on projected maximum annual debt service of $1.36 million, projected 2003 state revenues will provide coverage of more than 1.30x. The scheduled openings of the auto dealership, Bed, Bath & Beyond and several smaller retailers by the end of 2003 should improve this satisfactory coverage level.

The majority of bond proceeds will be used to refund the outstanding Garrett Road sales tax increment revenue bonds, totaling $11.4 million. The remaining $2.7 million in proceeds will finance roadway improvements in the area. City officials report no plans presently for additional debt, reporting that future debt plans will be driven by business construction activity in the undeveloped portions of the Garrett Road area.

Monroe has a fairly diversified economy, featuring education, health care, services and manufacturing interests. The city also has emerged as a regional retail center for north central Louisiana. Unemployment rates for the metropolitan area and Ouachita Parish historically have been higher than the national average but below the state average. July 2003 statistics continue this trend -- the local rate is 7%, compared to 7.4% for Louisiana and 6.2% nationally. Local wealth levels trail both state and national averages, but per capita retail sales are comfortably higher (159% of state, 135% of U.S.).

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