Fitch Ratings assigns an initial 'AA-' rating to the general obligation (GO) bonds issued by the city of Sanford North Carolina (the city):

--$8.5 million general obligation public improvement bonds, series 2015.

The bonds are expected to sell via competitive sale Jan. 13, 2015. Bonds proceeds will be used to fund sidewalk and streetscape projects.

The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the city, payable from a pledge of the faith and credit and taxing power of the city.

KEY RATING DRIVERS

LIMITED ECONOMY: The employment base relies heavily on manufacturing. Wealth metrics are below average.

SOLID FINANCIAL PROFILE: Sound financial management and planning have resulted in healthy reserve levels that are in line with a recently adopted fund balance policy.

FAVORABLE LONG-TERM LIABILITY PROFILE: The debt burden is low, as are pension and other post-employment benefit (OPEB) costs.

RATING SENSITIVITIES

STABLE FUNDAMENTALS: The rating is sensitive to shifts in the city's fundamental credit characteristics, including its limited economy and solid fiscal management. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The City is located in the central piedmont area of North Carolina approximately 40 miles from Research Triangle Park, the City of Raleigh, and Chapel Hill. The City has a land area of approximately 24 square miles and a population of 29,470.

MANUFACTURING-BASED ECONOMY

Manufacturing is a significant economic driver in the city, representing about 34% of employment. This strong presence has contributed to high volatility of unemployment levels, ranging from a low of 4.5% in 2006 to over 12% in 2009 and 2010. The unemployment rate as of October 2014 was 7.5%, which is above the state and national average. Employment has declined over the past two years and the labor force has retracted due to the reduction in operations at Pfizer, Inc. (rated A+ by Fitch).

Income measures are fairly weak. Median household income of city residents is 93% and 82% of state and national averages respectively. The individual poverty rate is a high 23%.

The city's $2.47 billion tax base is concentrated. The top ten taxpayers, which include many of the city's largest employers, account for approximately 20% of fiscal 2014 assessed value (AV) and are comprised of a diverse mix of mostly manufacturing companies. Tax base growth has been consistent, increasing a cumulative 21% between 2008 and 2014, but Fitch believes the concentration makes it vulnerable to volatility.

STRONG FUND BALANCE POSITION

Fiscal 2014 ended with an audited general fund deficit after transfers of $1.24 million, which includes a $1.7 million transfer to the capital projects fund. Fiscal 2014 general fund available resources of $9.2 million equaled a high 37% of total spending. The calculation of available resources is inclusive of $1.65 million of fund balance restricted by state law but generally considered available by Fitch. The unassigned fund balance is in line with the recently adopted 30% policy. After six consecutive declines in fund balance to fund capital spending, the rating assumes reserves will remain stable going forward, in accordance with the fund balance policy. General fund balance sheet resources are very liquid, with fiscal 2014 cash and investments totaling $9 million or more than 7x current liabilities.

FINANCIAL OPERATIONS EXPECTED TO REMAIN STABLE

The adopted fiscal 2015 budget includes a six cent property tax rate increase to fund debt service costs following the current issuance. It will be the first property tax rate increase in seven years. Mid-year results are tracking close to budget.
Property taxes account for approximately 57% of general fund revenue followed by sales tax at 17%. The city's operating property tax rate, currently $0.60 per $100 of assessed value (AV), is well within the statutory cap of $1.50 per $100 AV, providing management a great deal of potential revenue raising capacity.

LOW DEBT BURDEN

The current debt issuance is part of a $14.5 million bond referendum passed in September of 2013. Bond proceeds will fund streetscape improvements to downtown Sanford and Jonesboro, extension of the Endor Iron Furnace Greenway, recreation improvements, and sidewalk repairs and expansion. The city plans to issue the remaining authorization in 2017.

The city currently has no general obligation debt and a modest amount of installment purchases contracts outstanding. Amortization is average at 55%.The overall debt burden of 2.5% of taxable assessed value is mostly reflective of overlapping debt of Lee County.

MODEST OTHER LONG-TERM LIABILITIES

Pension and other post-employment benefits (OPEB) are well managed. The city contributes to three retirement plans including the well-funded North Carolina Local Government Employees' Retirement System (LGERS). The unfunded liability of the city's own law enforcement officers' allowance plan is modest however the funded ratio is weak.

The city provides post-employment health benefits to employees based on years of service. The city makes its obligation on a pay-go basis. The other post-employment benefits UAAL equaled a low 0.7% of market value as of Dec. 31, 2012, the most recent actuarial valuation date. Overall carrying costs for debt service, pension and OPEB were low at 7.7% of spending in fiscal 2014, in large part due to modest debt service costs. Fitch expects they will remain low with debt service from the GO authorization included.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, AccessNC (North Carolina Economic Data and Site Information).

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=964856
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