October 14, 2010

Summary:

Arnold, Missouri; Appropriations; General Obligation Equivalent Security

Primary Credit Analyst: Corey Friedman, Chicago (1) 312-233-7010; corey_friedman@standardandpoors.com Secondary Credit Analyst: Carol Hendrickson, Chicago 312-233-7062; carol_hendrickson@standardandpoors.com

Table Of Contents
Rationale Outlook Related Criteria And Research

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Summary:

Arnold, Missouri; Appropriations; General Obligation Equivalent Security

Credit Profile
US$7.21 mil certs of part ser 2010 due 11/01/2027 Long Term Rating Missouri Dev Fin Brd, Missouri Arnold, Missouri Missouri Dev Fin Brd infrastructure facs rev bnds (Arnold) (Road & Swr Infrastructure Proj) ser 2007 Long Term Rating A+/Stable Affirmed A+/Stable New

Rationale
Standard & Poor's Ratings Services has assigned its 'A+' rating to City of Arnold, Mo.'s 2010 refunding certificates of participation (COPs). The rating reflects the city's covenant to annually appropriate lease payments sufficient to pay debt service payments. Standard & Poor's also affirmed its 'A+' long-term rating on the city's COPs outstanding. The rating reflects our assessment of the city's: Participation in the St. Louis County economic base; Strong income and wealth levels; Very strong financial position; and Moderate-to-moderately high overall debt burden.

The city's 2010 COPs are ultimately backed by the city's covenant to annually appropriate lease payments to make annual debt service. Primary sources of payment for the series 2010 COPs bonds are incremental property, sales, and certain other taxes from the city's transportation development district. We understand that bond proceeds will refund the city's 2007B revenue bonds for interest cost savings. The city will maintain a debt service reserve at the standard three-prong test. Arnold is located in the northeastern section of Jefferson County, about 20 miles southwest of downtown St. Louis. The city's population increased nearly 4% during the 2000s to approximately 20,600. As part of the greater St. Louis economy, residents can commute a short distance for employment within St. Louis County. The city also offers employment, mostly in retail and manufacturing. Among the notable companies in the city are call center Convergys (1,050 employees), Wal-Mart (340), LMC Industries (300), and Shop & Save (200). Unemployment levels in the county were at 9.4% in the county in August 2010. The city's income levels are, in our opinion, strong. In 2009, median household effective buying income levels were at 121% and 111%, respectively, of state and national averages. The city's tax base has increased more than 4% annually when averaged between tax years 2006 and 2010 to $360 million. The city's 2010 estimated actual value was at $1.45 billion, or $70,453 per capita, a figure we view as strong.

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Summary: Arnold, Missouri; Appropriations; General Obligation Equivalent Security

We consider the city's financial position has been very strong. At fiscal year-end Aug. 31, 2009, the city's unreserved general fund position was at $6.8 million, or 57% of expenditures, which we consider very strong. In fiscal 2009, the city showed a $705,000 general fund drawdown with unaudited fiscal 2010 showing an $869,000 general fund surplus. In fiscal 2010, the city had a $116,000 operating surplus before proceeds from a capital lease inflating the general fund surplus. For fiscal 2011, Arnold is budgeting for a $180,000 general fund drawdown due to one-time capital projects. The city's leading general fund revenue is made primarily of sales taxes (43% of fiscal 2009 general fund revenue), followed next by payments in lieu of taxes at 21% with property taxes and fines and court fees each accounting for 9%. Sales taxes, when including those captured by a city tax increment district, were up 1% in fiscal 2010 from the previous fiscal year with the city budgeting for no increase in fiscal 2011. Arnold's financial management practices are considered "standard" under Standard & Poor's Financial Management Assessment. This indicates that the finance department maintains adequate policies in some, but not all, key areas. The city bases its revenue and expenditure assumptions on historical data and trends, with future costs derived from basic inflationary cost assumptions and known costs. It reconciles the budget on a monthly basis, making semiannual, annual, and informal monthly reports to the city council, and amends the budget as needed. Arnold does not have formal multiyear planning forecasts for its capital and financial operations. The city's overall debt burden is, in our opinion, moderate at $4,541 per capita and moderately high at 6.4% of market value. The city's debt carrying charge has typically been moderate over the past few years. We understand that after this issuance, the city does not have any definitive debt plans at this time.

Outlook
The stable outlook reflects Standard & Poor's expectation of Arnold maintaining at least good financial reserves. The city's participation in the St. Louis County economic base provides additional rating stability.

Related Criteria And Research

USPF Criteria: Appropriation-Backed Obligations, June 13, 2007 Complete ratings information is available to RatingsDirect subscribers on the Global Credit Portal at www.globalcreditportal.com and RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.

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