Fitch U.S. Muni Surveillance: Clarksville, Tennessee's GOs Affirmed at 'AA-'; Outlook Stable.

NEW YORK -- In the course of routine surveillance, Fitch Ratings has affirmed the 'AA-' rating on the city of Clarksville, TN's approximately $14 million of general obligation (GO) bonds, consisting of the following issues:

--$3.8 million general improvement revenue and tax bonds, series 2002;

--$5.3 million GO industrial park bonds, series 2002;

--$4.3 million taxable GO bonds, series 2006.

The Rating Outlook on all bonds is Stable.

The 'AA-' rating reflects the city's solid financial operations, healthy tax base growth, and moderate overall debt levels. The rating also incorporates the economy's heavy dependence on military operations at adjoining Fort Campbell, KY, home of the 101st Airborne Division. While the presence of Fort Campbell poses some employment concentration, the base has exhibited long-term stability and is expected to benefit from additional investment. Key rating drivers are the continued diversification of the local economy and successful management of risks associated with the city's variable rate debt.

Located 50 miles northeast of Nashville, Clarksville is the fifth largest city in the state of Tennessee and the county seat of Montgomery County. The city has grown at a healthy pace this decade, fueled in part by the expansion of Fort Campbell; city population registered 119,735 in 2008, a 16% increase over the 2000 census level. In May 2009, the local unemployment rate reached a high 10%, having grown in line with the county and metropolitan statistical area rates over the prior year. However, certain economic developments, most notably Hemlock Semiconductor's over $1 billion planned investment in a manufacturing facility in Clarksville, should spur employment base growth. A groundbreaking ceremony for Hemlock was held at the new site in March 2009, and construction on phase I of the plant is reportedly set to begin in October 2009. Production is scheduled for 2012.

Financial operations are sound, marked by several years of positive results that have bolstered the city's already sizable reserves. Clarksville's unreserved general fund balance equaled $21.3 million in fiscal 2008, or a strong one-third of spending. While officials expect to post a modest deficit in fiscal 2009, reserve levels will remain well in excess of a city policy requiring a general fund balance equal to at least 20% of spending. The city's healthy reserve levels provide flexibility to withstand fluctuations in economically-sensitive revenues, particularly sales taxes, during the current recessionary period. Taxable assessed valuation growth has been solid, increasing at an average of 9% annually since fiscal 2000, including 17% and 21% increases from revaluations in fiscal years 2004 and 2007, respectively. The city's fiscal 2010 revaluation is expected to yield approximately 20% growth, demonstrating a resilience to the broader housing market correction.

Clarksville's direct debt ratio is low at 1.1% of market value and should remain so due to a rapid payout rate, as well as the city's limited bonding plans and history of pay-as-you-go capital funding. Clarksville's five-year capital improvement plan is maintained by a regional planning commission; the city expects a small debt issuance in fiscal 2010. Overall debt, including that of the county, represents an above average 4.6% of market value. The city has reduced its proportion of variable rate loans issued through the Tennessee Municipal Bond Fund to 30% of total outstanding debt from two-thirds at the time of Fitch's last review of the city. In addition, officials appear to be managing interest rate risks well through conservative budgeting practices and debt service fund balance policies. Pensions were a sound 83% funded as of the July 1, 2007 valuation date. However, the funded ratio is expected to decline, given recent market volatility.

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