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���������ֳ� - Austin - 17 Mar 2022: ���������ֳ� has assigned a 'AA+' rating to the city of Clarksville, TN $46.845 million general obligation (GO) bonds, series 2022. In addition, ���������ֳ� has upgraded $24.26 million of outstanding GO bonds and the city's Issuer Default Rating (IDR) to 'AA+' from 'AA'.

The Rating Outlook is Stable.

New Issue Details

The bonds are scheduled to sell via competitive sale on or about March 31. Proceeds of the series 2022 bonds will be used to fund various capital projects and to refund certain outstanding GO bonds for savings.

SECURITY

The bonds are general obligations of the city backed by its full faith and credit and unlimited taxing power.

ANALYTICAL CONCLUSION

The upgrade of the city's IDR and GO bond rating to 'AA+' from 'AA' incorporates economic diversification rooted by rapid population and tax base growth. While the nearby Fort Campbell military base is a strong contributor to the city's economy, the economic expansion and diversification taking place within city limits helps mitigate the risk associated with the large military presence.

Manageable fixed carrying costs, a history of strong levels of reserves, and a demonstrated willingness to raise revenues to support manageable growth in expenditures support the city's ability to maintain strong gap closing capacity throughout economic cycles. The city's long-term liability burden is low compared to the resource base, and ���������ֳ� does not expect it to materially change.

Economic Resource Base

Clarksville is located in northern Tennessee approximately 50 miles northwest of the state capital city of Nashville. Nearby Fort Campbell, which supports one of the largest Army military populations in the nation, buttresses the local economy while education, health care, and a growing manufacturing sector diversify the employment base. The city's 2020 census population of 166,722 is up over 25% since the 2010 census.

KEY RATING DRIVERS

Revenue Framework: 'aaa'

General fund revenues primarily consist of property taxes and local and state shared sales taxes. ���������ֳ� expects general fund revenue growth to continue to exceed the rate of national GDP due to ongoing economic development and expected growth in population. The city has high independent legal ability to raise property tax revenues without limitation.

Expenditure Framework: 'aa'

���������ֳ� anticipates that expenditure growth will track or slightly exceed the pace of revenues. Moderate carrying costs and a high degree of labor flexibility underlie the city's solid expenditure flexibility.

Long-Term Liability Burden: 'aaa'

The city's long-term liability (LTL) burden is low when compared to personal income, at about 6%. ���������ֳ� expects that the city's liability burden will remain low due to manageable debt plans and a modest pension burden.

Operating Performance: 'aaa'

���������ֳ� expects the city to maintain a superior level of fundamental financial flexibility throughout economic cycles, supported by its superior inherent budget flexibility, low revenue volatility and healthy reserve levels.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

--A sustained demonstrated ability to navigate growth pressures while maintaining a solid level of financial flexibility.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

--Sustained growth in fixed cost spending to levels exceeding 20% of governmental spending and leading to what ���������ֳ� believes is a weakening of expenditure flexibility;

--An increase in long term liabilities to a sustained level over 10% of personal income.

Best/Worst Case Rating Scenario

International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit /site/re/10111579.

CURRENT DEVELOPMENTS

The city's fiscal 2021 amended budget accounted for a $3.56 million deficit (about 4% of fiscal 2021 general fund expenditures), but the city outperformed the budget. The available general fund balance grew about $5.3 million to about $31 million, or 31% of general fund expenditures. Positive results were primarily a product of state shared sales tax and gasoline taxes exceeding budget by $2 million (about 1.6% of 2022 budgeted general fund revenues), and a FEMA reimbursement for first responder salaries under a COVID-19 relief package. Additionally, public safety came in about $1.7 million (1.9% of general fund expenditures for fiscal 2021) under budget, mostly due to unfilled positions and the FEMA reimbursement.

The fiscal 2022 general fund budget increased by 15% higher than actual fiscal 2021 expenditures and includes a 20-cent tax rate increase. General fund revenues through January are 16% higher when compared to the same period the prior fiscal year. Revenues are trending up due to increased state shared revenues based on a population driven formula. According to management, expenditures will be $3 million below budget, and the fiscal 2022 ending available general fund balance is expected to increase $11 million to about $42 million, or 34% of budgeted fiscal 2022 expenses.

The tax rate increase will fund the city's Transportation 2020+ Strategy, an initiative to improve or construct new streets, sidewalks, greenways, and public transportation for the near future and beyond. The approved property tax rate of $1.23 per $100 of assessed value (up from $1.0296) will provide additional revenue of approximately $6.9 million per year. The rate is still competitive when compared to other cities in the state.

CREDIT PROFILE

The city serves as a regional center for education and healthcare, anchored by Austin Peay State University and Tennova Healthcare. Encompassing over 100,000 acres, the nearby Fort Campbell is home to the prestigious 101st Airborne Division and two Special Operations Command units.

The fort is the largest employer in Tennessee and Kentucky, employing nearly 30,000 active military members and over 4,000 civilian employees. The 9,000 plus Fort Campbell employees that live in Clarksville are civilian contract workers, with only a small portion of the post residing in Clarksville city limits. The fort has a long history given that operations having been in place since 1942 and serves as the sole training and development center for Army air assault operations.

According to management, the city's relatively low tax rate, affordable housing, and proximity to Nashville make it an optimal destination to reside. Like many places in the nation, it is currently facing housing challenges and construction cannot keep up with population growth. The number of building permits increased about 25% year over year, totaling nearly 2,500 in fiscal 2021 reflective of residential and commercial projects and supporting expected growth in the city's tax base. Management reports a number of major companies are either expanding or opening new facilities in the city helping to expand job opportunities.

A new multi-purpose arena is being built downtown with the national hockey league's Nashville Predators managing the facility. The new arena is expected to enhance new development in the area and promote further tax base and job growth.

Revenue Framework

Revenue Framework Details

Property taxes are the largest revenue source at over one-third of general fund revenues, followed by intergovernmental revenues and sales taxes, each making up around one-quarter of revenues.

Revenue Framework Growth Prospects

General fund revenue growth has been strong over the last decade outpacing the rate of national GDP growth. ���������ֳ� expects natural revenue growth to continue to exceed the national economic performance due to a growing population and tax base and the stable presence of Fort Campbell.

Legal Ability to Raise Revenues

There is no legal limitation on the city's ability to increase its property tax millage rate or levy.

Expenditure Framework

Expenditure Framework Details

Public safety is the largest expenditure item comprising over half of fiscal 2021 general fund expenditures. Public works represents the second largest spending category, at approximately 15% of expenditures.

Pace of Spending Growth

Despite the strong revenue growth, ���������ֳ� expects the city's natural pace of spending will generally match or slightly exceed revenue, absent policy action, to meet the service needs of a growing population and changes in employee salaries and benefits. Management has expressed a need for additional public safety hiring to support population growth which will be a driver of future spending.

Expenditure Flexibility

The city maintains solid expenditure flexibility with a broad discretion over labor terms and moderate level of fixed carrying costs. Spending associated with debt service and retiree benefits represented 16% of fiscal 2021 total governmental spending, net of self-supporting enterprise related contributions, with debt service accounting for roughly half of the total.

Long-Term Liability Burden

Long-Term Liability Burden Details

Long-term liabilities, consisting primarily of direct and overlapping debt, place a low burden on the city, equivalent to about 6% of the personal income base. While the city plans to issue about $167 million in debt over the next six years, in line with their Transportation 2020+ plan, ���������ֳ� expects the long-term liability burden to remain modest given additional expected growth in personal income driven by population growth.

The city has actively been refunding their variable rate debt and, after this issuance, about 12% of the total direct debt outstanding will be variable-rate. The debt is related to variable-rate notes issued by the Clarksville Public Building Authority through the Tennessee Municipal Bond Fund (TMBF). All of the variable-rate debt is directly purchased bank-held debt, and there are no swaps in place. The city has enjoyed consistent access to capital markets should refinancing be needed.

City employees participate in an agent multiple-employer defined benefit pension plan administered by the Tennessee Consolidated Retirement System (TCRS). The plan's net pension liability is relatively minimal representing about 1% of personal income, when adjusted by ���������ֳ� to reflect a 6% discount rate assumption.

The city maintains a single employer defined benefit healthcare, dental, and life insurance plan for retirees. The plans unfunded actuarial accrued liability represents about 1% of resident personal income and has been closed to new employees for over a decade.

Operating Performance

Financial Resilience

Maintenance of healthy fund balances, an unlimited legal ability to raise property taxes, and solid expenditure flexibility underlie management's ability to maintain the highest level of gap closing capacity throughout the economic cycle. As of fiscal year-end 2021 the city had an available general fund balance of approximately $31.5 million, covering a strong 31% of spending.

Budgetary Management

The city continues to exceed its general fund reserve policy that requires a minimum of 20% of operating expenditures and transfers out. Actual operating results have tracked very closely to or surpassed budgeted expectations over the last several years with the exception of fiscal 2020 due to pandemic related revenue declines. Two major local funding sources for the general fund, property taxes and sales taxes, have since recovered and supported positive operating results for fiscal 2021. ���������ֳ� expects management to continue to manage growth in its expenditures to align with changes in revenues over time to maintain its high level of fundamental financial flexibility.

Sources of Information

In addition to the sources of information identified in ���������ֳ�'s applicable criteria specified below, this action was informed by information from Lumesis.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

���������ֳ� has reassessed the ESG Relevance Score for Social, Demographic Trends to '3' from '4' as ���������ֳ� believes that the previously identified economic concentration related to the Fort Campbell military base, does not rise to a level that impacts that rating.

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on ���������ֳ�'s ESG Relevance Scores, visit

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APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• FAST Econometric API - ���������ֳ� Analytical Stress Test Model, v3.0.0 (1)

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