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01-26-2019 Moody's I GOVERNMENT FINANCE OFFICERS ASSOCIATION NEWS RELEASE FOR IMMEDIATE RELEASE 01/14/2019 For more information contact: Michele Mark Levine, Director/TSC Phone: (312) 977-9700 Fax: (312) 977-4806 E-mail: mlevine@gfoa.org (Chicago, Illinois)--The Certificate of Achievement for Excellence in Financial Reporting has been awarded to City of Federal Way by Government Finance Officers Association of the United States and Canada (GFOA) for its comprehensive annual financial report (CAFR). The Certificate of Achievement is the highest form of recognition in the area of governmental accounting and financial reporting, and its attainment represents a significant accomplishment by a government and its management. An Award of Financial Reporting Achievement has been awarded to the individual(s) or department designated by the government as primarily responsible for preparing the award-winning CAFR. The CAFR has been judged by an impartial panel to meet the high standards of the program, which includes demonstrating a constructive "spirit of full disclosure" to clearly communicate its financial story and motivate potential users and user groups to read the CAFR. Government Finance Officers Association is a major professional association servicing the needs of nearly 19,000 appointed and elected local, state, and provincial-level government officials and other finance practitioners. It provides top quality publications, training programs, services, and products designed to u o: enhance the skills and performance of those responsible for government finance policy and management. The association is headquartered in Chicago, Illinois, with offices in Washington, D.C. 203 NORTH LASALLE STREET, SUITE 2700, CHICAGO, ILLINOIS 60601-1210 ' O U.S.PUBLIC FINANCE ' ' INVESTORS ISSUER COMMENT City of Federal Way, WA 18 January 2019 Annual Comment on Federal Way RATING General Obligation(or GORelated)? Issuer Profile No Outlook The City of Federal Way is located in King County in northwestern Washington,bounded on the north by Puget Sound,just northeast of the Tacoma metro area and 20 miles south of Seattle.The county has a population of 2,079,550 and a moderate population density of 978 Contacts people per square mile.The county's median family income is$100,658(1st quartile)and the Nathan Carley +1.312.706.9958 September 2018 unemployment rate was 3.4%(2nd quartile)Z.The largest industry sectors Associate Lead Analyst that drive the local economy are professional/scientific/technical services,health services, nathan carley@moodys,com and retail trade. Eva Bogaty +1.415.274.1765 Credit Overview VP-Sr Credit Officer/Manager eva.bogaty@moodys com The credit position for Federal Way is very high quality,and its Aa2 rating is slightly stronger than the median rating of Aa3 for cities nationwide.The notable credit factors include a CLIENT SERVICES healthy financial position,a small debt burden,a moderate pension liability,a considerable Americas 1-212-553-1653 tax base and a healthy wealth and income profile. Asia Pacific 852-3551-3077 Finances:The city has a healthy financial position but it is slightly weak compared with Japan 81-3-5408-4100 the assigned rating of Aa2. Federal Way's cash balance as a percent of operating revenues EMEA 44-20-7772-5454 (34,2%) is roughly equivalent to the US median,but fell materially from 2013 to 2017 Moreover,the fund balance as a percent of operating revenues(29.6%)approximates other Moody's-rated cities nationwide. Debt and Pensions:The debt burden of Federal Way is light and is favorable with respect to its Aa2 rating.The net direct debt to full value(0.3%)is materially below the US median, and remained stable between 2013 and 2017.The pension liability of the city is mid-ranged and aligned with the assigned rating of Aa2.The Moody's-adjusted net pension liability to operating revenues(1.6x)approximates the US median. Economy and Tax Base:The economy and tax base of Federal Way are healthy overall and are in line with its Aa2 rating.The total full value($10.3 billion) is much lager than the US median,and increased dramatically from 2013 to 2017.Moreover,the full value per capita($106,890)is slightly above other Moody's-rated cities nationwide.The median family income is 99.1%of the US level. Management and Governance:Washington cities have an Institutional Framework score 3 of Aa,which is high compared to the nation.Institutional Framework scores measure a sector's legal ability to increase revenues and decrease expenditures.The sector's major revenue sources are economically-sensitive sales taxes and property taxes.cities can increase property tax collections 1%over the prioryear,subject to state statutory limits on property tax rates.Unpredictable revenue fluctuations tend to be minor,or under 5%annually. ... INVESTORS Across the sector,fixed and mandated costs are generally greater than 25%of expenditures.Washington has public sector unions, which can limit the ability to cut expenditures.Unpredictable expenditure fluctuations tend to be minor,under 5%annually. Sector Trends-Washington Cities Washington cities are likely to experience steady economic growth over the near-term.Sales tax and other economically sensitive revenues should improve as unemployment levels remain low,particularly in the Puget Sound region.Strong improvement in the housing market will continue to boost assessed valuation growth and property tax collections. Pension costs are not a significant source of credit weakness,but remain a longer-term challenge. EXHIBIT 1 Key Indicators Ali Federal Way 2013 2014 2015 2016 2017 US Median Credit Trend Economy/Tax Base Total Full Value $7,087M $8,375M $8,319M $9,489M $10,298M $1,867M Improved Full Value Per Capita $78,126 $91,362 $89,588 $100,967 $106,890 $89,200 Improved Median Family Income(%of US 100% 98% 99% 99% 99% 113% Stable Median) Finances Available Fund Balance as%of 50.8% 41.2% 42.3% 40.1% 29.6% 33.9% Weakened Operating Revenues Net Cash Balance as%of Operating o 0 0 0 0 0 47.5/° 38.8/° 42.1/° 40.5/° 34.2/0 36.9/o Weakened Revenues Debt/Pensions Net Direct Debt/Full Value 0.4% 0.4% 0.4% 0.4% 0.3% 1.1% Stable Net Direct Debt/Operating Revenues 0.55x 0.71x 0.67x 0.69x 0.57x 0.88x Stable Moody's-adjusted Net Pension Liability ° o ° o ° ° 0.5/0 0.6/0 0.8/0 0.9/0 0.9/0 1.8/o Stable (3-yr average)to Full Value i Moody's-adjusted Net Pension Liability 0.77x 1.02x 1.37x 1.64x 1.55x 1.51x Weakened �• (3-yr average)to Operating Revenues 2013 2014 2015 2016 2017 US Median Debt and Financial Data Population 90,720 91,676 92,859 93,986 96,350 N/A Available Fund Balance($000s) $25,041 $20,105 $21,208 $20,777 $16,972 $7,419 Net Cash Balance($000s) $23,373 $18,927 $21,097 $20,971 $19,613 $8,404 Operating Revenues($0005) $49,246 $48,753 $50,106 $51,816 $57,321 $21,930 Net Direct Debt($000s) $27,016 $34,703 $33,657 $35,726 $32,573 $18,580 Moody's Adjusted Net Pension $37,768 $49,686 $68,872 $85,026 $88,869 $32,507 Liability(3-yr average)($000s) Source:Moody's Investors Service This publication does not announce a credit rating action For any credit ratings referenced in this publication,please see the ratings tab on the issuer/entity page on www moodys com for the most updated credit rating action information and rating history. 2 18 January 2019 City of Federal Way,WA:Annual Comment on Federal Way