Fitch Ratings has assigned a 'AA' rating to the following Indianapolis Local Public Improvement Bond Bank, Indiana (the bond bank) bonds.

$75 million Bond Bank Refunding Bonds series 2021B (tax exempt) and 2021C (federally taxable) (City Way I Project).

Fitch has also affirmed the City of Indianapolis' Issuer Default Rating (IDR) at 'AAA'.

The Rating Outlook is Stable.

The series 2021B and series 2021C bond proceeds will refund all of the bond bank's Qualified Midwestern Disaster Area Bonds series 2011 A, and fund a debt service reserve fund dedicated to the refunding bonds. The bonds are excepted to price the week of March 29.

SECURITY

The bonds are limited obligations of the bond bank, which under Indiana law, is empowered to buy and sell securities of qualified entities including the City of Indianapolis (the city), Marion County, all special taxing districts in the city, and all entities with tax levies reviewed by the city-county council of Indianapolis and Marion County (the city-county council). The bond bank itself has no taxing power.

The bonds constitute junior subordinate district bonds and are payable in the first instance from loan payments to the city from the City Way I project developer, and secondly, from a second lien on tax increment finance (TIF) revenues from the Consolidated TIF district. The bonds are additionally supported by a standard cash funded debt service reserve fund (DSRF), which the city has pledged its moral obligation to replenish; this moral obligation serves as the basis for the ratings.

According to the ordinance governing the city's moral obligation, if loan and TIF revenues are projected to produce a shortfall in debt service requirements and cause a draw on the reserve fund, the chairman of the bond bank will certify the deficiency to the city council within 90 days of such projection, or prior to December 1 of the fiscal year when the deficit is expected to occur, whichever is earlier, and well in advance of the ensuing February 1 debt service payment. The council could then choose to appropriate the funds necessary to replenish any deficiencies in the bonds' DSRF.

ANALYTICAL CONCLUSION

The 'AA' rating on the series 2021B and 2021C bonds (City Way TIF) reflects the strength of the city's moral obligation commitment and mechanisms in place that evidence the city's implicit support for the timely payment of debt service on the bonds. In Fitch's opinion, the City Way projects are essential to the city and serve the broad economic interest related to essential governmental operations. The two-notch distinction from the city's IDR reflects the greater optionality inherent in moral obligation commitments.

The city's 'AAA' IDR reflects its substantial independent revenue-raising ability, solid expenditure flexibility, and solid reserves, which establish a high financial resilience to cyclical economic stress. The rating also reflects the city's low long-term liability burden and favorable revenue growth prospects.

ECONOMIC RESOURCE BASE

Indianapolis is the largest city in the state of Indiana, with a diverse economy bolstered by its role as the state capital. The estimated 2019 population of 876,384 reflects a 6.8% increase since the 2010 census. The city is home to numerous industries including pharmaceuticals, health services, logistics, manufacturing and other professional services. Major taxpayers include Eli Lilly and Company, Citizens Energy Group, Federal Express, and Indianapolis Power and Light Company. The top four employers, Health Services Indiana University Health, Ascension St. Vincent Hospital, Community Health Network and Eli Lilly Company employ approximately 62,000, cumulatively.

KEY RATING DRIVERS

Revenue Framework: 'aaa'

Revenue growth is expected to remain above the rate of inflation, as it has historically, based on ongoing expansion in the local economy. The city has significant ability to increase revenue, primarily via adjustments to its local option income tax rate, to ensure ongoing fiscal stability.

Expenditure Framework: 'aa'

Fitch believes that the city's natural rate of expenditure growth will be above revenue growth absent policy action, given ongoing spending pressures. The city has solid capacity to cut spending if necessary, due to moderate carrying costs for debt service and pension obligations and a labor environment that provides flexibility to management.

Long-Term Liability Burden: 'aaa'

The city's long-term liability burden including net pension liabilities and overall debt is low relative to personal income.

Operating Performance: 'aaa'

The city has exceptionally strong gap-closing capacity and solid general fund reserves to manage through a moderate economic downturn. Fitch expects the city to maintain financial resilience through downturns.

RATING SENSITIVITIES

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

Not relevant for 'AAA' IDR.

For the PIB bonds, not expected given the degree of optionality inherent in moral obligation commitments.

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

The inability to maintain superior gap-closing capacity including sound reserve balances.

The inability of the city to manage expenditure growth over time.

For the PIB bonds, changes in the city's IDR, to which the moral obligation pledge is linked.

The moral obligation credit enhancement for the CityWay I project bonds assumes that the DSRF will continue to be cash funded. Replacement by a surety policy or bank liquidity facility could affect the rating if, in Fitch's assessment, the mechanism for timely payment of debt service through the moral obligation is no longer considered adequate.

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 [https://www.fitchratings.com/site/re/10111579].

CURRENT DEVELOPMENTS

Coronavirus Budget Impacts

Like many U.S. municipalities the city experienced a significant increase in unemployment following the onset of the pandemic. However, the city does not anticipate a shortfall in local income taxes (LIT), which are a major funding source for the general fund budget in 2020 or 2021, given statewide income tax levy and collection procedures. The state provides a certified distribution, based on collections from two years prior, by October for the following calendar year. As such, any pandemic-related effect on LIT would first materialize in 2022, providing the city ample time to make appropriate budget adjustments, if necessary.

The state collects the income tax revenue on behalf of each county and holds the revenue in individual trust accounts, which are transferred monthly based on the state's certified distribution. The state maintains a balance of the certified distribution in the trust account for each year, and when the balance exceeds 15% the state makes supplemental distributions based on the balance from two years prior.

The supplemental contributions provided $15 million in unbudgeted revenue for 2019, $25 million for 2020 and a projected unbudgeted supplemental distribution of $35 million in 2021 (5.3% of the city's 2021 budgeted general fund revenues). The city does not anticipate income tax declines until fiscal 2022. In the event of overpayment in any given year, the state may reduce the certified distribution in the following years to recover the shortfall.

Management projects healthy operating surpluses on a budgetary basis in 2020 and 2021. The budgeted surpluses are intended to bolster general fund reserves in preparation for the loss of LIT revenue expected in 2022. The city entered 2020 with unrestricted general fund reserves in excess of $201 million or 26% of total spending. Fitch believes that the city will make budget adjustments to ensure that general fund reserves will remain well above the city's policy threshold of maintaining unrestricted reserves at 17% of general fund expenditures.

Management maintains the ability to implement a hiring freeze and has identified other budgetary spending items that could be reduced to ensure fiscal stability. The city had $83 million in fiscal stability reserves within the general fund at the end of 2019 and the adopted 2021 budget held expenditures flat with no increased tax rates and assumes modest revenue growth.

The recently-enacted the American Rescue Plan (ARP) will provide $350 billion in direct aid to state and local governments, transit systems and school districts (through the states) as well as a significant amount of economic stimulus that should have a positive near-term impact on state and local government revenues. Fitch does not expect the stimulus aid to affect the long-term credit fundamentals of state and local governments but should provide a bridge for municipalities facing near-term fiscal gaps.

The city expects to receive $425 million in ARP in 2021, and has received $168 million in Coronavirus Aid, Relief, and Economic Security (CARES) Act funding for pandemic related spending including homeless services, PPE, testing and other spending and to promote economic recovery in 2020.

CREDIT PROFILE

The City Way I Project TIF Bonds

The series 2021B and 2021C revenue refunding bond proceeds will currently refund $72.9 million on the series 2011 (Qualified Midwestern Disaster Area) bonds that were originally issued to subsidize the construction of mixed-use developments known as the City Way I project. The city loaned the 2011 bond proceeds to the developer to connect the Eli Lilly campus in the downtown area in order to attract and retain workers within the city. The city issued the bonds with debt payable from third lien tax increment revenue; however, there are no senior bonds outstanding and the city has covenanted not to issue additional senior bonds. The 2021 bonds are secured with a second lien on tax increment revenue, and the proceeds will currently refund the 2011 bonds, which is expected to yield $10 million in debt service savings.

Under a loan agreement between the city and the developer, the developer agreed to pay debt service if the project TIF revenues were insufficient to cover annual debt service payments and to repay the city the outstanding amount of the bonds ($79 million) on April 7, 2021. Since 2011, the developer has made all required debt service payments in a timely manner; however, due to the economic pressures associated with the pandemic and the resulting loss of revenue, the city has agreed to refinance the 2011 bonds and extend the due date on the loan to Dec. 29, 2023. Under the new agreement, the developer will be responsible for paying 100% of the series 2021 debt service through Dec. 29, 2023.

The Consolidated TIF area is located in the central business district of downtown Indianapolis, and is essential to the city's economic development and growth. The TIF area includes office buildings, luxury hotels, and retail, wholesale and manufacturing facilities. The area has benefited substantially from convention business, sports-related activities and commercial development drawn to downtown Indianapolis. The Consolidated TIF area is highly concentrated; the top 10 taxpayers account for over 49% of incremental net assessed value, including personal property and real property. Eli Lilly, which is one of the city's largest employers, accounts for 27% of net incremental assessed value in the TIF area.

The Consolidated TIF area is very important to the city's economic development plans and ongoing development projects include the construction of Elanco Headquarters, an animal pharmaceutical company, the convention center expansion and the renovation of the Pacer's Bankers Life Fieldhouse. The city plans on further expansion in the area that may require additional borrowing.

The $4.2 billion net assessed values including real and personal property in 2021, reflects an 89% gain since 2011, and significant growth within the district area, including 250 residential units, 209 room corporate hotel, the Irsay Family YMCA fitness and wellness center, as well as retail space with restaurants and pharmacies.

DATE OF RELEVANT COMMITTEE

19 March 2021

In addition to the sources of information identified in Fitch'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

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 Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

RATING ACTIONSENTITY/DEBT	RATING		PRIOR
Indianapolis (IN) [General Government]	LT IDR	AAA 	Affirmed		AAA

Indianapolis (IN) /Moral Obligation - Qualified Midwestern Disaster Area/1 LT

	LT	AA 	New Rating

Indianapolis (IN) /Issuer Default Rating - General Government/1 LT

LT	AAA 	Affirmed		AAA

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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