NEW YORK - (Business Wire) In the course of routine surveillance, Fitch Ratings affirms its 'AA' rating on Taylorsville (the city), Utah's $8.9 million outstanding sales tax revenue bonds, series 2006. The Rating Outlook is Stable. The 'AA' rating reflects still strong debt service coverage on the bonds despite recent sizable declines in pledged revenue, the city's solid underlying local economy with access to employment options throughout the greater Salt Lake metropolitan area, and the city's low debt burden and limited capital needs. Fitch notes as a credit concern the ongoing pressure on financial operations and fund balances in fiscal 2010 and 2011, given the decline in sales taxes in fiscal 2009, and the much lower-than projected year-to-date sales tax receipts in 2010. While the operating environment for local tax-supported credits in Utah allows for more rapid cost-cutting to budgetary pressures than is typical, negative rating action could be warranted if the city is unable to maintain budgetary balance in fiscals 2010 and 2011 through effective cost cutting, or if sales tax revenue declines continue down their current path. The Stable Rating Outlook is based on the city's solid underlying local economy characterized by low unemployment levels and a relatively stable housing market, and the city's low debt burden and limited likelihood for additional parity bonds.
Security for the series 2006 bonds is a first lien on the city's sales and use revenues. Based on slowing retail activity, unaudited actual receipts for fiscal 2009 shows coverage will fall to 7.1 times (x) maximum annual debt service (MADS) from an estimated 9.5x in fiscal 2008. Even if pledged revenue declines 20% in fiscal 2010, which is the rate of decline in the first three months of the fiscal year, coverage will remain sound at 6.6x. Furthermore, debt service coverage levels remain robust under Fitch-developed stress tests. The city has no plans to leverage this revenue source further, although the additional bonds test in the indenture allows further issuance if revenues for the preceding fiscal year cover debt service on current and proposed bonds by at least 2.0x. The city's overall debt is a low 0.7% of market value. Capital needs are manageable and will be met with internal pay-as-you-go funding sources.
The city's financial performance has remained solid during the current downturn. Fiscal 2009 unaudited total fund balance was estimated at $3.7 million (18.2% of total general fund outlay), while the unreserved balance has declined to 10% of general fund spending from 13% in fiscal 2005 thanks to targeted capital expenditures. The city budgeted a 3.1% decline in sales tax revenue from 2009 actuals in fiscal 2010, but year-to-date receipts indicate a much larger decline, so a drawdown this year appears likely. However, management has indicated flexibility to cut general fund expenditures by up to 8% to reduce or eliminate any need to draw down on fund balance in fiscal year 2010 (FY10).
Taylorsville is the 10th largest city in Utah with a population of approximately 59,000, located wholly within Salt Lake County. The city's tax base declined 9% in FY10. However, with a relatively stable local housing market that has been less affected by residential foreclosures than the national average, Taylorsville and Utah has suffered less from the housing crisis than the typical national community. The city's unemployment rate was a low 6.2% in August 2009 (versus the national rate of 9.6%). Management reports no major retailers downsizing or exiting the jurisdiction.
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Fitch Ratings, New York
Tom Cowell, +1-212-908-9130
Andrew DeStefano, +1-212-908-0284
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com
