AUSTIN - (Business Wire) Fitch assigns its 'A+' rating to the Town of Marana, AZ, Municipal Property Corporation's (the corporation) $29.24 million municipal facilities revenue bonds, series 2008A and $9.015 million municipal facilities revenue bonds, series 2008B. Fitch also affirms the 'A+' rating on the corporation's outstanding debt comprising $30.5 million municipal facilities revenue bonds. The Rating Outlook is Stable. The sale date is tentatively scheduled for the week of July 14th via negotiation.
The bonds are special obligations of the corporation payable from rental payments to be made by the Town of Marana, AZ. The rental payments will be made from and are secured by a pledge of town sales taxes, state-shared revenues, license and permit fees, and fines and forfeitures that the town collects or that are allocated or apportioned to the town by the State of Arizona. New money bond proceeds will be used to design, acquire, construct, and equip various road improvements (including drainage), park improvements (soccer fields, baseball diamonds), and extensions and additions to sewer lines. The city expects that county, federal, and state funds will be received for a portion of these projects, and the series 2008B bonds will be redeemed from these funds.
The 'A+' rating is based on the sound legal provisions for the excise tax debt, the strength of the Town of Marana's finances, an above-average debt burden, and the slowing housing environment. The town experienced dramatic population gains in the past decade due in part to its proximity to Tucson and its location on the Interstate 10 corridor to Phoenix, transforming from an agricultural community to a more suburban environment. Finances have benefited from commercial development, the annexation of adjacent areas, and increases in local sales tax rates, enabling the accumulation of strong reserves and providing funding sources for both operations and capital. Fitch is concerned that the increase in debt, combined with a decline in sales tax, could pressure financial operations.
Located just outside the city limits of Tucson, Marana has pursued annexation of adjacent areas in unincorporated Pima County to extend its boundaries and expand its tax base. Its population grew from 2,187 in 1990 to an estimated 32,274 for 2007. Tax base growth, in the form of secondary assessed value (SAV) has been explosive, averaging over 23% annually over the past eight fiscal years. The residential component of the tax base represents just over 54% of the SAV, with commercial and industrial composing 24% and agricultural and vacant values the remaining 22%.
Like many communities, Marana has witnessed a dramatic decline in residential construction over the past 12-18 months. New housing permits declined to approximately 528 in FY 2007 from 818 in FY 2006, and 1,781 in FY 2005. Offsetting this decline, commercial and industrial permit values have increased in recent years. The town does not have any general obligation debt, nor does it levy a property tax. While Fitch considers the housing slowdown as a concern, the ongoing commercial development, as well as robust reserve levels and a pro-active management approach provide a large degree of comfort. Currently, only a small percentage of the town's 300 square miles are developed, and population at build-out is expected to be just over 100,000 residents.
The largest component of the local sales tax base is generated from construction activity; the town, recognizing that growth will not last indefinitely, created a reserve for revenues from this source. Of the 4% local sales tax levied on construction sales, 3% is set aside by resolution and dedicated for transportation projects. Because it levies no property tax, the town is highly dependent on sales tax revenues, which constituted almost 60% of general fund revenues in fiscal 2007.
Through annexations, newly established homes and businesses, and rate increases, the sales tax component of the town's revenue base has grown quickly. Locally generated sales taxes increased by a compound annual average of 15% between fiscal 2003 and fiscal 2007; however, an 7% decline is estimated for fiscal 2008 following 1.5% growth in fiscal 2007, due to a reduction in contractor sales taxes resulting from less construction activity. The town has responded to the revenue drop by freezing spending and leaving unfilled positions vacant.
To mitigate the exposure to changing economic conditions and fluctuating sales tax revenues, the town has maintained significant financial reserves. The Town expects to end fiscal 2008 with $22.9 million or 63.9% of spending, in unreserved general fund balance. Liquidity is also sound, with $16.5 million in general fund cash and investments for fiscal 2007.
Legal provisions include a rate covenant of at least two times coverage of all rental payments due in the current year. As a condition for issuing additional obligations, excise taxes may not be further encumbered unless taxes collected in the preceding fiscal year provide at least three times coverage of the maximum rental payments to be made plus the rental payments on the proposed obligations. Excise taxes pledged to rental payments include the local sales tax, state-shared revenues, license and permit fees, and fines and forfeiture charges.
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