SAN FRANCISCO - (Business Wire) Fitch Ratings assigns an 'AA+' rating to the Municipal Building Authority of Salt Lake County's (Utah) $84.1 million lease revenue bonds, series 2009A and 2009B (Federally Taxable - Issuer Subsidy - Build America Bonds). Fitch also upgrades its rating to 'AA+' from 'AA' on the authority's lease revenue bonds, series 1997 and lease revenue refunding bonds, series 2001, which together total $26 million. In addition, Fitch affirms the 'AAA' rating on the county's $259.8 million in outstanding general obligation (GO) bonds. The Rating Outlook is Stable. The series 2009A and 2009B bonds are expected to sell via negotiation on Dec. 8, 2009. The bonds are secured by lease rental payments made by the county to the authority under a master lease for a public works administration building, and various libraries and senior centers being constructed throughout the county. Approximately $7.3 million of the bond proceeds will fund capitalized interest to cover the facilities' construction periods.
The 'AAA' GO rating reflects the county's strong and diverse economic base which has only recently experienced declines in its labor force, employment opportunities, and taxable assessed valuation. The county's debt burden remains low and amortizes rapidly. Good financial management, policies, and planning are hallmarks of the county's administration. The county has demonstrated its willingness to make expenditure reductions in response to declines in economically sensitive revenues. Although somewhat pressured by declining revenues, the county's fund balances and reserve levels remain sound. Fitch believes the county will continue to adhere to policies for all funds which ensure a good financial cushion.
The 'AA+' rating on the lease revenue bonds reflects satisfactory legal provisions under the county's two master leases, an annual appropriation covenant, and the cross-collateralization of pooled assets under each of the master leases which counterbalances assets with somewhat lower essentiality. The upgrade of the outstanding lease revenue bonds is based on Fitch's recognition that the incentive to appropriate under the master lease has strengthened over time given the addition of leased assets and the established history of utilization of the convention centers and golf courses originally included in the lease.
Salt Lake County is Utah's most populous county with an estimated 2008 population of 1,023,000. Until recently, the county had exhibited continuous population, labor force, and employment growth. However, the September 2009 unemployment rate of 6% represented a noticeable increase over the September 2008 rate of 3.1% while remaining well under the national rate. After a sustained period of growth, the county's taxable assessed valuation declined 11.4% in fiscal 2009 reflecting softening of the residential property market and a considerable decline in state-assessed properties such as airlines, utilities, and Kennecott Utah Copper mines within the county. Nevertheless, considerable commercial, industrial, and infrastructure development is actively under construction within the county.
The county maintains its long history of fiscal policies and budgeting practices that produce healthy financial operations. While the unreserved general fund balance declined significantly in fiscal years 2007 and 2008, it remained a healthy 9.4% of spending in fiscal 2008. In addition to the general fund, the county maintains three other funds that provide general services. Combined, the four funds' unreserved fund balances also declined significantly to $45.8 million in fiscal 2008, remaining a still healthy 10.3% of spending. In line with Fitch's expectations, the county has intentionally drawn down its previously very high fund balances in order to provide for deferred maintenance projects. While it has chosen not to increase its property tax levy at this time, the county has considerable headroom should it choose to do so. For fiscal years 2009 and 2010, management has favored the approach of balancing the budget through expenditure reductions, rather than through taxation increases. Fitch expects that future balances will be retained at least at current levels.
Debt levels remain low as a result of the county's pay-as-you-go financing of capital projects and maintenance, along with rapid amortization of outstanding debt (75% in 10 years). Including this issue, direct debt will be $437 per capita, a low 0.4% of full market value. Overall debt will be $1,070 per capita, or 1% of full market value. Debt levels are expected to remain manageable in the foreseeable future.
The unlimited taxing power of most local government general obligation pledges is the broadest security a U.S. Local government can provide to the repayment of its long-term borrowing, and therefore is the best indicator of its overall credit quality. Some debt repayment requires annual legislative appropriation, and this lesser long-term commitment to repayment is reflected in a lower rating than that of the general obligation rating, usually by one to two notches.
The average local government general obligation rating is 'AA-', with approximately 56% rated at or above 'AA-' and 7% rated 'BBB+' or below. The relatively high ratings reflect local governments' inherent strengths: the authority to levy property taxes, nonpayment of which can result in property foreclosures; additional taxing power that can include sales, utility, and income taxes; and essentiality of and the lack of competition for services provided by local governments. Those with low investment-grade or below-investment grade ratings generally have a combination of a limited or highly volatile economic base, high levels of long-term liabilities including debt and post-employment benefits, and/or unusually limited financial flexibility. For additional information on these ratings, see 'U.S. Local Government General Obligation Bond Rating Criteria' dated March 22, 2007 and 'Municipal Lease Rating Guidelines' dated March 22, 2007 which are available at 'www.fitchratings.com'.
Additional information is available at 'www.fitchratings.com'.
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Fitch Ratings
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