AUSTIN, Texas--(BUSINESS WIRE)--In the course of routine surveillance, Fitch Ratings has affirmed its 'AAA' on the following Dallas County Hospital District, TX bonds:
--$24.8 million limited tax bonds, tax-exempt series 2009A;
--$222.5
million limited tax bonds, taxable series 2009B (Build America Bonds -
Direct Payment);
--$457.7 million limited tax bonds, taxable series
2009C (Build America Bonds - Direct Payment).
The Rating Outlook is Stable.
KEY RATING DRIVERS:
--The district's tax base, which is coterminous
with Dallas County, is very large and expansive. Its economic diversity,
based on manufacturing, healthcare, telecom, banking and financial
services, and trade, has enabled fairly stable taxable values with only
modest declines in recent years, allowing the district to fund its
capital plan with very modest taxing effort.
--The district fulfils an essential role in providing health care services to Dallas County's Medicaid and indigent care population, both of which have been growing.
--Parkland Hospital, the district's primary operating platform, serves as the region's leading obstetrics and trauma facility and has the only burn unit between Los Angeles, CA and Miami, FL.
--The district's large $705 million general obligation (GO) bond authorization for a replacement campus was approved by an impressive 82% of voters; additionally, voters approved a operating tax levy increase for the new hospital, allowing the district to bypass potential limitations on annual revenue increases.
--Property tax revenues comprise a large 26% of operating revenues, providing a stable revenue source with ample taxing margin below the maximum rate; furthermore, maintenance of a flat nominal tax rate during the previous trend of annual tax base gains demonstrates institutional support on behalf of the county commissioners' court which must approve the district's tax rate.
--The district has posted consistently solid operating cash flows that have buoyed liquidity while funding significant capital expansion; in addition, a lack of historical debt issuance activity further demonstrates the district's fiscal prudence.
--Operations of the district relies on supplemental Medicaid payments which make it susceptible to programmatic changes at the federal level; however, the district has demonstrated prompt budget adjustments to past major changes in these revenue streams.
--Debt service tax revenues are separate from operations and maintenance property tax revenues which the district uses for uncompensated care provided to county residents.
--Apart from bond proceeds, funding for the district's $1.3 billion capital plan includes a notable $500 million in cash and philanthropic donations, comprising almost 40% of the total project costs.
SECURITY:
The bonds are secured by property tax levy limited to
$0.75 per $100 taxable assessed valuation (TAV) on all taxable property
within the county.
CREDIT SUMMARY:
The district's tax base is coterminous with Dallas
County, providing ample taxing resources for a single-purpose district.
Totaling $155 billion in TAV, taxable values have remained relatively
stable in recent years, benefiting from a diverse economy based on
manufacturing, healthcare, telecom, banking and financial services, and
trade (warehousing). Like most labor markets, the Dallas-Plano-Irving
(DPI) metropolitan statistical area (MSA) has experienced job losses in
recent years although recent trends suggest some stabilization.
For the 12 months ending June 2011, the DPI MSA added a notable 49,500 jobs, a 2.4% increase, with only three employment sectors (manufacturing, information, and government) posting job losses. However, the DPI MSA unemployment rate increased modestly to 8.7% in June 2011 compared to the 8.5% rate posted a year prior, fueled by labor force growth. Global Insights expects the region's low business costs, highly educated workforce, favorable tax environment, and solid transportation infrastructure will support growth over the medium term.
Dallas County Hospital District is the largest county hospital district in Texas based on 2010 discharges from its main operating platform, Parkland Hospital. The district provides medical and health care to county residents, including the needy and indigent and serves as the safety net provider to uninsured residents of Dallas County. It also provides trauma, burn, and other tertiary care to residents of north central Texas and beyond. The district operates the largest Level I trauma center in the region and one of the largest civilian burn centers in the U.S. It also operates one of the largest obstetrics programs in the U.S. - delivering 33% of all the babies in the county. The district also operates the Dallas County jail health system, providing medical care to 7,000 inmates.
Overwhelming community support enabled passage of a large $705 million GO authorization in 2009. Concurrently, voters also approved a $0.01 per $100 TAV levy increase for operation of the replacement hospital, equivalent to $15 million based on current values. Property tax revenues provide significant operating revenue diversity and stability, equivalent to 26% of fiscal 2010's total operating and non-operating revenues. Fitch notes that the county commissioner's court, which approves the district's tax rate, maintained flat nominal tax rates during the previous trend of solid tax base gains, demonstrating institutional support for the district and its mission.
Including property tax receipts as other revenue, the district has demonstrated very sound operating performance over the past four fiscal years, with a median operating margin of 5.1% and median operating EBIDA margin of 7.5%. Days cash on hand has also been favorable over the same period, averaging 149 days. Notably, the district funded $365 million in capital projects since fiscal 2003 with cash, while also amassing $250 million for the replacement hospital. The district relies on supplemental Medicaid payments which make it susceptible to programmatic changes at the federal level; however, management has adjusted promptly to past declines in this somewhat volatile revenue stream.
The replacement campus will include a new hospital ($1.1 billion project cost) with 862 beds (a 28% increase over current capacity), clinic buildings ($105 million), office buildings ($50 million), and both surface and garage parking ($42 million). The existing campus, which was built in 1954 and estimated to be 50% too small for the current volume of patients, will either be sold or razed if the district retains ownership. Funding sources include the current offerings, $42 million in revenue bonds, $250 million in existing cash reserves, $100 million in future cash, and $150 million in philanthropic donations ($100 million of which has been raised).
The district's direct debt burden is modest given its lack of GO debt prior to the issuance of the entire $705 million GO bond authorization in 2009. Overall debt levels are moderate as well after adjusting for state support for local school district debt. The principal amortization is slow as expected given the absence any outstanding debt prior to 2009. Based on reasonable assumptions of declining TAV through fiscal 2013, district officials plan to impose a modest debt service tax levy of only $0.025 per $100 TAV as authorized by voters. Combined with the current O&M rate, the resulting total tax rate of $0.271 per $100 TAV is well below the tax cap of $0.75 per $100 TAV.
Additional information is available at www.fitchratings.com.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, and IHS Global Insight.
Applicable Criteria and Related Research
--'Tax-Supported Rating
Criteria', dated Aug. 16, 2010.
--'U.S. Local Government
Tax-Supported Rating Criteria', dated Oct. 8, 2010.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
Tax-Supported Rating
Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S.
Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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