NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on South Ogden City UT (the city) as part of its continuous surveillance effort:
--$2.46 million sales tax revenue bonds, series 2004, affirmed at 'AA-';
At this time, Fitch also assigns an implied unlimited tax general obligation rating of 'AA-'.
The Rating Outlook is Stable.
RATING RATIONALE:
--Pledged revenues cover maximum annual debt service a strong 2.5 times (x).
--A portion of the pledged revenues is generated statewide, providing insulation from localized market fluctuations.
--The city maintains a sound financial profile characterized by stable, adequate operating reserves and overall revenue diversity.
--The city's is reliant upon an economically sensitive sales tax to fund operations.
--The local economy is primarily residential and as such sales tax generation is somewhat limited.
--The city's debt burden is below average and future capital needs are minimal.
KEY RATING DRIVERS:
--Strengthening of reserve levels to provide cushion against potential fluctuations of economically sensitive revenue streams.
SECURITY:
The bonds are secured by an irrevocable first lien on 100% of the city's sales and use tax revenues; a 1% local sales and use tax is levied on the purchase price of nearly all goods purchased within city limits. The sales tax is collected and distributed by the state, and distributions are based on formulas that take into account the population of and taxable sales in all local governments in Utah.
CREDIT SUMMARY:
South Ogden City is located in Weber County, approximately 20 miles north of Salt Lake City. The city is a mature, primarily residential community with pockets of commercial and retail trade development. While per capita income levels in the city are 115% of the state, the levels are 96% of the national average likely due to larger family sizes. Median household income, however, is 104% of the national median and the individual poverty rate is half the national rate. Major local employers include the Internal Revenue Service (IRS), Hill Air Force Base, and Convergys (a business relationship management company). The IRS is in the process of constructing a new $21 million facility in Ogden scheduled for completion in 2012 and Convergys recently recruited an additional 200 employees. Unemployment in the county was average at 7.9% in April 2011 which, while slightly higher than the state at 7.0%, compares favorably with the nation at 8.7% for the same month.
Local sales and use taxes are collected by the state and distributed on a monthly basis, pursuant to a formula which provides that 50% of 1% of local sales and use tax revenue is remitted based on the municipality's population and 50% on the point-of-sale basis. Local sales taxpayer concentration is high with the top 10 payers comprising 75% of totally locally-derived sales. Top tax payers include retail, grocery stores, power/communication companies, and construction suppliers. Local concentration is somewhat mitigated by the state's sales tax distribution formula.
Sales and use tax receipts provide ample debt service coverage on outstanding bonds, with fiscal 2010 receipts covering maximum annual debt service (MADS) on all outstanding parity debt by at least 2.5 times (x); MADS occurred in fiscal 2010. Other revenue pledged to certain outstanding obligation bolsters coverage to approximately 3.0x MADS. Coverage remains sound even under cases of extreme stress including an over 30% decline in sales tax revenue which offsets some of the risk associated with the concentration in the top sales taxpayers. To issue additional bonds, sales and use tax revenues for the preceding fiscal year must cover MADS on the current and proposed bonds by at least 1.5x. Sales tax is the largest source of revenue for the general fund and while there have been declines in the county's total collections due to the economic downturn, the state saw a 3% increase in total sales taxes in fiscal 2011.
City financial operations remain sound as evidenced by healthy general fund reserves. While both fiscal years 2009 and 2010 ended with small deficits of less than $500,000 the unreserved general fund balance remained strong at approximately $1.3 million or 12% of expenditures in FY 2009 and 14% in FY 2010. Fiscal 2011 results are tracking close to budget and fiscal 2012 assumptions are conservative; both years are expected to end without material changes to fund balance. Expenditure reductions undertaken in fiscal 2009 will remain in place through at least 2012, without reducing service delivery. Property taxes account for approximately 35% of total general fund revenues. While the city had declines of 7% and 1.3% in taxable values in fiscal years 2010 and 2011, respectively, those occurred after particularly large increases of 18% and 12% in fiscal years 2008 and 2009.
The city's net direct debt burden is very low at $654 per capita and 0.9% of market value; there are no plans for additional debt in the immediate future. The city provides pensions through three cost-sharing multiple employer defined benefit pension plans administered by the Utah Retirement Systems and regularly contributes 100% of the annual required contributions (ARC). All three plans are over 80% funded as of Dec. 31, 2009 and the ARCs are a manageable expense. Other post employment benefits are no longer offered by the city except for 17 employees remaining under a former plan. Benefits are funded on a pay-as-you-go basis and the total liability to the city is less than $1.6 million or less than 1% of total market value.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., IHS and Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 16, 2010).
--'U.S. Local Government Tax-Supported Rating Criteria' (Oct. 08, 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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