Weber Co. earns AAA bond rating – Again!
Fitch Rates Weber County, Utah's GOs 'AAA'; Outlook Stable
SAN FRANCISCO--(BUSINESS WIRE)--
Fitch Ratings has assigned the following rating to Weber County (the county), Utah's general obligation (GO) bonds:
--$39.4 million GO and refunding bonds, series 2013, 'AAA'.
The bonds will be sold via competitive sale on Dec. 5, 2013. Bond proceeds will finance capital improvements to the county's library system and refund a portion of the county's outstanding GO refunding bonds, series 2004 for savings.
The Rating Outlook is Stable.
The bonds are general obligations of the county payable from the proceeds of ad valorem taxes levied, without limitation as to rate or amount, on all taxable property within the county, sufficient to repay fully the series 2013 bonds' principal and interest.
KEY RATING DRIVERS
HEALTHY FINANCIAL POSITION; BUDGET BALANCE: The county maintained solid general fund balances, liquidity, and breakeven to positive net operations throughout the recession, augmented by good reserves and borrowable funds outside the general fund. The county demonstrated consistently its ability to offset general fund revenue volatility on the expenditure side, assisted by conservative budgeting and a flexible labor environment.
AFFORDABLE DEBT PROFILE: The county's largely conservative debt structure is characterized by low debt, moderate principal amortization, limited future debt issuance plans, and low carrying costs. Rising pension costs are expected to stabilize and the county's other post-employment benefit (OPEB) plan is closed.
MANAGEABLE RISK: Recently issued special assessment bonds associated with new private development are supported by a county pledge. In the unlikely event that the entire debt became the county's responsibility, Fitch estimates that the annual maximum cost impact could be absorbed by the county.
SOLID AND DIVERSE ECONOMY: The county economy is well diversified, with good economic development prospects, and its rebounding tax base is expected to benefit from new development. While the county's unemployment rate is low, its mixed socioeconomic characteristics likely reflect larger family sizes and a relatively youthful population.
SOUND MANAGEMENT: The county's tenured administration is well aligned with elected officials and is supported in its prudent financial management practices by a cooperative labor environment.
The rating is sensitive to shifts in fundamental credit characteristics including the county's low debt profile, strong financial management practices, and diversified economy. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
The county is situated approximately 35 miles north of Salt Lake City and covers 662 square miles, with its major population areas located at the foot of the northern Wasatch Mountains. It is the fourth most populous Utah county with an estimated 2012 population of 236,640. The county seat is Odgen City, and there are 14 other municipalities.
HEALTHY FINANCIAL POSITION
The county maintained solid general fund balances, liquidity, and breakeven to positive net operations after transfers throughout the recession. The 2012 ending total general fund balance was a strong $14.6 million or 25.5% of spending, and the unrestricted general fund balance was also strong at $14 million or 24.4% of spending. The estimated 2013 ending total general fund balance is slightly lower at $13.2 million or 22.4% of spending, in part because the county appropriated $1 million to complete a capital project that year. The fiscal 2014 budget anticipates maintaining the total general fund balance at around the same level.
The healthy general fund results are augmented by good reserves and borrowable funds held outside the general fund, the ability to shift parts of the county's tax rates to the general fund if necessary, and the automatic property tax levy adjustment that occurs in Utah jurisdictions when there are assessed valuation declines. This automatic property tax adjustment provides valuable downside protection for the county's largest general fund revenue source (property taxes represented 49% of 2012 general fund revenues).
The county has consistently demonstrated its ability to offset any general fund revenue volatility on the expenditure side, assisted by conservative budgeting and a flexible labor environment. The county has used attrition, vacant positions, personnel expenditure controls, and departmental cost cutting to good effect, only experiencing a very small general fund net operating deficit after transfers in 2010. There are no deficits in funds outside the general fund.
AFFORDABLE DEBT PROFILE
The county's total debt burden is low at $1,265 per capita and 1.8% of market valuation. Principal amortizes at a moderate 59% in 10 years. In line with the county's largely conservative approach to debt, there is no exposure to capital appreciation bonds, variable rate debt, or swap agreements. The only anticipated new debt issuance, $10.6 million of GO bonds likely to be issued in 2015, would be the second and final tranche of debt to finance library improvements.
The county participates in the state's Utah Retirement System. In recent years, the state has implemented material pension reforms which will slow pension funding growth moving forward. Recessionary investment losses lowered the public employees' noncontributory system's funded ratio to a moderately weak 74.3% (using Fitch's standardized 7% investment return rate), while the contributory system's funded ratio remains more adequately funded at 80.1% (at the 7% investment return rate). The system uses a five-year smoothing period, so recent losses have now largely been incorporated into current contribution rates. While the county's contribution cost increases by 4.6% in 2014, rates should start to stabilize moving forward.
Under a closed other post-employment benefit (OPEB) plan, the county offers retirement benefits only to employees who joined the county before Jan. 1, 2008. The benefits, employer contributions, and employee contributions are governed by county policy and can be amended at any time. The county expects to continue funding OPEBs on a pay-as-you-go basis and the unfunded actuarial accrued liability is not expected to grow beyond the current level of $13.4 million since the OPEB plan is closed.
The county's total debt service, pension contribution, and OPEB pay-as-you-go costs in 2012 were a manageable 13.2% of total governmental expenditures. This level of carrying cost should remain roughly stable given limited new debt issuances, the moderate amortization of outstanding debt, the expected flattening out of pension contributions, and the closed OPEB plan.
GENERAL FUND-BACKED SPECIAL ASSESSMENT BONDS NOT MATERIAL RISK
In August 2013, the county issued $17.7 million in special assessment bonds to pay for public infrastructure improvements to privately-owned land adjacent to the Powder Mountain ski resort. The bonds will be repaid fully by special assessments collected from a private development company and future property owners over 19.5 years. The county has agreed to guarantee the bond repayments through replenishment of the $1.5 million bond-funded portion of the debt service reserve fund (equivalent to one year of debt service). While these special assessment bonds are the least conservative element of the county's debt profile, the county's worst case liability is only $1.5 million per year (annual debt service), representing 2.6% of projected 2013 general fund revenues, and the county would have a variety of means with which to meet that additional cost. The county's debt profile would remain low even if the entire special assessment bond debt became the county's responsibility to repay. Fitch anticipates that these bonds will remain a unique deal for the county.
SOLID AND DIVERSE ECONOMY
The county employment market is dominated by Hill Air Force Base (located in adjacent Davis County), government, education (including Weber State University which has 25,000 students), health care, and a significant manufacturing presence. After hitting a high 9% unemployment rate in 2010, the county's unemployment rate dropped to 5.4% in July 2013, below the national rate of 7.7% although still above the state rate of 4.6%. The county is experiencing employment growth in most sectors.
The county's mixed socioeconomic profile is characterized by below average per capita money income, but slightly higher than average median household income and a below average individual poverty rate when compared to the nation. This likely reflects larger family sizes, a relatively youthful population, and the county's below-average educational profile.
The county's low average house price (approximately $161,000) is likely a significant contributor to its steady population growth which averaged 1.6% annually during 2000-2011. While the county's taxable assessed valuation took an 8.6% hit during 2010-2012, primarily due to residential property value declines, it started to rebound by 3.1% in 2013 and the county is assuming a further 2% growth from new development in 2014. The county is seeing considerable ongoing investment by leading local businesses, growing numbers of residential building permits, and fewer property tax delinquencies.
The county's tenured administration meets all its financial management policy and procedure requirements and relevant state legislation and is well aligned with its elected officials. While the community is very tax sensitive, there was no organized opposition to the library bond measure and voter support proved more than sufficient at 54%. There is no collective bargaining with labor which provides the county with considerable personnel expenditure flexibility.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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