In the course of routine surveillance, Fitch Ratings affirms the 'AAA' rating on the Salt Lake City (the city), UT's $65.9 million general obligation (GO) bonds and the 'AA' rating on its $51.1 million in outstanding sales tax revenue bonds. The Rating Outlook on all bonds is Stable.
The short-term 'F1+' rating assigned to the 2004 series sales tax revenue bonds continues to be based upon a Standby Purchase Agreement (SBPA) provided by State Street Bank and Trust Co. The short-term rating on the 2004 sales tax revenue bonds will expire upon the earliest of: June 1, 2015, the stated termination date of the SBPA or any prior termination of the SBPA.
The 'AAA' GO rating reflects the city's role as the economic center of a diverse and growing metropolitan area, sound financial management, healthy fund balance levels and a low, rapidly retiring debt burden. The city's solid management practices are evidenced by early recognition of below budget revenue performance, regular financial reporting, and sound reserve levels. Despite recent voter support for a $125 million GO bond package and planned issuance of $90 million in sales tax bonds over the next several years, debt ratios are expected to remain moderate.
The 'AA' sales tax revenue bond rating reflects solid debt service coverage on the bonds despite recent sizable declines in pledged revenues as well as additional borrowing plans. Fitch notes as a credit concern for both the GO and sales tax ratings the ongoing pressure on operating revenues in fiscal 2010, given the decline in sales taxes in 2009, and the lower than projected year-to-date sales tax receipts in 2010. Fitch views the city's maintenance of adequate reserve levels as crucial to retaining its credit quality. Given the importance of sales taxes for operating support (24% of general fund revenues in fiscal 2008), debt service coverage is expected to remain strong even after including planned issuances. The Stable Rating Outlook is based on the city's solid underlying local economy characterized low unemployment levels, a relatively stable housing market and a low debt burden.
Security for the sales tax revenue bonds is a first lien on the city's 1% sales tax. Based on slowing retail activity, unaudited actual receipts for fiscal 2009 shows coverage fell to 4.5 times (x) maximum annual debt service (MADS) from an estimated 5x in fiscal 2008. Even if pledged revenue declines 11% in fiscal 2010, which was the rate of decline 2009, coverage will remain sound at 4x. Furthermore, debt service coverage levels remain robust under Fitch-developed stress tests. Also, legal provisions are satisfactory with a 2x additional bonds test.
The city's financial performance has remained solid during the current downturn. For fiscal 2009, the city's estimated unreserved general fund balance is $22.2 million or 11% of spending compared to $23.6 million or 11.6% of spending in 2008. During fiscal 2009, the city reduced expenditures and did not fill vacant positions. For 2010, the city reduced salaries by 1.5%, froze merit raises and required employees to contribute a larger share towards insurance benefits. Fitch views positively management's demonstrated ability to mitigate declines in fiscal 2009 available revenue through modest mid-year budget reductions, while retaining significant financial flexibility. The city expects to end fiscal 2010 with an operating surplus despite an anticipated decline in sales tax revenue.
Salt Lake City is Utah's capital and the economic center of Salt Lake County. The city's wealth levels trend below the state, county and national levels and unemployment rates are below the U.S., but above the county and state. In 2009, the city's assessed valuation (AV) increased and is expected to increase modestly in 2010. The top 10 taxpayers are diverse, comprising 11.8% of total 2008 AV, indicating moderate taxpayer concentration.
Debt levels remain low at $2,331 per capita and 1.6% of market value including overlapping debt. Amortization is rapid with 78.4% repaid in 10 years. The $125 million GO bond package is expected to be issued in 2010 to improve public safety structures. In addition, the city plans to issue $90 million in sales tax bonds to fund multiple capital projects over the next several years.
Additional information is available at www.fitchratings.com.
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