In the course of routine surveillance, Fitch Ratings affirms the 'A+' rating on approximately $3.4 million of outstanding North Ogden City (the city), Weber County, Utah, sales tax revenue bonds, series 2004. The Rating Outlook is Stable.
The 'A+' rating reflects the city's healthy financial operations, a low, rapidly retiring debt burden, strong debt service coverage, and a moderate concentration among the top sales taxpayers. Other credit factors include the city's limited economy and potential volatility in the pledged sales and use tax revenues, although debt service coverage remains solid under various stress scenarios. 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.
Local sales and use taxes are collected by the state and distributed on a monthly basis, pursuant to a formula which provides that 50% are remitted based on the municipality's population and 50% based on the point-of-sale. However, through fiscal 2013 each entity is guaranteed to receive no less than 75% of all sales and use taxes generated within its boundaries.
North Ogden City is located in Weber County, Utah, approximately 40 miles north of Salt Lake City. The city is a mature, primarily residential community, with pockets of commercial and retail trade development. The city's estimated 2008 population was 17,682, and the city projects the population will reach 35,000 at full build out. Economic indicators for the county, the closest proxy available, show median household income below the state and national figures, although the unemployment rate of 7.2% (preliminary) for July 2009 was slightly above the state's 6.1% (preliminary) but below the nation's 9.7%. The county's primary employment industries are government, retail trade, and manufacturing.
City financial operations are sound, evidenced by healthy general fund reserves. Fiscal 2008 closed with an unreserved general fund balance of $1.9 million, equal to a strong 26.3% of spending. Sales tax receipts comprised 29% of total general fund revenues in fiscal 2008, with property tax revenues accounting for 19% of the total. Fiscal 2009 sales tax revenues were roughly 4% below budget and the city expects to close the fiscal year with a decline in fund balance, partially attributable to weak revenues, but also caused by the city's need to reduce reserve levels to comply with a state mandated cap on fund balance levels. The general fund budget for fiscal 2010 totals $6 million, including a projected 7% decline in sales taxes. The City Council voted to increase the property tax rate in fiscal 2010 after holding a Truth in Taxation hearing required by state law. The law requires that the hearings be held when a taxing entity elects to collect more revenue than was collected the previous year, although the entities are permitted to keep revenues generated by new growth.
Sales and use tax receipts provide very strong debt service coverage, with fiscal 2009 receipts covering maximum annual debt service (MADS) on all outstanding parity debt by 5.9 times (x); MADS will occur in fiscal 2014. Coverage remains solid even under cases of extreme stress. The city has a moderate concentration in the top sales taxpayers; in fiscal 2009, the largest taxpayer accounted for 10% of total sales and use tax revenues, with the top 10 representing 28% of total receipts. To issue additional bonds, sales and use tax revenues for the preceding fiscal year must cover MADS on the current and proposed bonds at least 1.5x.
Debt levels are very low as the 2004 bonds are the city's only outstanding debt, and future capital needs are minimal and expected to be funded by user fees and charges, as well as state aid for roads.
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Fitch Ratings
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Alan
Gibson, 415-732-7577, San Francisco
or
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Email: kevin.duignan@fitchratings.com
Sandro
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Email: sandro.scenga@fitchratings.com
