In the process of routine surveillance, Fitch Ratings upgrades Bountiful Municipal Building Authority, Utah's $3 million series 2003 lease revenue bonds (LRBs) to 'AA-' from 'A+'. The Rating Outlook is Stable.
The upgrade reflects the city's improved assessed valuation (AV) growth, enhanced financial position and flexibility, lower unemployment rates, and the region's resilient housing market. The 'AA-'rating reflects the city's strong financial position, including a consistently high unreserved fund balance and historically balanced operations, low debt levels with fast amortization rates, limited capital needs, high income levels, and no planned debt issuance. These factors are balanced by the general fund's reliance on transfers from the light and power fund, and the leased asset's low essentiality. The essentiality concern, though, is mitigated somewhat by payments from the redevelopment agency that are restricted for debt service.
The city of Bountiful is a bedroom community of nearly 44,000 residents, about 10 miles north of Salt Lake City. Unemployment and wealth levels are better than the county, state, and nation. The regional housing market has been quite resilient to date, marked by low foreclosure and delinquency rates, and continued price increases. Despite being mostly built-out, the city has enjoyed strong AV growth in recent years, owed partially to a long-overdue assessment of local property values. Capital needs are low, and no debt issuance is planned. However, future capital improvements to the city's light and power enterprise may be financed with debt, which is likely to be revenue supported.
The city's finances are very strong, marked by healthy general and capital projects reserves and a history of balanced operations. In fiscal 2007, the general fund produced an approximate $161,000 operating surplus, which increased the unreserved general fund balance to $2.3 million, or a high 16.8% of annual spending. The capital projects fund recorded a large $2.5 million operating surplus for fiscal 2007, boosting its unreserved fund balance to a very high $25.4 million.
General fund operations are supported by annual transfers from the light and power enterprise fund, equaling 10% of metered sales, and are scheduled to fall to 9% next year. Concerns over the general fund's dependence on these transfers are mitigated by the flexibility provided by the capital projects fund, which receives a majority of the city's sales and use tax revenues. These resources could be reallocated to the general fund if necessary.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework'.) At this time, Fitch is deferring its final determination on municipal recalibration. Fitch will continue to monitor market and credit conditions, and plans to revisit the recalibration in the first quarter of 2009.
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