Fitch Ratings affirms the following ratings for Westminster, Colorado's (the city) outstanding revenue bonds:
--$27 million sales and use tax bonds at 'AA+';
--$28.4 million special purpose parks, open space and trails (POST) sales and use tax bonds at 'AA-'
The Rating Outlook is Stable.
SECURITY
The sales and use tax bonds are payable from a first lien on the 3% sales and use tax levied within the city. The POST sales and use tax bonds are payable from a first lien on the 0.25% POST sales and use tax levied within the city.
KEY RATING DRIVERS
MATURE AND ROBUST ECONOMY: The city's economy is sound and diverse, centrally located between Denver and Boulder, CO. The city's aggressive redevelopment efforts are fueling the expansion of its commercial and retail sectors despite being near build-out.
HEALTHY COVERAGE LEVELS: Both sales and use tax-supported securities exhibit solid debt service coverage by pledged revenues which returned to growth the last two years following recessionary pressure. The city has no further plans to leverage the sales tax security.
REVENUE CONCENTRATION: Sales and use tax revenues comprise the largest revenue source for the city's operations. The current volatility of these revenue streams is mitigated by management's prompt budgetary actions which have preserved the city's adequate financial reserves.
FAVORABLE DEBT PROFILE: The debt profile of the city is a credit positive, characterized by a very rapid principal pay out rate and an average but manageable overall debt burden.
CREDIT PROFILE
MATURE DENVER-METRO COMMUNITY NEARING BUILD-OUT
Westminster is a relatively wealthy and moderately growing community between Denver and Boulder, with a population of approximately 106,000, up 5% since 2000. Median household buying income is nearly 120% of the U.S. average. Unemployment rates have improved in the past year to 7.9% as of February 2012, down from 8.9% in 2011 and still well below state and national averages.
In addition to participating in the broad Denver metropolitan economy, the city's own economic base is fairly diverse. However, like other Denver-area municipalities, the declining housing reassessments have halted taxable value growth and caused modest declines in recent years. The city is approaching full development with most remaining available property classified as commercial.
SALES TAXES FUND MAJORITY OF CITY OPERATIONS
The city's largest revenue source is sales and use tax receipts, accounting for 67% of total general fund revenues in 2011. Receipts in 2010 and 2011 have improved due to significant new retail development in the city, reversing negative trends in previous years and relieving pressure on city operations. Collections in 2011 of $54 million provided a large 11.2 times (x) coverage of maximum annual debt service (MADS) for the sales and use tax bonds. Coverage remained adequate at 1.7x MADS for the city's POST sales and use tax bonds. Year to date collections show continued growth with 2.4% for sales and use taxes and 1.8% for POST sales and use taxes from January through April.
Some taxpayer concentration exists with the top 10 taxpayers representing about 37% of total collections, although no one source represents more than 6.8%. The city has several economic development efforts planned or underway, which should benefit collections, reduce taxpayer concentration, and eventually offset declines in tax revenues from store closures at Westminster Mall.
As part of its redevelopment efforts at the aging Westminster Mall, the city's economic development authority in May 2011 purchased the mall property and surrounding parking which has consolidated ownership and will facilitate the eventual transition to a large scale mixed use development. Demolition of the remaining vacant buildings is underway and a redevelopment agreement is expected by the end of 2012. As with all sales tax-secured bonds, there is vulnerability to economic cycles and competing retail opportunities.
FAVORABLE DEBT PROFILE
Debt ratios are average on an overall basis after adjusting for self-supporting debt from the city's TIF districts which carry the city's moral obligation. No further leveraging of the 3% sales and use tax or the 0.25% POST sales tax is planned. The city's capital plan calls for modest pay-as-you-go financing from excess sales and use taxes.
The sales tax bonds carry a strong additional bonds test of 2.0x MADS coverage by historical revenues as well as a springing debt service reserve fund if coverage dips below 2.0x MADS to be funded over 12 months. Principal pay out of total city debt obligations is very rapid with 84% retired in 10 years.
STABLE FINANCIAL OPERATIONS WITH HEALTHY RESERVES
The city's financial operations are well maintained. Despite the decline in sales and use taxes in 2009, the city has retained strong reserves, implementing an effective contingency plan to stabilize its financial position. The 2011 near-final unrestricted general fund balance totaled $21 million, or 20% of spending, above its 15% fund balance policy level. This policy amount is comprised of a 10% general reserve fund and a 5%-10% general fund stabilization reserve. Fitch considers the maintenance of solid reserves as a key credit factor in light of the city's dependence on a potentially volatile revenue stream.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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, Zillow.com, and the National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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