Fitch Affirms St. George, UT's Sales Tax Revenue Bonds at 'AA'; Outlook Stable

SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on St. George, Utah (the city) as part of its continuous surveillance effort:

--$23.7 million outstanding sales tax revenue bonds affirmed at 'AA'.

In addition, Fitch assigns an implied general obligation bond rating of 'AA'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a first lien pledge of local sales and use tax revenues. Additional bonds may be issued on a parity basis if pledged revenues for any 12 consecutive months within the 24 months preceding issuance exceed maximum annual debt service for the outstanding and proposed bonds by 2.25x or more.

KEY RATING DRIVERS

Robust Coverage: Despite declines in sales tax revenues during the recent recession, the city has maintained debt service coverage levels that perform well under Fitch's stress scenarios. Coverage exceeds 3.1 times (x) maximum annual debt service (MADS) in the base case, and would remain above 1.5x even with 10% per annum revenue declines through maturity.

Rapid Growth: St. George experienced a 45% increase in population between 2000 and 2006, contributing to a construction boom that has been followed by higher than average unemployment levels.

Tourism and Trade Economy: St. George's economy has benefited from tourism and trade-related activity arising from its location along a major commercial corridor adjacent to a unique desert landscape.

Revenue Stability: A portion of the pledged revenue is generated statewide, providing insulation from localized sales tax fluctuations.

Strong Financial Management: The city has maintained operating balance during a challenging fiscal period through conservative budgeting and expenditure controls, supported by unreserved balances in the city's general fund and capital projects fund totaling 44% of general fund spending in fiscal year 2010.

CREDIT PROFILE

St. George is the 8th largest city in Utah and is distinguished by its remote location in the state's southwest corner, as well as its recent population growth. Between 2000 and 2006 the city's population increased by 45%, including many retirees attracted by the region's desert climate and numerous recreational opportunities. This rapid growth contributed to a construction boom prior to the recent recession, and to relatively high unemployment in its aftermath, with unemployment rates well above the statewide average. Despite lagging employment, growing tourism and trade-related commercial activity has contributed to a degree of economic diversification and supported the city's economic recovery.

St. George's financial performance has remained solid throughout the recent downturn, with operating surpluses achieved annually despite three years of revenue declines. Conservative budgeting and expenditure controls have helped the city to achieve these results while maintaining strong reserves. As of fiscal year 2010 unreserved general fund balance remained above 7% of spending, rising to 44% of spending with the inclusion of unreserved capital projects funds.

A first lien on sales and use tax revenues provides security for the bonds. Although sales tax receipts dropped by 21% between 2008 and 2010, coverage on the bonds remains healthy at 3.1x maximum annual debt service (MADS) under Fitch's base scenario. Coverage levels also remain adequate under stress scenarios of 5% and 10% per annum declines in sales tax revenues through maturity.

Sales and use taxes supporting the bonds are collected by the state and distributed to cities pursuant to a formula that considers both local sales and population. St. George receives 50% of its locally generated sales and use tax, plus a share of statewide taxes proportional to its population. This arrangement provides some protection against local downturns and helps to stabilize an economically sensitive revenue source. Statewide taxable sales have seen moderate quarter over quarter growth of approximately 1% in the last quarter of 2010 and 5% in the first quarter of 2011.

Overall debt levels are moderate at $2,433 per capita and 2.4% of market value. Amortization is rapid with 81% of net direct debt retired in 10 years. The city also benefits from limited exposure to other long-term obligations due to historically strong funding for the state-sponsored pension plan and the absence of other post-employment benefits.

Additional information is available at 'www.fitchratings.com'

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, IHS Global Insight, and Zillow.com.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 16, 2010);

--'U.S. Local Government Tax-Supported Rating Criteria' (Oct. 08, 2010).

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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