SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to the following Park City, UT (the city) general obligation (GO) bonds:
--$7.2 million GO bonds, series 2013A;
--$1.9 million GO refunding bonds, series 2013B.
Proceeds from the series 2013A bonds will be used to finance various alternative transportation projects within the city. Proceeds from the series 2013B bonds will refund the city's outstanding GO series 2003 bonds. The bonds are scheduled to be sold via competitive sale during the week of August 12.
In addition, Fitch affirms the following ratings at 'AA+':
--$4.9 million GO bonds, series 2010B;
--$1 million GO refunding bonds, series 2010A;
--$9.5 million GO refunding bonds, series 2009;
--$7.8 million GO bonds, series 2008;
--$4.2 million GO bonds, series 2004;
--$1.9 million GO bonds, series 2003.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax levied on all taxable property within the city.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The city's strong financial profile reflects reserves maintained near maximum legal levels, balanced financial operations, a diverse revenue base, and the ability to increase various tax revenues, if necessary.
CONCENTRATED ECONOMY: The local economy is highly concentrated in winter sports-related tourism and leisure activities, but benefits from high wealth levels, below-average unemployment, and its proximity to the greater Salt Lake City area.
GENERALLY FAVORABLE DEBT PROFILE: Overall debt ratios are high on a per capita basis but low as a percentage of assessed value (AV), reflecting the city's relatively small permanent population, large number of visitors and temporary residents, and high property values. Amortization is rapid.
PRUDENT FINANCIAL PRACTICES: Financial and budgeting practices are generally conservative, with a history of significant pay-as-you-go financing of capital projects, long-term financial forecasting, regular reviews of financial performance, and prudent reserve policies.
CHANGES IN CREDIT FUNDAMENTALS: Fitch expects the city to retain its healthy financial profile to counter concerns over the concentrated economy and relatively small permanent population, credit factors that Fitch believes limit the rating to its current level.
The city is a well-established, higher-income resort community located approximately 30 miles from Salt Lake City. The local economy is highly concentrated in tourism and leisure activities with winter recreational sports and the Sundance Film Festival anchoring many of the activities in the area.
The city's relatively small permanent population of 7,873 (2012) grows significantly at various times of the year, particularly in the winter season, with approximately two-thirds of the city's housing units considered secondary residences and an overnight rental capacity sufficient for about 27,000 individuals. City officials estimate that the average daily service level for the city is approximately 32,000.
The city's AV has been somewhat volatile over the past several years due to the negative impacts of the national recession and declining home values, offset by significant new growth within the city limits (most notably the Montage Hotel). AV levels were effectively flat over the past two years as a modest decline in tax year 2012 was reversed by limited growth in tax year 2013.
Positively, building permits issued by the city increased in 2011 and 2012, reaching the highest total since 2007. The growing trend of development permits is likely to support further AV gains in the near future.
HEALTHY RESERVES SET TO INCREASE
The city's unrestricted general fund balance remains at healthy levels despite a modest decline in fiscal 2012, as the city used available cash for capital projects. The city's ending balance in fiscal 2012 was approximately $4 million or 15.3% of spending. The city has historically maintained its unrestricted balance close to the maximum levels allowed under Utah state law. Until the law changed in 2013, cities were allowed to carry balances as high as 18% of the next year's expected revenues. The maximum allowed following the change is 25%.
In response to the increased legal limit, the city plans on raising its unrestricted reserve to the maximum level by keeping surplus funds in the general fund rather than transferring them to the capital fund, as had been the practice. Management anticipates that the general fund reserve will reach the revised legal limit within the next three to four years, which Fitch views as reasonable given the city's recent financial performance.
The city's reserves held in the capital fund provide additional financial flexibility. At the end of fiscal 2012, the capital fund's balance was $19.3 million.
FINANCIAL FLEXIBILITY A CREDIT POSITIVE
Fitch views the city's balanced financial operations and budgetary flexibility positively. The city is projected to remain structurally balanced over the medium term and has the ability to both raise new revenue and shift some revenues generally received by other funds to the general fund, if necessary.
Financial performance was balanced in fiscal 2012 with the modest operating deficit (after transfers) of approximately $192,000 (0.7% of spending) largely reflecting the one-time use of $1.8 million for capital projects. Preliminary figures for fiscal 2013 are not available at this time, but management expects to record an operating surplus and increase in the unrestricted general fund balance.
The city benefits from a diverse revenue base with property taxes and sales taxes each contributing about one-third of general fund revenues; the remainder is composed of a mix of franchise fees and other revenues. In addition, the city budgets approximately half of its expected sales tax revenues directly into the capital and transit funds for one-time purposes. This revenue could be budgeted into the general fund at the city council's discretion, providing additional financial flexibility to the city.
The city also benefits from Utah's property tax law which allows the city to receive the same amount of property tax revenue as the prior year, plus new growth, regardless of AV performance. This feature provides additional stability to the city's revenue structure. In addition, the recent voter approval of a 0.5% increase in the resort sales tax, which is not subject to the state's general sales tax redistribution formula, will allow for greater capture of local economic activity. Revenues generated from the increased tax are budgeted for capital purposes at the city council's discretion.
MANAGEABLE LONG-TERM LIABILITIES
The city's overall debt ratios are mixed at a high $7,991 per capita and low 0.9% of AV. The discrepancy largely reflects the city's relatively small permanent population (7,873 in 2012) compared to the large number of visitors, temporary residents, and second-home owners. The disparate measures also reflect the city's high property values. Fitch's concerns regarding the high per capita debt burden are moderated by residents' above-average wealth levels and the debt's rapid amortization rate with approximately 94% of outstanding principal retired within 10 years.
Future debt plans include preliminary estimates of approximately $10 million in resort sales tax bonds in 2014. Fitch does not view the potential additional issuance as having a material impact on the city's overall debt profile.
The city participates in the state's pension program and contributes 100% of the annual required contribution. Fitch views the annual contribution amount as manageable with the fiscal 2012 total amounting to $1.9 million or 3.6% of governmental spending. The city does not offer other post-employment benefits.
Additional information is available at 'www.fitchratings.com'.
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, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria