SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has affirmed the following South Jordan, UT ratings:
--$15.1 million sales tax revenue bonds at 'AA+';
--Implied general obligation (GO) bond rating at 'AAA'.
In addition, Fitch affirms the following rating for South Jordan Municipal Building Authority, UT:
--$10.8 million lease revenue bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The sales tax revenue bonds are payable from a first lien on the local sales and use tax revenues levied at the maximum 1% rate, which are distributed based on a combination of population and point-of-sale activity.
The lease revenue bonds are payable from lease payments subject to annual appropriation by the city. The leased assets for the refunding lease revenue bonds are the historical museum, including the land and 88,862 square foot building, along with the recreation project, consisting of a pool and fitness center, ball fields, support facilities, a skate park, and related assets.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The city's strong financial profile reflects solid reserves, consistently balanced financial performance, and conservative financial policies.
SOLID FINANCIAL OPERATIONS: The city's diverse and growing revenue base and demonstrated restraint in expenditures have consistently resulted in positive financial performance, offsetting rating concerns regarding the potential financial pressures from a rapidly growing population.
SOUND ECONOMY: The local economy benefits from its participation in the greater Salt Lake labor market and the city's above average wealth levels, low unemployment rate, and diverse range of employers.
LOW DEBT BURDEN: The city's overall debt burden is projected to remain low with the city's intention to fund future capital projects on a paygo basis. The city consistently makes its annual required pension contribution and has no outstanding other postemployment benefit liability.
SECURITY FEATURES: The rating on the lease revenue bonds reflects the general credit characteristics of the city as well as the security features supporting the bonds. The soundness of the master lease structure for the lease revenue bonds is somewhat offset by the nonessential nature of the leased assets.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The city of South Jordan covers 22.3 square miles of southwest Salt Lake County, 15 miles south of Salt Lake City. The city is one of the fastest growing in the U.S. with a 2013 population of 59,366, more than double its 2000 total (29,437).
The city is primarily residential but has a growing mix of commercial, retail, and industrial businesses. South Jordan benefits from several attributes that have led to its rapid population increase, including significant areas of land available for development and good public transit and highway access to the greater Salt Lake region.
STRONG FINANCIAL PROFILE
The city's unrestricted general fund balance is consistently maintained near the legal maximum level, which was recently raised to 25% from 18% of budgeted revenues. At the end of fiscal 2014, the city's unrestricted balance was $7 million or a solid 19.4% of spending.
The city generated operating surpluses (after transfers) in six of the past seven audited years with an operating surplus of $4.8 million (14% of general fund spending) projected for fiscal 2015. The city adds $500,000 annually to the general fund balance and transfers the rest of the surplus to the capital projects fund to keep the general fund balance in compliance with the legal maximum. In fiscal 2014, the city transferred $6.5 million (18% of spending) to the capital projects fund.
Funds retained in the capital projects fund are used by to cash finance most of the needed capital projects in the city, a practice that Fitch views favorably. City officials stated that the capital projects fund and several other funds are available to support the general fund, if necessary, which provides an additional financial cushion of approximately $16.5 million (46% of general fund spending) at the end of fiscal 2014.
The city benefits from a relatively diverse revenue base with approximately 64% of total revenues generated through various taxes. The three largest revenue sources are sales tax (27%), property tax (27%), and franchise tax (9%). Tax revenues have increased annually since at least fiscal 2008 and are projected to grow by 3% and 5% in fiscal 2015 and 2016 respectively.
The city's revenue base is further supported by Utah's institutional features. For example, Utah's property tax rate is automatically adjusted to generate approximately the same revenue as the previous year plus new growth, thereby reducing the revenue impact associated with declining property values. In addition, sales tax revenue is distributed according to the 50/50 formula, where the city receives 50% of the locally generated sales tax revenue with the remaining 50% distributed by the state to municipalities based on population. The formula reduces potential concentration concerns at the local level and benefits cities like South Jordan with growing populations.
STRONG DEBT SERVICE COVERAGE
Debt service coverage on the sales tax revenue bonds remained strong in fiscal 2014 at 6.2 times (x). Sales tax revenue would have to decline by approximately 84% from this level to reach 1.0x maximum annual debt service. Coverage is projected to remain high with no additional debt issuance plans and by the relatively strong additional bonds test of 2.0x.
SOUND ECONOMY
South Jordan benefits from an increasingly diverse local economy as well as its participation in the broad and diverse greater Salt Lake regional economy. Locally, the economy is supported by a diversity of employers and employment sectors with Jordan School District, mining companies Rio Tinto and Kennecott, Merit Medical, South Jordan City, and dental product manufacturer Ultradent among the top employers. In addition, the city is well positioned to participate in the regional economy with good access to highway 15 and public transit systems.
South Jordan's local economy also benefits from above average wealth levels and a low unemployment rate. Compared to the state, South Jordan's income levels are high with per capita income and median household income at 123% and 153%, respectively, of Utah's average. The unemployment rate in the city remains low at 3.7% (July 2015) compared to the nation's average of 5.1%.
LOW DEBT BURDEN
The city's debt burden is low with direct and overlapping debt ratios of $1,181 per capita and moderate at 1.2% of taxable value. As expected with a quickly growing population, the city has significant capital needs. However, officials do not plan on issuing additional debt over the next five years and instead plan on financing capital projects with available reserves. The city makes its annual actuarially required pension contributions to Utah Retirement Systems, which are well-funded, and has no other postemployment benefit liability.
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, Underwriter, and Zillow.
Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.
Applicable Criteria
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=991375
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=991375
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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