Fitch Affirms Washington County, UT's GOs at 'AA'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings has affirmed the following Washington County, Utah's (the county) general obligation bond (GO) rating at 'AA':

--$9.6 million GO bonds series 2004B and 2010.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an unlimited ad valorem property tax levy on all taxable property within the county.

KEY RATING DRIVERS

STRONG FINANCIAL OPERATIONS: The 'AA' rating reflects the county's strong financial operations, including a high unrestricted general fund balance, consistent operating surpluses, and conservative budgeting practices.

TOURISM AND TRADE ECONOMY: The economy has benefited from tourism and trade-related activity arising from the county's location along a major commercial corridor adjacent to a unique desert landscape. Employment levels and home prices have seen strong growth in the past two years but remain below pre-recession peaks.

HIGH GROWTH: The county has experienced rapid population growth in recent years with an influx of retirees and others attracted by its recreation and leisure opportunities.

LIMITED LONG-TERM OBLIGATIONS: The county's debt profile is strong and benefits from low overall debt levels, rapid principal amortization, limited capital needs, and modest retiree benefit costs.

RATING SENSITIVITIES

FINANCIAL PERFORMANCE KEY: The rating is sensitive to the county's financial performance, which proved remarkably stable during the recent recession despite substantial economic losses. A decline in financial flexibility following a renewed downturn would increase downward rating pressure. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

ECONOMIC VOLATILITY: The county's history of economic volatility limits the potential for upwards rating movement.

CREDIT PROFILE

Washington County encompasses an area of more than 2,400 square miles with a population of approximately 148,000. The county is located in the southwest corner of Utah, approximately 125 miles northeast of Las Vegas and 315 miles southwest of Salt Lake City. Although geographically isolated, population growth has been rapid, with average annual increases of more than 4% over the past decade. About half of the county population is located in the city of St. George (sales tax revenue bonds rated 'AA', Stable Outlook by Fitch), which serves as the county's economic and retail hub. A significant portion of the population consists of retirees and young families.

The county's economy is dominated by the retail, tourism, and distribution sectors. The retail sector benefits from a large base of retirees and tourists, while the tourism sector gains from the area's proximity to major recreational areas and warm weather. The county's location along the I-15 freeway makes it an attractive location for warehouse and distribution facilities, which comprise a key segment of the local economy.

ECONOMIC GROWTH RETURNS

The county has seen a strong employment recovery over the last several years with 35 consecutive months of year-over-year gains. Employment levels have increased by 16% over this period, reflective of both job growth and the substantial decline that preceded it. Employment volatility is especially apparent in the county's unemployment rate, which rose from 2.8% in 2007 to 10.4% in 2010, before falling to 4.2% as of July 2014. The county's unemployment compares favorably to the national rate of 6.5% but remains slightly above the 3.9% rate for the state.

The local housing market has experienced similar volatility and was severely affected by the housing-led recession. Home prices dropped steeply from their peaks, contributing to a peak-to-trough decline in assessed value (AV) of 29.1% between 2008 and 2012. AV has rebounded in the subsequent two years by 17%, but remains 17% below its pre-recession peak. A 5.5% year-over-year increase in home values, as reported by Zillow.com as of August 2014, suggests further gains in AV for 2015.

Due to a high proportion of retirees and large families, per capita income levels are well below national averages and moderately below state levels. However, household income levels are just moderately below the state and national levels.

STRONG FINANCIAL OPERATIONS

Steady revenue growth in combination with spending controls has helped the county to sustain its strong financial position. Total general fund revenues rose at an annual rate of 2% between 2008 and 2013 while general fund spending increased by only 0.6% during the same period. The county's unrestricted fund balance of $7.1 million was equal to 28.5% of general fund spending at the end of 2013 and was supplemented by $4 million in capital reserves. Further additions to reserves appear likely in 2014 based on positive year-to-date results.

LIMITED LONG-TERM OBLIGATIONS

The county's debt profile is sound. Overall debt levels, including all taxing jurisdictions within the county, are low at $1,842 per capita and 1.9% of AV and principal amortization is rapid. Carrying costs for debt service and pension costs were somewhat elevated in 2013 at 26% of governmental expenditures, reflective of early principal pre-payment.

The county offers no OPEB plan and has no related liability. The county participates in two state pension plans and has been facing rising contribution rates due to prior years' investment losses. Recently implemented state pension reforms appear to have slowed the growth of such expenses, with no increases anticipated for 2015. Funding for the two state plans is adequate at an estimated 78.6% and 80.9% of liabilities, based on Fitch's assumption of 7% investment returns.

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 and Zillow.com.

Applicable Criteria and Related Research:

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=889954

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Contacts

Fitch Ratings
Primary Analyst
Stephen Walsh, +1 415-732-7573
Director
Fitch Ratings, Inc.
650 California Street
San Francisco, CA 94108
or
Secondary Analyst
Alan Gibson, +1 415-732-7577
Director
or
Committee Chairperson
Amy Laskey, +1 212-908-0568
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Stephen Walsh, +1 415-732-7573
Director
Fitch Ratings, Inc.
650 California Street
San Francisco, CA 94108
or
Secondary Analyst
Alan Gibson, +1 415-732-7577
Director
or
Committee Chairperson
Amy Laskey, +1 212-908-0568
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com