NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA-' rating to the following bonds issued by the Yuma County Free Library District, AZ (the district):
-$26.1 million unlimited tax general obligation (ULTGO) refunding bonds, series 2015.
Proceeds will be used to refund a portion of the district's outstanding bonds for interest savings. The bonds are scheduled to sell via negotiation the week of June 1.
In addition, Fitch affirms the 'AA-' rating on the district's outstanding bonds as follows:
--Approximately $7.4 million ULTGO bonds, series 2006A;
--Approximately $37 million ULTGO bonds, series 2007.
The Rating Outlook is Stable.
The bonds constitute a general obligation of the district secured by an unlimited continuing direct ad valorem tax levied against all taxable property within the district.
KEY RATING DRIVERS
TAX BASE STABILIZATION: Secondary assessed valuation (SAV) has flattened after a period of significant declines. These declines pressured financial margins as the district is almost entirely dependent on property tax revenue.
AMPLE RESERVES: Fitch expects the overall reserve position to remain strong, despite plans to continue modestly drawing down reserves while incrementally raising the tax rate.
WEAK ECONOMY UNDERPINNED BY GOVERNMENT: The area economy relies on local and federal government employment, including military, and has an exceptionally high unemployment rate due to the presence of seasonal agricultural workers. Socioeconomic indicators are well below state and national averages.
FAVORABLE DEBT PROFILE: Debt levels are low and amortization is slow, with no plans to issue additional debt. The district contributes fully to an adequately funded state pension system.
The district's ample reserves are a key credit strength. Failure to maintain reserves well above the stated policy level, as planned, could result in a downgrade.
The Yuma County Free Library District is a single-purpose district, with a 2014 population of 203,247, coterminous with Yuma County. It is located in the southwest corner of Arizona, sharing borders with both Mexico and California. The district is a component unit of the county and is governed by the full board of five county supervisors.
Government agencies and military facilities underpin the local economy, in addition to utilities, telecommunications, agriculture, and energy. Several solar energy installation projects have been completed, which will add nominally to property values within the district. The largest employers in the district include the U.S. Army, Yuma Regional Medical Center, Yuma Elementary School District, and Wal-Mart stores.
Area unemployment remains one of the highest in the nation, at 19.4% in February 2015, due to the large number of seasonal migrant agricultural workers. The consistently high unemployment rates have trended with economic cycles in the past, yet recent data show stagnant employment levels and labor force contraction despite recovery in the rest of the country. Wealth and income figures for the district fall well below state and national averages.
SAV stabilized in 2015 at $1.14 billion after several years of run-up and subsequent contraction, typical of other municipalities in the state. District officials increased the operations tax rate to $0.5483 per $100 SAV from $0.5032 in 2012, after which it has remained flat.
BUDGETED DRAWS ON FUND BALANCE
Property taxes comprise approximately 95% of district revenues. Revenue flexibility is strong, as no there is no legal limit to the property tax rate. Management chose to gradually draw down the district's ample reserves to counteract revenue shortfalls from tax base contraction. Reserves at fiscal 2010 end were near $10 million, or almost a full year of operating expenses. Through budgeted drawdowns, the district will have reduced reserves to an estimated $5.4 million at June 30, 2015, which is a still strong projected 45% of spending.
The proposed fiscal 2016 budget includes cost of living increases for library staff and a five-cent increase in the operations tax rate. Fitch expects the county supervisors will continue to employ incremental tax rate increases as necessary in order to maintain reserves well above the informal policy floor of two months of spending.
NO FUTURE DEBT PLANS
Current overall debt levels are low at $737 per capita and 1.7% of market value. Debt is amortized slowly, with just over 30% of principal maturing within 10 years, but this is offset by the lack of identified capital needs. The district does not have any plans to issue new money debt after the recent construction of six library facilities.
The district participates in the adequately funded state-sponsored, cost-sharing, multiple-employer pension program and regularly makes 100% of its required contribution for library employees. The district does not offer other-post employment benefits (OPEB) to its employees. The district's debt service made up a very high 29.4% of 2014 expenditures, which is typical for single-purpose entities.
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, and the 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