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| [November 21, 2012] |
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Fitch Rates Cedar Hills, UT GOs 'AA-'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has assigned the following rating to City of Cedar Hills,
Utah (the city) obligations:
--$5.625 million general obligation (GO) refunding bonds, series 2012.
The bonds will be sold via competitive on or around Dec. 4, 2012.
Proceeds will be used to advance refund outstanding GO refunding bonds,
series 2005, maturing after Feb. 1, 2016, which were issued to help
finance the acquisition and construction of the Cedar Hills golf course.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by ad valorem taxes to be levied without
limitation as to rate or amount on all taxable property in the city.
KEY RATING DRIVERS
GOOD FINANCIAL POSITION: The city has maintained good reserves,
including 18% unrestricted general fund balances the past two years and
excess reserves in the capital projects fund, some of which have been
used to support golf course operations.
MANAGEMENT TURNOVER: The city management team is mostly new with the
recent departures of the mayor, finance director, city manager, and
other staff.
DIVERSE REVENUE SOURCES: The city benefits from a diverse revenue stream
with no source making up more than 30% percent of general fund revenues.
STABLE ECONOMY: The affluent city is primarily residential with
increasing commercial development and access to the Salt Lake City and
Provo employment centers.
MODERATE DEBT LEVELS: The city's moderate debt levels, which are
primarily related to its golf course, are likely to decrease over time
as the city intends to continue financing capital needs through pay-go
sources.
WHAT COULD TRIGGER A RATING ACTION
STABLE MANAGEMENT, LIMITED GOLF COURSE SUPPORT: An upgrade may be
triggered by stability in the city's management and maintenance of
general fund and capital projects fund support of the golf course within
current expectations.
CREDIT PROFILE
STABLE ECONOMY WITH GROWING COMMERCIAL SECTOR
The affluent bedroom community of Cedar Hills is located approximately
26 miles south of Salt Lake City and 8 miles north of Provo at the foot
of the Wasatch Front mountain range. The population of about 10,000 has
increased over 200% in the past decade. It is currently about 85% built
out with a growing commercial sector. However, due to the primarily
residential nature of the city, its top 10 taxpayers make up a low 6% of
taxable assessed value (TAV). TAV has declined in each of the last three
years, for a combined reduction of 26% since 2008. The city expects a
slight decline TAV in fiscal year 2012 before stabilizing thereafter.
Accessible from the I-15 via the Timpanogos Highway (State Road 92), the
city benefits from its proximity to employment centers of Salt Lake City
and Provo. Unemployment is low at 4.5% as of September 2012, lower than
state and national averages. Median household income is high at 75% over
the state average and 90% above the national while per capita incomes
are on par with the state. The city is highly education with over 50% of
its adult population possessing a bachelor's degree, about twice the
national average.
GOOD FINANCIAL POSITION and DIVERSE REVENUE STREAM
The city's oveall financial profile is good with an unaudited fiscal
year 2012 unreserved fund balance of 18.9% and a ratio of cash to
liabilities of 1.7. State code limits the general fund unreserved
balance to 18% of revenues. The city maintains sizable reserves in the
capital projects fund as well, with over $2 million in unrestricted fund
balance the past several years that can be used for general fund
purposes if necessary.
The city's revenue stream is diverse and includes sales taxes, which
comprise 30% of general fund revenues, and property taxes at 24%. Sales
taxes have increased 36% over the past five years, primarily due to
increasing commercial development, including a Walmart in 2008. Sales
taxes are collected by the state and distributed monthly according to a
formula that provides that 50% of the 1% of local sales and use tax
revenues is remitted based on the municipality's population and 50% on
the point-of-sale basis.
Property taxes have remained very stable due to the state law that
adjusts the tax rate annually to hold revenues harmless. The city has
not increased the tax rate above that amount for at least the past
decade and has quite a bit of flexibility to increase the rate to the
state limit of $0.007 per $1,000 if needed, although it has no plans to
do so.
City management currently appears stable after a recent departure of the
mayor, finance director, and city manager. While such a big turnover is
of concern with regard to the relationship between officials and
community residents, Fitch expects more stability in management going
forward and notes the current city's manager's long tenure with the city.
SUPPORT OF GOLF COURSE
While overall operations are good, the ongoing support of the golf
course fund by the general fund and capital projects fund is a concern
if it increases beyond anticipated levels. The support is through small
direct operating subsidies in two of the last ten years and a $2 million
loan from the capital projects fund to the golf course fund to
reconfigure the course to create saleable lots and to bridge accumulated
deficits.
The golf course loan has grown from about $200,000 in fiscal year 2004
to $2 million in fiscal year 2012. The city plans to repay the loan in
part through the sale of residential lots created from the
reconfiguration on the golf course property, currently valued at around
$600,000. Proceeds of the sale of certain other lots totalling an
estimated $2 million must be used for mandatory redemption of the GO
bonds. Finally, the city recently used about $2.3 million in restricted
impact fees from the capital projects fund to build a community
recreation center on the golf course. The golf course fund has had
operating losses in each of the last nine fiscal years.
MODERATE DEBT LEVELS
Overall debt levels are moderate on a per capita basis at $2,000 and
moderately high as a percent of full market value at 3.3%. However,
given the lack of additional borrowing plans and expectation of pay-go
for capital projects, the debt levels are likely to decline over time.
Amortization of principal is moderate, with a ten year principal payout
of 43%.
The city's carrying costs are moderate, with debt service accounting for
17% of spending (general fund, capital projects fund, and golf course
fund) and pension costs accounting for 4%. The state pension plan is
adequately funded at 74% using a Fitch adjusted discount rate. In
addition, the city does not offer other post-employment benefits.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=685314
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
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OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
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