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Fitch Rates Pleasant Grove City (Utah) $4.1MM Excise Tax Bonds 'A+'; Outlook Stable
SAN FRANCISCO-(Business Wire)-May 6, 2008 - Fitch Ratings assigns an 'A+' rating to Pleasant Grove City, Utah's (the city) $4.1 million excise tax bonds. In addition, the city's $2 million in outstanding parity bonds are assigned an 'A+' rating. The bonds will sell by negotiation during the week of May 26. The Rating Outlook is Stable.
The 'A+' rating reflects the bond's adequate coverage ratios, statewide levy and collection of the Class C road revenues, and short debt amortization. The rating also is based on the city's high population growth and new development pipeline, strong finances, including a high general fund balance, and the city's diversified stream of revenues. These strengths are somewhat offset by the potential for falling gas consumption to reduce the Class C road revenues, the city's high debt ratios and future capital needs driven by elevated population growth.
These bonds are secured by a first lien pledge on Class C road revenues, which consist of gas taxes, vehicle registration and safety inspection fees, highway use taxes, and other fee components. The revenues are levied and collected by the state and apportioned to cities based on the city's population and Class C road mileage. In fiscal 2007, over 80% of the revenues came from gas taxes, leaving the revenues somewhat susceptible to reduced consumption from rising gas costs. Coverage is adequate, with 1.25 times (x) historic coverage, which the city expects to increase through final maturity in 2018.
Pleasant Grove lies in Utah County, encompassing nine square miles with a population of approximately 31,700 residents. The city's economy benefits from its proximity to expanding employment centers in Salt Lake City and Provo, and from several freeways that converge nearby. As a result, the city's population growth has been very high, and the city anticipates considerable ongoing commercial development. Income levels are somewhat higher than the state, with very benign unemployment levels. Taxpayer concentration is low.
The city's financial operations are strong, with each of the past three fiscal years generating operating surpluses. The fiscal 2007 total fund balance was a solid $5.3 million (38% of expenses and transfers out) and its unreserved fund balance was $2.5 million (18%). The state of Utah imposes a maximum 18% fund balance on cities, so fund balances in excess of 18% of spending are routinely transferred to the city's capital projects fund, which is used for pay-go capital expenditures. The city generates a diversified mixture of revenue streams, with charges for services and sales taxes budgeted to make up the largest proportions in fiscal 2008.
Following the issuance of the bonds, the city's net debt burden will rise to a high $2,495 per capita, or 7.1% of assessed value. Payout on total debt is average at 46% in 10 years. The bonds will finance the repair and replacement of 13 miles of Class C roads.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
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