SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to Salt Lake County's (the county) sales tax revenue bonds as noted below:

--$30 million sales tax revenue bonds, series 2014.

The bonds are expected to sell via competitive sale on December 11. Proceeds will be used for the acquisition of land and to construct buildings for the district attorney's office, a fleet building, a health building, a senior center, and a parks and public works operation center.

In addition, Fitch has affirmed the following ratings:

--$76 million sales tax revenue bonds series 2010D and sales tax refunding bonds 2012A at 'AA+';

--$235 million general obligation bonds (GOs) at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The sales tax revenue bonds are payable from a senior lien on county option sales-and-use tax revenues collected and distributed by the state. The GOs are payable from an unlimited property tax levied on all taxable property in the county.

KEY RATING DRIVERS

HIGH DEBT SERVICE COVERAGE: The 'AA+' sales tax revenue bond rating reflects high debt service coverage levels, a well-diversified tax base, sound historical revenue performance, a strong additional bonds test (ABT), and no plans for further parity debt after a manageably sized issuance anticipated in fiscal 2015.

SOUND FINANCIAL PROFILE: The county's financial position benefits from a solid general fund balance, structurally balanced operations after a fiscal 2013 property tax hike, satisfactory liquidity, and prudent financial management practices. However, out-year inflationary expenditure pressures could outstrip projected revenue gains absent further tax increases or expenditure cuts.

SOLID AND DIVERSE ECONOMY: The regional economy is large, diverse, and well-positioned for long-term growth. Unemployment is very low, home prices are continuing to recover, albeit at a slowed rate, and large-scale private and governmental capital investments are continuing.

STRONG DEBT PROFILE: Debt levels are low and direct principal amortization is rapid. Manageable capital needs will mostly be funded on a pay-as-you-go basis, debt plans are affordable, and the county's primary pension system is well-funded with no significant rate increases anticipated from current levels.

PRUDENT MANAGEMENT PRACTICES: Financial management policies are sound, as demonstrated by conservative budgeting practices, recent years' OPEB reforms, significant use of pay-as-you-go capital financing, and a prudent minimum reserve level that has been regularly exceeded.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the county's strong economy, debt profile, and financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

STRONG SALES TAX REVENUE BOND COVERAGE

The sales tax revenue bonds benefit from solid post-recessionary sales tax performance, high debt service coverage levels, and limited plans for additional issuances. Fiscal 2013 pledged sales tax revenues grew 3.5% year-over-year, and ended just below the revenue stream's pre-recessionary peak in fiscal 2007. Based on revenues collected to date, management projects that fiscal 2014 revenues will grow 3.4%, ending the year at $51 million, slightly above the prior peak. Forward projections show continued moderate revenue growth, reflective of the area's solid economic prospects.

Actual fiscal 2013 revenues cover maximum annual debt service (MADS), inclusive of an anticipated issuance in fiscal 2015, by a strong 3.5x. Fitch estimates sales tax revenues would have to decline by about 70% from fiscal 2013 levels for MADS coverage to reach a sum sufficient amount. This level of protection compares well to the peak-to-trough sales tax decline of 16% experienced from fiscal years 2007 - 2009.

The bonds include a solid 2x MADS ABT. Because the county relies on net sales tax revenues to fund ongoing services (20% of fiscal 2013 revenues are derived from sales taxes), practical constraints against further significant leveraging are likely more stringent than the ABT. After a planned issuance in fiscal 2015, the county has no plans to add further parity leverage. The bonds do not include a debt service reserve fund.

STRONG LOCAL ECONOMY SET FOR CONTINUED GROWTH

Salt Lake County encompasses a significant portion of the state's total population and economic activity. Local economic indicators are strong overall, with September unemployment falling to an extremely low 3.2% from 3.9% the year prior due to expanding employment. Unemployment compares well to the nation's 5.7% rate, and is similar to the state.

The county is well positioned for continued population and economic growth given ample developable land, substantial capital investments, and a positive business climate. Fiscal 2014 assessed valuation (AV) levels increased by a robust 7.1%, reflecting new construction and recovering home prices following the housing-led recession. Nonetheless, AV is still roughly $10 billion below its pre-recessionary peak.

The positive revenue impact of the fiscal 2014 AV gain will be largely offset by Utah's Truth in Taxation process under which the certified tax rate is set to achieve the prior year's tax levy, plus new growth. This approach limits upside revenue potential in an expansion, but stabilizes revenues in a declining AV environment.

SOUND FINANCIAL POSITION

The county's financial position is strong, exhibited by solid general fund reserves, structural balance, and satisfactory liquidity levels. Fiscal 2013 general fund operations produced an $8.5 million surplus, raising the unrestricted fund balance to $49.3 million (18.1% of expenditures and transfers out).

In fiscal 2014 general fund operations are budgeted to produce a $10 million deficit; however, the county historically has budgeted quite conservatively. Management estimates actual operations will produce a modest surplus despite ongoing pay-as-you-go spending on one-time capital projects.

The county's proposed fiscal 2015 budget includes a fund balance appropriation of $8.3 million and about $40 million to fund deferred maintenance. Management expects to outperform its budget, as is typical, and to realize a slight operating surplus.

The county's largest source of revenues is property taxes, which, as mentioned above, are automatically levied at the same level every year, plus new growth, assuming the county adopts its certified tax rate, as is typical. Because this revenue source is not indexed to inflation, the county's structural balance may turn to a deficit position if expenditures grow at a higher rate than total revenues. As a result, the county's long-term financial position likely will depend on the continued willingness of public officials to raise the tax levy from time to time and/or make expenditure cuts to offset inflationary pressures. The county's 'AAA' GO rating reflects Fitch's expectation that the county will continue to raise its property tax levy, as needed, to maintain a solid financial position.

STRONG DEBT PROFILE

The county's total debt burden is low at $1,253 per capita and 1.2% of market value. These strong debt metrics stem in part from the county's significant use of pay-as-you-go capital financing. The county's principal amortizes rapidly, with 39% and 69% of debt retiring in five and 10 years, respectively.

The county participates in the state's well-funded Utah Retirement System (URS). In recent years the state implemented material pension reforms that should slow pension cost growth moving forward. Recessionary investment losses lowered the public employees' non-contributory system's (the largest of the county's systems) funded ratio to somewhat weak levels in recent years, but investment returns in fiscal 2013 raised funded levels to 85.3%. Fitch assumes a standardized 7% investment return rate (the system assumes a more generous 7.5%), which lowers the funded ratio to a still well-funded level of approximately 80.9%. The system uses a five-year smoothing period, so prior years' investment losses have been incorporated into fiscal 2014 contribution rates and management does not anticipate rate increases from current levels.

The county's unfunded OPEB liability equals $99.3 million based on the most recent actuarial report, or a modest 0.1% of AV. The county has historically funded OPEB on a pay-as-you-go basis. In fiscal 2013 the county discontinued OPEB benefits for new employees and has since set aside $1.8 million to pre-fund its obligation. Management also recently created an irrevocable trust which may result in a material reduction of the unfunded liability, though an actuarial evaluation of the change has not yet occurred.

The county's carrying costs (debt service, pension ARC, and OPEB costs over total governmental fund spending) equal a low 13%. Carrying costs are likely to remain at low levels due to recent years' pension and OPEB reforms, rapid direct debt amortization, and relatively modest borrowing plans.

PRUDENT MANAGEMENT PRACTICES

Fitch views favorably the county's prudent financial management policies and recent years' actions to offset recessionary pressures. Management proactively cut expenditures early in the recession and, although delayed until 2013, increased property tax rates. Financial management policies include a minimum 10% undesignated general fund balance that has regularly been exceeded. Long-term debt is reviewed by a senior committee, and by policy the county uses pay-as-you-go capital financing as its first alternative. State and county reforms to employee benefits should slow related benefit expenditure growth considerably moving forward.

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.

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

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=940175

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