Fitch Rates Culberson County Hospital District, Texas' $6.8MM LTGO Bonds 'BBB-'

The bonds are secured by and payable from a limited ad valorem tax levied against all taxable property in the district, subject to statutory limitation of $0.75 per $100 of taxable value. The bonds are not secured by hospital operating revenues. Proceeds will be used for construction of a new hospital facility, while the existing facility will provide indigent care and house administrative offices. The bonds were approved by county residents in May 2008, with voter support of 85%.

The district's 'BBB-' rating reflects the Culberson County hospital's critical access designation (CAH) and current hospital operating profitability, and the district's strong taxpayer support, concentrated tax base, and small service area. The hospital's operating performance reflects favorable Medicare reimbursement rates due to the hospital's conversion to a CAH designation in 2005. Hospitals designated as CAH are reimbursed by Medicare at cost plus 1%, so that rural hospitals can survive financially at very low patient volume levels. In addition, the hospitals are reimbursed for capital costs (depreciation and interest) of construction, based on Medicare percentages. The hospital has a large percentage of Medicare patients (80%), so reimbursement of capital costs is expected to be very high.

The district currently levies a tax of $0.58, subject to the $0.75 statutory limitation. Debt service in fiscal 2010 requires $0.18 or 31% of the $0.58 levied.

The district owns and operates the hospital, a 25-bed (14 staffed) critical access hospital in Van Horn, Texas, which it leases to a management company. The hospital expansion will include a new emergency room, a new imaging center, a small chapel, outpatient care, and expanded lab and ancillary services, which will be attached to the existing county hospital facility via an extended covered walkway. The district provides support for the county's indigent care through a property tax assessment. The district service area is coterminous with Culberson County, which is approximately 3,800 square miles and located 120 miles southeast of El Paso, Texas, with a population of 2,525. The closest hospital facility is located in Pecos, Texas (Reeves County Hospital), approximately 85 miles away. The facility is leased to and operated by Preferred Management Company, a hospital management company which is located in Shawnee, Oklahoma.

Tax base growth in the hospital district has risen steadily in recent years, averaging nearly 13% annual increases since 2004. Tax base concentration is high with the top 10 taxpayers comprising 51% of the tax base, with major natural gas pipelines comprising a large part of the tax base. Only 8% of the tax base is residential. Fitch believes that the concentration risk is mitigated by the importance of these particular pipelines, and the long-term contracts that are typically used to support the financing and operations of pipelines.

The financial performance of Culberson County Hospital has improved since fiscal 2005 when the hospital reported losses prior to its designation as a critical access hospital. Since 2005, Culberson County Hospital has reported net income four of the five years. In fiscal 2009, the hospital reported operating net income of $680,000, and net patient revenues of $4.8 million.

The district's financial profile, which does not include hospital operations, has remained steady with the district reporting net surpluses three of the past four years. Property tax revenue increased slightly to $1.6 million (92% of revenue) in fiscal 2008, while indigent care expenses remained steady at approximately $1.1 million per year (75% of expenditures). Unreserved fund balance levels were $1 million in fiscal 2008, or 68% of expenditures and transfers out. District direct debt levels are above average at $2,970 per capita, and 2.56% of taxable assessed value (TAV). Overall debt levels are moderate at $3,531 per capita, and 3% of TAV. Amortization is slow with 39% repaid within 10 years.

Income levels are below the state and national average, with median household income at 68% and 67% of the state and the nation. Per capita retail sales are above the state and national averages at 230% and 220%, respectively.

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Fitch Ratings, Austin
Andy Kaaz, 512-215-3730
Steve Murray, 512-322-5318
Cindy Stoller, 212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com