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Fitch Rates Salt Lake County, Utah GOs 'AAA'; Outlook Stable

SAN FRANCISCO - (BUSINESS WIRE) - Fitch Ratings has assigned the following rating to Salt Lake County, UT:

--$25 million Salt Lake County general obligation (GO) bonds, series 2011 at 'AAA.'

The GO bonds, series 2011 will be sold competitively on March 1, 2011.

In addition, Fitch affirms the following ratings:

--$256.5 million Salt Lake County GO bonds at 'AAA';

--$104.7 million Salt Lake County sales tax revenue bonds at 'AA+';

--$74.5 million Salt Lake County transportation tax revenue bonds at 'AA';

--$87.7 million Municipal Building Authority of Salt Lake County lease revenue bonds at 'AA+'.

The Rating Outlook is Stable.

RATING RATIONALE:

--Salt Lake County has a strong and diverse economic base, low debt burden, and good financial performance.

--While the county is currently experiencing economic pressure, the county has demonstrated its willingness to reduce expenditures to keep its general fund balances and reserves healthy.

--The county's sales tax revenue bonds and transportation tax revenue bonds, and the Municipal Building Authority's lease revenue bonds are all performing as expected.

KEY RATING DRIVERS:

--Continuing solid financial results, supported by ongoing adherence to conservative financial management policies.

--Maintenance of strong debt service coverage for the sales tax and transportation tax revenue bonds.

SECURITY:

The GO bonds are secured by the county's general obligation pledge, payable from ad valorem property tax revenues to be levied without limitation as to rate or amount. The sales tax revenue bonds are secured by county option sales and use tax revenues collected and distributed by the state. The transportation tax revenue bonds are secured by state Highway Fund revenues received by the county pursuant to an interlocal cooperation agreement, and direct payments. The lease revenue bonds are secured by the county's lease rental payments to the building authority.

CREDIT SUMMARY:

Fitch rates Salt Lake County's GO bonds 'AAA' based on the county's strong and diverse economic base, low debt burden, and good financial performance. The county maintains its long history of fiscal policies and budgeting practices that produce healthy financial operations. While the undesignated/unreserved general fund balance declined significantly in fiscal years 2007 and 2008, it increased to a healthy $31.3 million or 13% of spending in fiscal 2009 as part of the county's strategy to rebuild its general fund balances. The undesignated/unreserved general fund balance is expected to grow to approximately $42 million at fiscal 2010 year-end. The fiscal 2009 balance was well in excess of the county's policy to maintain an undesignated general fund balance of at least 10% of budgeted expenditures.

The county is Utah's most populous county with an estimated 2009 population of 1,035,000. Until recently, the county had exhibited continuous population, labor force, and employment growth. However, the October 2010 unemployment rate of 7.2% represented a noticeable increase over the October 2009 rate of 6.3%, while remaining under the national rate. After a sustained period of growth, the county's market value declined 11.4% in fiscal 2009 reflecting softening of the residential property market and a considerable decline in state-assessed properties such as airlines, utilities, and Kennecott Utah Copper mines within the county. Nevertheless, considerable commercial, industrial, and infrastructure development remains actively under construction within the county which, along with a significant upward reappraisal of Kennecott Utah Copper mines, contributed to the 1.2% market value increase in fiscal 2010.

The 'AA+' rating for the sales tax revenue bonds reflects the sound coverage provided by the pledged sales and use tax revenues. Although sales and use tax revenues have been volatile historically, the required coverage can withstand significant revenue stress. Not all of the sales tax revenue bond series require debt service reserve funds.

The transportation tax revenue bonds, rated 'AA', will be repaid predominantly by Highway Fund revenues received by the state, up to an amount equal to 2.0 times (x) debt service, pursuant to an interlocal cooperation agreement between the state and the county. Highway Fund revenue consists of two 0.25% sales taxes and 50% of a $10 per vehicle registration fee levied in Salt Lake County and collected by the state. While the county does not intend to issue additional bonds, the indenture allows such issuance as long as the interlocal agreement is modified to increase the state transfer to 2.0x the aggregate annual debt service on all bond series. There is no debt service reserve fund requirement.

The 'AA+' rating on the lease revenue bonds reflects satisfactory legal provisions under the county's two master leases, an annual appropriation covenant, and the cross-collateralization of pooled assets under each of the master leases which counterbalances assets with somewhat lower essentiality.

Debt levels remain low as a result of the county's pay-as-you-go financing of capital projects and maintenance, along with rapid amortization of outstanding debt (70% in 10 years). Including this issue, direct debt will be $533 per capita, a low 0.5% of market value. Overall debt will be $1,314 per capita, or 1.30% of market value. Debt levels are expected to remain manageable in the foreseeable future.

Additional information is available at 'www.fitchratings.com'

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., and IHS Global Insight.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated 16 Aug. 2010.

--'U.S. Local Government Tax-Supported Rating Criteria', dated 8 Oct. 2010.

For information on Build America Bonds, visit www.fitchratings.com/BABs

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566

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Fitch Ratings
Primary Analyst
Alan Gibson, +1-415-732-7577
Director
Fitch, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Scott Monroe, +1-415-732-5618
Associate Director
or
Committee Chairperson
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations:
Cindy Stoller, +1-212-908-0526
Email: cindy.stoller@fitchratings.com