TEXT-Fitch affirms Douglas County, Colo. open space revs at 'AA'
Jan 23 - Fitch Ratings has affirmed the following ratings for Douglas County, Colorado (the county): --$13.66 million outstanding open space sales and use tax revenue bonds, series 2009 at 'AA'; --Implied general obligation (GO) bonds at 'AA+'. The Rating Outlook is Stable. SECURITY The open space bonds are secured by 80% of the county's share of the countywide 0.17% sales tax that is dedicated to open space uses. The sales tax was approved by voters through 2023, one year after the final maturity of all bonds secured by this revenue. The bonds are not secured by a debt service reserve fund. SENSITIVITY/RATING DRIVERS HEALTHY DEBT SERVICE COVERAGE: Debt service coverage for open space bonds remains strong, and has improved with recent growth in sales tax receipts. STABLE FINANCIAL POSITION: The implied GO rating is predicated on the county's history of large financial reserves, conservative budgeting, and effective cost controls. STRONG ECONOMIC FOUNDATION: The county has a mature and diversified local economic base, low unemployment rates, and wealth levels that are well above state and national averages. MINIMAL DEBT BURDEN: The county's debt profile is positive, characterized by a very low debt burden, very rapid principal amortization, and limited debt plans. The county has no unfunded pension liabilities, and overall carrying costs are modest. CREDIT PROFILE Douglas County covers 844 square miles in the I-25 corridor between Denver and Colorado Springs, two of the main economic centers in Colorado. A majority of residents live in urban designated areas, such as unincorporated Highlands Ranch, the city of Lone Tree, the city of Castle Pines, and the towns of Castle Rock (county seat), Parker and Larkspur. The county has a population of about 292,000, growing by approximately 66% over the past decade. Population growth has been rapid for each of the last three decades, making it the fastest growing county in Colorado and the 16th fastest growing county in the nation. DEBT SERVICE COVERAGE IMPROVES Actual pledged revenue collections improved in each of the last three years due to the strengthening of local sales activity. Year-to-date collections through October 2012 are 13% above the levels collected in 2011, which grew by 7% over the prior year. Debt service coverage on the senior open space bonds is projected to strengthen to about 2.9x in fiscal 2012, up from 2.3x in fiscal 2010. FITCH STRESS TESTS Using projected fiscal 2012 pledged revenue of $5.8 million, average annual debt service (AADS) and maximum annual debt service (MADS) of the senior lien bonds remain above 1x under a stress test scenario assuming 76% revenue contraction. The largest historical pledged revenue decline was 7.2% in fiscal 2006. In the event of default on any subordinate bonds (not rated by Fitch) there is no acceleration of senior debt or other adverse effects to senior bondholders. SOUND FINANCES Extensive financial planning and conservative management practices have contributed to the county's solid financial operations. The county regularly reports very high reserves. Recent operating deficits and fund balance drawdowns have been for one-time capital projects. The county's largest revenue source is property taxes, accounting for 70% of total general fund revenues in 2011. Fiscal 2011 audited results show that the county maintained a $56 million unrestricted general fund balance, a high 60% of spending. For 2012 (ending Dec. 31), preliminary results indicate a modest use of fund balance for one-time capital projects of approximately $5 million, beating budgeted projections of a $9 million drawdown. The fiscal 2013 budget also assumes further drawdown of reserves of $15 million, largely for the transfer of assigned fund balance to other funds for designated capital projects. Given past practices and results Fitch believes management will continue its proactive financial planning practices and budgetary oversight in order to maintain its sound financial position. MINIMAL DEBT BURDEN Overall debt ratios are modest at $1,980 per capita and 1.5% of market value. Principal pay out of total county debt obligations is very rapid with 100% retired in 10 years. No further leveraging of the 0.17% open space sales and use tax is planned. The county's capital plan calls for modest pay-as-you-go financing from excess open space and property taxes, and no borrowings are currently contemplated. County employees participate in a defined contribution retirement plan with no unfunded liability. Both the county and employees contribute to the plan; the county's fiscal 2011 contribution was $4.3 million. The county does not offer post-employment healthcare benefits. Carrying costs related to long-term debt and pension liabilities are very modest at 5% of governmental spending less capital outlays. INCLUSION WITHIN THE DENVER METRO ECONOMY The sharp decline in residential and commercial construction area-wide in the recession also had an impact on development activity in Douglas County. While the county did not witness the level of speculative building activity that occurred in other parts of the Denver metropolitan area, county housing starts dropped sharply in 2008 and 2009 and still remain approximately one-third of pre-recession levels. Taxable values have also declined as softening residential and commercial property values work through the multi-year appraisal/review process. The county's taxable assessed valuation (TAV) fell roughly 8% in fiscal 2012 to $4.5 billion, on the heels of flat values the prior year. TAV registered a 1% increase in fiscal 2013, but management projects another modest decline in the next reassessment year, affecting revenues in fiscal 2014. This projection appears reasonable, as it is consistent with those of other Denver-area entities for the near term and with recent home price data. The county has a mature and diversified local economic base anchored by telecommunication, healthcare, retail, and business and professional services. The unemployment rate in the county has trended downward after spiking in 2009 and 2010. The county's October 2012 rate of 6.1% was well below both the Colorado and U.S. averages (both 7.5%) for the month. Wealth levels are well above state and national averages; per capita money income is 140% of the Colorado average and 155% of the U.S. average, and median household income is roughly 175% of the state average and 190% of the U.S. average. 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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, the Underwriter. 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 Considerations for 2010 U.S. Local Government Tax-Supported Rating Criteria