Dec 12 - Fitch Ratings assigns an 'A' rating to the following Commerce City
Northern Infrastructure General Improvement District (the district), CO bonds:
--$80.7 million general obligation (GO) refunding and improvement bonds, series
The bonds are scheduled to sell via negotiation during the week of Dec. 17,
2012. The proceeds will be used to refund outstanding variable rate debt and
finance various public improvements.
In conjunction with a remarketing and conversion of outstanding variable rate
bonds to fixed rate bonds, Fitch also assigns an 'A' rating to the following
--$10.2 million GO refunding bonds, series 2002.
In addition, Fitch affirms the following ratings on Commerce City, CO bonds:
--implied unlimited tax GO rating at 'AA-';
--$30.9 million certificates of participation, series 2006 at 'A+'.
The Rating Outlook on all bonds is Stable.
The district's bonds are secured by an annual unlimited property tax levy on all
property within the district. The city's COPs are secured by lease rental
payments made by the city to the Commerce City Finance Authority for use and
occupancy of a civic center, which includes city hall and city offices, as well
as the police department, municipal court, and city council chambers. Lease
rental payments are payable from any legally available funds of the city.
KEY RATING DRIVERS
SOUND FINANCIAL MANAGEMENT: As a component unit of the city, the district
benefits from the same management team that has enabled the city to maintain a
sound financial profile. The city's heavy reliance on sales tax revenues makes
it vulnerable to declines in consumer consumption and general economic
conditions. However, Fitch notes that the city's strong fund balance policies
and large reserve levels serve as important mitigating credit factors.
STRATEGIC LOCATION SPURRED EARLY GROWTH: The district's close proximity to the
Denver International Airport and key transportation corridors fuelled rapid
residential development prior to the recent economic slowdown. Recessionary
pressures reduced building activity substantially, but Fitch believes the
district's long-term growth prospects are favorable.
SUBSTANTIAL POPULATION CENTER: The district's population equals about one-half
of the total city population, making it a viable and key part of the city's
local economic base.
SUSTAINABLE DEBT SERVICE SUPPORT: The taxable values of over 7,200 homes and a
growing commercial sector provide an adequate resource base for the district's
current bond obligations. Future potential reassessment losses or continued
sluggish building activity are mitigated by the unlimited mill levy flexibility.
Despite its smaller size, Fitch notes that the district lacks tax base
concentration--unlike the city as a whole.
HIGH DEBT BURDEN: The district's overall debt ratios are very high due to a
large number of metropolitan districts within its boundaries. The preponderance
of such districts, which finance public improvements within specific
developments, also results in large total mill levies. Credit concerns regarding
the high debt burden are moderated somewhat by the district's lack of additional
VARIABLE RATE DEBT EXPOSURE ELIMINATED: All of the district's variable rate debt
will be converted or refunded with the current offerings to fixed rate bonds,
which Fitch views favorably.
BROAD ECONOMY: Although local unemployment levels remain high, the district is
favorably located within the Denver metropolitan area, offering broader
employment opportunities and prospects for long-term growth.
The district is located within Commerce City, which is adjacent to Denver's
northern boundary. The district was created in 1997 by the city to finance
regional water and sewer infrastructure and street improvements in an
undeveloped portion of the city. The district is a component unit of the city
and the city council serves as its board of directors.
RESIDENTIAL EMPHASIS OF DISTRICT
The district is zoned primarily for residential (60% of total property) followed
by commercial use (25%) and public uses/parks/open space (15%). Existing
residential units total 7,200 which represents 27% of the total amount of
projected dwelling units, indicative of its early stage of development. However,
Fitch notes that the district's population is estimated at 20,000 or about
one-half of the city's total population. More than 32 homebuilders have
constructed homes within the district.
A modest amount of commercial development is also evident within the district.
Most recently, a large regional supermarket, King Soopers Marketplace, opened
this summer and is reportedly the largest in the Denver MSA. The supermarket had
an estimated project cost of $14 million and will be fully reflected on the tax
rolls in 2014. Current industrial development includes a large manufacturer of
construction and mining equipment.
INCLUSION REQUIRED FOR UTILITY SERVICE
Fitch notes the district has grown substantially since its creation in 1997 at
which time it contained 2,300 acres. The district grew to 8,900 acres as
property owners and developers petitioned to join the district. Per a 1998
agreement with the South Adams County Water and Sanitation District (SACWSD),
all landowners must join the district in order to receive water and sewer
service. The water and sewer infrastructure, which was designed, installed, and
now maintained by SACWSD, was financed by the district's outstanding debt.
In order for developers to finance additional public improvements within
specific developments, a large number of metropolitan districts have been formed
within district boundaries. Above average total mill levies within the district
are driven primarily by levies imposed by these metropolitan districts. Fitch
notes that the total mill levies vary within the district as the amount of debt
issued by metropolitan districts can differ considerably. The district's goal
for its own mill levy is to maintain it at the current 27 mill rate.
GROWTH SPURRED BY STRATEGIC LOCATION, STALLED BY RECESSION
Residential development within the district was fuelled initially by the
completion of the Denver International Airport in 1994 and the construction of
the E-470 toll road along the district's eastern boundary. At their peak, annual
building permits totaled over 1,500 in 2005. Like most of the Denver MSA, the
district's tax base growth stalled during the last recession as building permit
activity slowed significantly, averaging about 200 per year since 2008. Building
permits in 2012 are projected to total 100 and the district expects permits to
remain at that level through 2014. Fitch considers this forecast reasonable
given recent trends.
DIVERSE TAX BASE IMPACTED BY REAPPRAISAL LOSSES
With only modest amounts of new construction in recent years, the impact of
reappraisal losses are apparent in the district's AV declines of 9.4% and 1.4%
in collection years 2010 and 2012, respectively. A modest AV gain of 2.7% in
2013 reflects new construction values. Residential properties account for 94% of
total AV. Despite the district's small size, the tax base is diverse with a
moderate 9.3% of total AV accounted for by the top 10 tax payers. The top 10
list is led by a landfill operator at 3.1% and include six home builders. The
builder list is led by Shea Homes Limited Partnership, which owns the largest
development, Reunion, with more than 15,000 planned single family homes.
ELEVATED DEBT BURDEN
The district's debt profile is characterized by a very high overall debt burden.
Including the city's overlapping debt, which is comprised of sales tax bonds and
certificates of participation, the overall debt burden equals $13,000 per capita
and 16% of market value. This substantial amount of overlapping debt is also
comprised of bonds issued by the numerous metropolitan districts. Given its
early stage of development, Fitch expects some mitigation in the overall debt
burden as the district grows due to no additional borrowing plans by the
district. With the current offering, the district has exhausted its 2005
authorization, and no additional infrastructure is needed for the continued
build-out of the district.
VARIABLE RATE DEBT EXPOSURE TO BE ELIMINATED
The district's entire current debt portfolio is comprised of variable rate
bonds, none of which are hedged. The current offerings will convert or refund
all outstanding variable rate debt to fixed rate bonds, which Fitch views
favorably. The current offerings also include the last remaining amount of bond
authorization for the district, totaling $860,000. The district's principal
amortization is slow at only 30% in ten years. Fitch notes that annual debt
service ascends modestly in the initial years then remains level through final
maturity. Although secured by an unlimited annual tax levy, the district's goal
is to maintain a levy of 27 mills.
CITY'S FINANCIAL PROFILE REMAINS STRONG
The city's financial performance remains strong but subject to economically
volatile sales tax revenues, which comprise about 75% of total general fund
revenues. However, Fitch notes that the city has typically maintained solid
reserve levels which offset to a degree credit concerns regarding this revenue
In 2010, operating results were bolstered by one-time sales tax settlement
collections totaling about $20 million from three taxpayers. The result was a
substantial unreserved fund balance of $35.9 million, or 77% of spending. In
2011, the city used a portion of the 2010 windfall and posted a planned $3
million drawdown due to transfers for one-time capital outlays and the
appropriation of a $4 million loan to the local urban renewal authority.
The 2012 budget used the remaining 2010 windfall for additional one time capital
outlays of $5.7 million. Despite the planned draw downs, the projected 2012
unrestricted fund balance (committed, assigned and unassigned per GASB 54)is
estimated at a still large $23 million or over 40% of spending. As such, the
city will remain well above its formal fund balance policy that requires the
maintenance of about 27% of spending. The adopted 2013 budget, based on a 3%
sales and use tax growth assumption, includes a more modest drawdown of $2.4
million. As part of it biennial budget, the 2014 budget plan includes an initial
$1.3 million budget gap, also based on a conservative 3% sales and use tax
LAGGING SOCIOECONOMIC INDICATORS
Leading employers in the city include UPS, FedEx, United Food Service, and
Suncor Energy. Wealth levels of the city as measured by per capita money income
lag the state average by a considerable margin. However, the income levels of
district residents are reportedly higher; Fitch views this as reasonable given
the higher home prices within the district.
The city's unemployment rate remains high at 9.7% in September 2012, compared
with the state's 7.4% and nation's 7.6% during the same period. Economic growth
during the last decade capitalized on the city's aggressive land annexation and
land-use policies that opened up a host of development opportunities generally
not available within the metro area.
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 informed by information from CreditScope,
University Financial Associates, S&P/Case Shiller Home Price Index, HIS Global
Insight, Zillow.com, and National Association of Realtors.
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:
U.S. Local Government Tax-Supported Rating Criteria
Tax-Supported Rating Criteria