Nov 13 - Fitch Ratings affirms the 'A+' rating on the following Bullhead
City Municipal Property Corp., Arizona (the city's) debt obligations:
--$14.3 million excise tax revenue and refunding bonds, series 2009;
--$24.4 million excise tax revenue bonds, series 2006;
--$3.6 million excise tax revenue bonds (wastewater treatment plan improvements
- phase two), series 2003.
The Rating Outlook is Stable.
Excise tax bonds are payable from rental payments from Bullhead City secured by
a priority lien and pledge of the city's excise taxes. The city's obligation to
make lease payments under the use agreement is absolute and unconditional and is
not subject to appropriation or abatement.
KEY RATING DRIVERS
ADEQUATE RESERVE LEVELS: General fund reserves are ample, although reduced from
robust historical levels as planned draws were used for capital spending in the
TOURISM BASED ECONOMY: Sound reserves represent an important credit strength
mitigating general credit weakness associated with the city's reliance on
tourism related activity and the gaming industry in nearby Laughlin, Nevada.
Persistent employment and labor force declines keep unemployment above the
national average. Income levels are below average and growth in the poverty rate
outpaces regional, state and national averages.
REVENUE FLUCTUATIONS; LIMITED FLEXIBILITY: Excise tax revenues posted material
declines throughout the recession, although collections have since stabilized
and are currently trending upwards. Revenue control and flexibility is limited,
given the city's inability to impose new or increased taxes or assessments
without voter approval.
SOUND COVERAGE: The 'A+' rating on the excise tax revenue bonds reflects the
general creditworthiness of the city, solid coverage of maximum annual debt
service (MADS) from pledged revenues, and strong legal protections. Practical
limitations to leveraging exist as the city relies heavily on surplus excise tax
revenue to fund general government operations.
LOW DEBT; RISING PENSION COSTS: The city is an infrequent issuer with low debt
levels and rapid amortization. No new debt issuance is anticipated in the near
term. Growth in pension costs will likely continue for the foreseeable future
given below average funding levels.
WHAT COULD TRIGGER A RATING ACTION:
REDUCED FINANCIAL FLEXIBILITY: Further material decline in the gaming and resort
industry in nearby Laughlin or significant reduction in the city's reserves
could place pressure on the current rating.
Bullhead City is located along the Colorado River in west-central Mohave County
approximately 20 miles east of U.S. Interstate 95 and an estimated 100 mile
driving distance to Las Vegas.
TOURISM BASED ECONOMY
The city has a year-round population of approximately 40,000 which has leveled
off after experiencing strong growth from 2000 - 2006. Seasonal and short-stay
visitors are believed to increase the city's winter population above 50,000,
drawn to the area by the warm weather climate, casino/gaming industry in
Laughlin and nearby Lake Havasu. The city is a frequent host to a variety of
tournaments and special events, the most notable of which is the annual River
Regatta. Bullhead City is the population, retail, and service center for the
Laughlin, located across the Colorado River from Bullhead City, is home to ten
casino resorts including Harrah's, River Palms, Golden Nugget, Edgewater, and
Tropicana. Bullhead City provides the bulk of the labor force for the Laughlin
casinos, whose estimated full-time employment is currently estimated at 9,000.
The largest employers in Bullhead City, in addition to those in the government
and education sectors, are Western Arizona Regional Medical Center (680
employees), Wal-Mart (420), and Sam's Club (172). The city's employment base
appears to be stabilizing after registering a cumulative 20% loss over the five
years ending in fiscal 2011, although unemployment remains elevated at 9.0% as
of August 2012. The city reports sizable developments underway which would
foster job creation in the next several years upon completion.
The tax base, reflecting a two year lag and indicative of local economic health,
more than doubled between fiscal 2006 and 2009 reflecting the economic boom that
benefited much of Arizona, before suffering a cumulative 63% loss through fiscal
2012, with stabilization expected over the next couple of years. Management
reports stabilized housing values and a year-over-year increase in commercial
and residential building permits, although still below the recent fiscal 2007
MAINTENANCE OF ADEQUATE RESERVES DESPITE REVENUE PRESSURE
The city ratcheted down general fund spending by $5.7 million (20%) between
fiscal 2008 and 2011 in response to a cumulative 40% decline of excise tax
collections which constitute the largest source (approximately 90%) of the
city's operating revenues. Cost cutting measures included workforce reductions,
elimination of pay raises and use of unpaid furlough days.
The city has eliminated more than 18% of its workforce since fiscal 2008 with
development and community services most affected. Management indicates that the
cuts enacted to date have had little impact on the level of service provided to
residents, but leave less margin to accommodate future revenue underperformance.
Fitch views the city's draw on reserves for capital needs as a prudent use of
one-time funds but notes that the city now retains less relative financial
flexibility. Available fund balance declined from $12.4 million in fiscal 2008
(37.1% of spending and transfers out) to $6.1 million in fiscal 2011 (27.6%).
The city achieved modest operating gains in fiscal 2011 and 2012 through
continued cost savings supporting maintenance of unrestricted general fund
balance in line with a policy target equal to 30% of spending.
A balanced fiscal 2013 budget includes a $1.4 million increase in excise tax
collections, primarily driven by higher state shared revenues (distributed to
the city with a two-year lag), further workforce reductions, and the fourth
consecutive year of foregone pay increases. Credit concerns center on the city's
ability to maintain a structurally balanced general fund budget going forward,
although the city represents an ability to sustain further cost reductions if
necessary to maintain current reserve levels.
STABILIZING EXCISE TAX COLLECTION
Excise tax revenues include the city sales tax, state shared sales and income
tax revenues, charges for services, fines and forfeitures, and franchise taxes,
with the city sales tax and state shared revenues representing 47% and 30%
respectively of total fiscal 2011 collections. Recovery of pledged revenue
collections began with a leveling out of the city's sales tax revenues in fiscal
2009. State shared revenues began to stabilize in fiscal 2011 with a fiscal 2013
increase (representing a 2-year distribution lag) of $1.1 million
year-over-year. The city reports further improvement in state shared revenues
for fiscal 2014, consistent with state-wide trends.
LOW DEBT / ADEQUATE COVERAGE
Debt levels are very low with overall debt equal to only $1,223 per capita or 2%
of market value. The bulk of the city's debt service costs are funded from
special assessments against benefited parcels and revenues of the water and
sewer enterprise fund. Debt service payable from general revenues consumes a
reasonable 6.7% of total spending. The city's outstanding debt structure is very
conservative, with 84.5% of outstanding principal repaid within 10 years, and no
exposure to variable rate or short-term debt. The city does not anticipate near
term debt issuance.
Pledged excise taxes continue to provide ample coverage in excess of 3.9x
maximum annual debt service (MADS) on all outstanding excise tax revenue bonds
based on fiscal 2011 audited revenues. An additional bonds test of 2.25x and
requirements to fund a standard reserve in any year that fiscal excise taxes
received by the city are less than 225% of MADs enhance the security. Fitch
estimates that fiscal 2011 excise tax collections would need to decline by more
than 40% to trigger the springing reserve.
BELOW-AVERAGE PENSION FUNDING
Pension contributions consume a manageable 7.6% of the budget. Pension costs
represent 100% of the actuarial required contribution (ARC) to an agent-multiple
employer defined benefit pension plan for public safety employees (PSPRS) in
addition to the annual contribution to the city administered defined
contribution 401(a) plan for all other employees. The city's PSPRS annual costs
grew by 33% over the last three years and will likely continue given the below
average funding levels.
The city's PSPRS funding level is 63.8% using Fitch's more conservative 7%
discount rate assumption (PSRPS assumes an 8.5% return). Other post-employment
benefits are funded on a pay-as-you-go basis, with $32,235 paid in fiscal 2011.
The combined unfunded actuarial accrued liability (UAAL) for pension and OPEB
approximates $9.4 million or 0.4% of market value.
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 the 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, Zillow.com, National Association of Realtors.
Applicable Criteria and