Dec 21 - Fitch Ratings downgrades the following Glenwood Springs Rural Fire
Protection District, Colorado (the district) bonds:
--$495,000 limited tax general obligation (LTGO) bonds to 'BBB-' from 'BBB'.
The Rating Outlook is revised to Negative from Stable.
The bonds are secured by pledged revenues from a levy on all taxable property
within the district at a rate not to exceed 3.126 mills.
KEY RATING DRIVERS
OUTLOOK NEGATIVE: The downgrade and Outlook revision to Negative from Stable
reflects Fitch's expectation that financial operations will likely deteriorate
based on the adopted fiscal 2013 budget gap along with a projected assessed
value decline affecting revenues in fiscal 2014.
INADEQUATE MILL LEVY: The district's current operational mill levy of 6.339
mills is inadequate to sustain the current level of fire protection and
ambulance services. No additional taxing margin exists under the general
operating levy cap and reserves have been nearly depleted.
SERVICE CONSOLIDATION UNCERTAIN: District management's decision to move forward
with a proposal to share equipment and consolidate services with neighboring
fire districts has been delayed indefinitely. The potential shift in structure
creates uncertainty as to the district's future operational and financial
CONSISTENT OPERATING IMBALANCE: Operating deficits were habitual over the last
10 years, and the budgeted deficit for fiscal 2013 is projected to draw down the
already nominal operating reserve.
MANAGEABLE DEBT BURDEN: Positive credit considerations include the district's
limited, essential purpose; ample capacity to raise the debt service millage;
and a low overall debt burden with no plans for additional issuance.
WHAT COULD TRIGGER A RATING ACTION
FUND BALANCE DEPLETION: Lack of resolution of the ongoing structural budget
imbalance and depletion of the already thin fund balance likely will result in
further negative rating action.
The district spans 67 square miles in unincorporated Garfield County in
northwestern Colorado, approximately 160 miles west of Denver. The district's
population is estimated at 4,200 as of 2010. It is an independent taxing entity
with limited functions, and operates under an intergovernmental agreement (IGA)
with the city of Glenwood Springs, whereby the city provides fire protection and
ambulance service in return for a proportional share of the district's property
OPERATIONAL STRUCTURAL IMBALANCE CONTINUES
The rating downgrade to 'BBB-' reflects the district's chronic financial
operating imbalances and nearly depleted reserves.
By fiscal 2010 year-end, the total general fund balance had declined
precipitously to a negligible $23,000 or just 3% of total spending, from
$304,000, or 67% of spending in fiscal 2004. Fiscal 2010 reflected the eighth
consecutive annual operating deficit. This sustained structural imbalance
prompted Fitch to take downward rating action in February 2011.
Fiscal 2011 audited results were positive, reinforcing reserves modestly up to
15% of spending, but preliminary fiscal 2012 results show another imbalance.
Management expects an operating deficit of $52,000 or 8.5% of spending, due
primarily to the large 22% decline of district assessed values affecting the
district's primary revenue source. Fiscal 2012 total fund balance is expected to
drop to a small $43,000 or 7% of spending.
MORE FISCAL CHALLENGES AHEAD
Budget stabilization remains a challenge for the future due to constrained
revenue growth and rising fire protection costs. Revenue constraints are caused
in part by the district's limited operational mill levy. The district is
currently levying at its cap of 6.339 mills, which cannot be increased without
voter approval. Also, the IGA with the city is adjusted annually to accommodate
the city's rising fire protection costs.
The fiscal 2013 budget is imbalanced, with another drawdown of reserves planned
to near-depleted levels of approximately 2.5% of spending.
COST-CUTTING MEASURES NEEDED; TAX RATE INCREASE PROPOSED
Plans to join a regional fire authority with neighboring fire districts have
been tabled. The district is still considering the option, as it promises to
create greater cost-sharing efficiencies between the participants. However, if
the district joins the authority, the IGA with the city would be discontinued
since the city elected not to join the fire authority at this time.
As an alternative, the district's board is considering plans to propose to
voters a tax rate increase in November 2013. Preliminary proposals would
increase the mill levy cap from its current rate of 6.339 mills to 7.5 mills
while maintaining the IGA with the city, or as high as 8.2 mills without the
IGA. Management will determine the exact tax rate increase needed as future cost
estimates are realized leading up to the election.
Fitch would view the success of either of these proposals positively, as they
would provide greater financial flexibility and improve the prospect of
regaining structural balance. Management states that voters in neighboring areas
approved similar tax rate increases this year, and they consider the prospects
for the district to be good.
Fitch's concern is that the district's plan for structural balance hinges, at
least in part, on factors outside of management's direct control, namely the
willingness of district voters to approve a tax rate increase.
ANOTHER AV DECLINE IN 2014 ANTICIPATED
District assessed values have been volatile in the last few years, increasing by
34% in 2010, dropping by 22% in 2012 and expanding by 3% in 2013. Significant
construction of single family homes spurred growth for most of the last decade,
and then recessionary pressures lowered reassessed housing and vacant land
values beginning in 2012. Management reports that the next reassessment --
affecting collections in 2014 -- is expected to show another large decline of as
much as 20%. Actual preliminary values will be reported in August 2013, and are
certified in December. Under this loss scenario, assuming no voter-approved tax
rate increase, the district stands to lose approximately $95,000 in operating
revenue, or 17% of total general fund revenues.
MANAGEABLE DEBT BURDEN
Debt levels are low, and principal payout is rapid. Final maturity for all
outstanding debt is in 2019, and management reports no plans for further debt
issuance. Debt service carrying costs are also low at 13% of total spending.
Debt service revenue can withstand stringent stress and still maintain adequate
coverage. With the current debt service rate at 1.13 mills (well below the cap
of 3.126 mills) the district's AV could withstand as much as a 61% drop from
current levels and debt service would still be covered.
The district has no direct pension or other post-employment benefit liabilities,
as there are no district employees. The district's indirect liability for city
workers is minimal given that most firefighters are volunteers and receive
nominal post-employment benefits.