Fitch Affirms Murray, Utah's Sales Tax Revs at 'AA+'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings affirms its 'AA+' rating on the following sales tax revenue bonds for Murray, Utah (the city):

--$4,245,000 series 2009A and 2009B.

Fitch also affirms the city's implied ULTGO bond rating of 'AAA'.

The Rating Outlook is Stable.

SECURITY

The sales tax revenue bonds are payable from an irrevocable first lien on the city's 1% sales and use tax revenues.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: The city's financial performance has been consistently solid, evidenced by the maintenance of a significant unrestricted general fund balance.

ROBUST COVERAGE; LOW DEBT: Sales tax revenues provide very strong debt service coverage for the rated senior bonds despite the economic downturn while maintaining healthy coverage under a variety of stress scenarios. The city's overall debt burden is low, with rapid amortization.

EXPANSIVE, RESILIENT ECONOMY: The city benefits from its central location in the economically diverse Salt Lake City metro area. Aided by an improving real estate market and a lower unemployment rate, property and sales tax revenues are slowly rebounding.

CREDIT PROFILE

Located in the Salt Lake City metropolitan area, Murray City is a retail, healthcare, and employment hub. It is home to several major auto dealerships and a large, recently renovated regional shopping center.

STRONG FINANCIAL PERFORMANCE

The city has kept strong reserve levels through the economic downturn and maintained balanced budgets despite volatility in revenues. Sales tax revenue, the largest component of general fund revenues, experienced a sharp decline in fiscal 2009. It has since shown modest improvement. In response, management successfully curbed expenses through attrition, reorganization, early retirement incentives, and elimination of other post-employment benefits (OPEB).

The State of Utah limits local government reserve accumulation to 18% of general fund spending. Additionally, the city regularly aims to spend down to this level of unrestricted fund balance through transfers to its capital projects fund. In addition to paying for capital improvement projects, these funds serve as an additional reserve outside of the general fund which could be transferred back if necessary.

Sales tax revenue is expected to grow significantly in fiscal 2013 to exceed its fiscal 2012 level of $12.7 million. That said, it will still be below its peak fiscal 2008 level of $15.5 million. Even at this lower level, it provides very strong coverage for the rated bonds, at 6.6 times (x) in fiscal 2012. Coverage is projected to rise over the remaining life of the bonds due to declining annual debt service. Coverage holds up well under a variety of rigorous stress tests, including the unlikely loss of half of the city's top 10 taxpayers and ongoing 10% declines in sales tax revenues.

MANAGEABLE DEBT BURDEN

The city's current direct debt level is low, and will remain low after the city issues a planned $10 million in additional sales tax revenue bonds. As one of the local participants in Utah Telecommunications Open Infrastructure Agency (UTOPIA) and Utah Infrastructure Agency (UIA), the city is obligated to make payments when UTOPIA's operation is unable to cover its debt service. The city has been called upon to make such payments since fiscal 2007, and most recently paid $1.58 million in fiscal 2013.

Fitch treats the city's obligations to UTOPIA and UIA as a debt, until the project is convincingly self-supporting. This debt also has a subordinate pledge of Murray's sales tax revenues. With this additional debt, the overall debt burden is still quite low at about $1,650 per capita and 1.3% of market value. The coverage ratio on all debt is still strong at 3.5x in fiscal 2012.

The city faces increasing pension contributions as required by Utah Retirement Systems due to investment losses and changes in actuarial assumptions. Despite a reduction in the workforce, the city's total annual required contribution has increased by 32% since fiscal 2011. Fitch expects the contribution to go up further in fiscal 2014. However, total debt, pension and OPEB carrying costs remain at an affordable 16% of total general fund spending in fiscal 2012.

LARGE, RESILIENT REGIONAL ECONOMY

The city has suffered declines in its taxable assessed values (TAV) since fiscal 2010. However, the impact on property tax revenues has been limited. Utah's property tax law allows property tax rates to adjust to provide revenue stability. The city has been able to take advantage of this flexibility while maintaining one of the lowest property tax rates in the region. Meanwhile, the city's real estate market has improved, with increased transaction activities and higher home prices reported. These developments provide further stability to TAV and property tax revenue.

The city benefits from its central location in the Salt Lake City metropolitan area, which has one of the nation's most diverse and resilient economies--boasting numerous high-tech firms, medical centers, business services, and a year-round tourism industry. The city and the Salt Lake City metro area employment markets have outperformed the nation during the downturn. Aided by strong population growth and a skilled workforce, the city has seen significant expansion in employment; totals increased by more than 3% on average over the past decade. Its October 2012 unemployment rate of 5.2% was in line with the state average and well below the national average for the month.

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, 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:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Contacts

Fitch Ratings
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