The Rating Outlook is Stable.
The bonds are secured by net revenues derived from operation of the city's water and sewer utility system (the system).
KEY RATING DRIVERS
STRONG FINANCIAL PERFORMANCE: All-in annual debt service (ADS) coverage for the system has been strong over the past five years, averaging a healthy 2.3x. Liquidity, measured by days of operating cash, has averaged a very strong 508 days.
ELEVATED DEBT BURDEN: Long-term debt levels are high in comparison to similarly-rated credits. However, given minimal future debt plans, debt levels are forecast to decline over the next five years.
ADEQUATE RATE FLEXIBILITY: Above-average wealth levels and moderate rates result in charges below Fitch's affordability threshold of 2.0% of median household income (MHI).
AMPLE WATER SUPPLY: The city recently received state approval of a 100-year assured water supply to meet projected demands. The assured water supply is renewed every 15 years.
ROBUST SERVICE AREA: The city has a mature and diversified local economic base, low unemployment rates, and income levels that are well above state and national averages.
CONTINUED STABILITY: Failure to maintain financial and debt metrics at or near Fitch's 'AAA' median levels could put downward pressure on the rating. In Fitch's view, such deterioration in the system's credit is unlikely.
STRONG FINANCIAL PERFORMANCE AND CASH BALANCES
The system has exhibited solid financial performance over the past five years. During this period, ADS coverage averaged 2.3x and has remained at or above 2.0x each year since at least fiscal 2009. Fiscal 2013 finished with ADS coverage of 2.7x, which was in line with Fitch's 'AAA' median. The coverage improvement in fiscal 2013 was due to revenue increases largely driven by capital contributions from large irrigation customers.
Liquidity, measured by days of operating cash held in unrestricted reserves, finished fiscal 2013 at a very strong 483 days, which was mostly consistent with the system's five-year average and consistent with Fitch's 'AAA' median. Projections provided by management demonstrate continued stability in ADS coverage and cash balances.
ELEVATED DEBT BURDEN
Long-term debt per customer was elevated but manageable at
The system's five-year capital improvement plan (CIP) for fiscal 2014-2018 includes approximately
ADEQUATE RATE FLEXIBILITY
Water and sewer rates have were held flat from fiscal 2009 through 2013, when sewer rates were increased by 4%. Assuming Fitch's standard consumption of 7,500 gallons per month, current combined system charges are about 0.8% of MHI, well below Fitch's threshold of 2.0%. Taking into account higher actual usage for city residents, combined charges should still allow some rate flexibility. Rates are projected to increase by 1.5%-2% per year from fiscal 2015-2018.
The city is required by the Groundwater Management Act (GMA) to assure renewable water resources are sufficient to meet projected annual water demands over the next 100 years. The most recent supply designation was approved in
ROBUST SERVICE AREA
The city has a mature and diversified local economic base, anchored by healthcare, tourism, business and professional services and technology. The unemployment rate in
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria, this action was additionally informed by information from Creditscope.
--'Revenue-Supported Rating Criteria' (
--'U.S. Water and Sewer Revenue Bond Rating Criteria' (
--'2014 Water and Sewer Medians' (
--'2014 Outlook: Water and Sewer Sector' (
Revenue-Supported Rating Criteria
U.S. Water and Sewer Revenue Bond Rating Criteria
2014 Water and Sewer Medians
2014 Outlook: Water and Sewer Sector
Source: Fitch Ratings
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