--Implied unlimited tax general obligation (ULTGO) rating at 'BBB'.
The Rating Outlook is Stable.
The LTGO bonds are secured by an ad valorem tax pledge levied against all taxable property in
KEY RATING DRIVERS
LIMITED, CONCENTRATED ECONOMY: The local area is sparsely populated and characterized by low income levels and a tax base heavily concentrated in oil and gas companies and pipelines. Assessed values are volatile and subject to changes in the price of oil and gas commodities and the level of well-permitting and drilling activity.
SATISFACTORY FINANCIAL RESERVES: District operations are limited to paying indigent care costs incurred by
WEAK FINANCIAL REPORTING: The low rating incorporates the persistence of weak financial reporting practices by the district, evidenced by consistently late audits. Hospital reporting practices are sound.
HOSPITAL OPERATIONS ESSENTIAL TO COMMUNITY: Hospital operations are commensurate with a facility of limited size and scope; the revenue base is very small and liquidity is low although improved. The hospital is a 'Critical Access Hospital' (CAH), reflecting its essentiality to the community, yet its small size makes it vulnerable to changes in reimbursement, physician turnover, and pressures imposed by healthcare reform.
LOW DEBT; SUFFICIENT TAXING MARGIN: Debt levels are low to moderate, amortization is average, and capital needs are manageable. Recent TAV growth has enabled tax rate reductions and yielded additional margin under the statutory tax rate cap.
LEASE TERMINATION: The lease between the district and hospital operator terminates prior to bond maturity, which Fitch views as a notable risk, but allows for automatic 10-year renewals.
TAX BASE VOLATILITY: The rating is sensitive to tax base volatility due to high concentration in oil and gas. A declining TAV trend could erode the taxing margin under the cap and potentially district tax revenues if the decline was severe.
HOSPITAL OPERATING RISK: The rating is also sensitive to the operating risks associated with the hospital.
The district owns the
CONCENTRATED AND VOLATILE TAX BASE
The district's TAV increased by a 12.6% in fiscal 2014 and is estimated to increase by a significant 60% in fiscal 2015. The recent TAV trend demonstrates the volatility associated with the taxing of mineral resources, oil and gas exploration/production firms, and pipelines passing through the district.
Tax base concentration is high with the top 10 taxpayers comprising nearly 70% of the fiscal 2014 tax base, and the top payer list is dominated by oil and gas-based activities and resources. Fitch views the concentration risk as partly mitigated by the importance of the particular pipelines in the area, and the long-term contracts that are typically used to support the financing and operations of pipelines. However, Fitch expects continued TAV volatility.
Wealth levels of county residents are low, with per capita income and median household income well below state and national averages. Labor force and employment grew in fiscal 2013 after several years of contraction, further reducing the already-low unemployment rate to 2% in
DISTRICT MAINTAINS A MODEST BUDGET, SUFFICIENT RESERVES
The district collects property taxes to pay debt service, indigent care costs at the hospital, and district administrative costs. Property taxes comprised 66% of fiscal 2012 district revenues. The remainder came from
The district's operating profile remains stable. Unaudited fiscal 2013 results marked the fourth consecutive year of positive results, adding an estimated
The fiscal 2014 budget is balanced and management reports no material variances in year-to-date results. Fitch expects the district's financial operations to remain stable given its limited purpose and recent track record.
DELAYED FINANCIAL REPORTING
The fiscal 2013 audit of the district is not yet available (
Fitch views the sub-standard financial reporting practice as a risk embedded in the low rating while also noting that the district's unaudited results have aligned closely with audited numbers in recent years.
AFFORDABLE DEBT BURDEN; MANAGEABLE CAPITAL NEEDS
The district's overall debt levels are low to moderate at 1.6% of estimated full value and
Hospitals designated as CAH are reimbursed by
Operating income and operating EBITDA margins (inclusive of property tax receipts) have remained positive but have narrowed in recent years due to financial pressure mostly associated with personnel turnover. This result highlights the hospital's vulnerability to any change in professional staffing; however, management confirms vacated positions have been re-staffed as of fiscal year 2014 and expects operational improvements going forward. The hospital has limited financial flexibility and is challenged to adapt to the changing healthcare environment. Management does not expect to meet the Affordable Care Act IT meaningful use standards because of the costs associated with implementation of electronic medical records and will incur a small penalty in 2015.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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