The Outlook has been revised to Negative from Stable.
The bonds are direct obligations of the district and are payable from an annual ad valorem tax, levied within the limits described by law. The property tax rate cannot exceed
KEY RATING DRIVERS
REDUCED LIQUIDITY AND MARGINS: The downgrade reflects a decline in the
EPCH EXHIBITS DISTRESSED PROFILE: EPCH is a separate 501c organization that entered into various agreements with UMC including a facility lease agreement and administrative services agreement. The Negative Outlook indicates concern over EPCH's going concern disclosure in its 2013 audit and the financial impact of its distressed credit profile on the District. It is Fitch's understanding that EPCH is actively seeking a relationship to enter into a partnership with a third-party provider.
ESSENTIALITY OF SERVICE: UMC provides an essential service to a growing population. The district's capital plan positions UMC to benefit from increased volumes and
GROWING DIVERSIFIED ECONOMY: The economy of
TAXING CAPACITY; COMMUNITY SUPPORT: The district's fiscal 2015 budget maintains a strong 70% margin under the tax limitation. Community support is evidenced by voter support for the district's general obligation bond programs.
STABILIZED FINANCES: Removal of the Negative Outlook is dependent on stabilization of the district's finances, either through EPCH's ability to secure a strategic partner or UMC's demonstrated ability to absorb the costs associated with EPCH's operations within its own budget.
The District covers a very large area, totaling 1,058 square miles, and operates the only public hospital located in its primary service area. The
The hospital also serves as the primary teaching hospital for the
UMC FINANCIAL PRESSURE DUE TO EPCH CONTRACT DEFAULT TO UMC
EPCH's 2013 audit reported that its ability to continue as an ongoing entity is dependent on arriving at a 'mutually acceptable agreement with UMC' and improved operating results. As a new operation, EPCH has been challenged with reductions in reimbursement rates, a lack of participation in the state Medicaid Waiver program, increased overhead and operating expenses, poor accounts receivable management and lower than anticipated inpatient volumes. EPCH officials report that EPCH is currently in negotiation with potential strategic partners which should provide a cash infusion, management expertise and improved operations. Fitch will monitor the ability of UMC to stabilize finances to the extent that a strategic partner is not identified.
UMC operating revenues include contract revenues from EPCH representing service, equipment and facility leases provided to them by UMC. By contract, these revenues total about
In contrast to recent results, the district projects a change in net position of $ million and $16> million for 2014 and 2015 respectively. Despite cost cutting initiatives, including a recent reduction in force, the projections reflect a 100% loss reserve of EPCH contract receivables and the uncertainty of future collections. Fitch anticipates that in 2015, the receivables will be fully reserved if EPCH does not receive a cash infusion from a strategic partner and may be collectable in the alternative. The district realized modest profitability during fiscal 2010 through 2012 (prior to the opening of EPCH), not atypical for a large county hospital district that serves as a primary safety net provider.
DELAYED MEDICAID SUPPLEMENT PAYMENTS COMPOUND LIQUIDITY PRESSURE
The state has experienced delays in timely
STABLE TAX BASE; BROAD TAXING MARGIN
The district's taxable assessed valuation (TAV) has grown an average of 2.5% annually between fiscal 2009 and 2014, without realizing a single reduction during the recession. The top 10 taxpayers are represented by refining, utility, healthcare, and retail interests and comprise a low 4.6% of fiscal 2014 TAV.
Officials have a strong history of managing growth while maintaining a low tax rate. The district's fiscal 2015 effective total tax rate equals just over
DIVERSIFIED ECONOMIC GROWTH
The county's location midway between the U.S. coasts has made it a significant gateway between the U.S. and
Ongoing expansion of
Fitch believes that trends in the county's trade and military sectors, combined with new downtown redevelopment and wide spread commercial and retail development, bode well for near- term gains in the county's population and employment base.
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
Dmitry Feofilaktov, +1-212-908-0345
Source: Fitch Ratings
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