Fitch Affirms St. Charles Parish Law Enforcement Dist, LA's Ltd Tax Bonds at 'AA'; Outlook Stable

Fitch Ratings has affirmed the following ratings on St. Charles Parish Law Enforcement District, Louisiana (the district):

--$12.9 million limited tax bonds, series 2009A & 2009B at 'AA';

--Implied unlimited tax GO (ULTGO) at 'AA'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from the levy of a special ad valorem tax of up to 17.5 mills on all taxable property within the district.

KEY RATING DRIVERS

ROBUST FINANCIALS, LEVY AT CAP: Recent tax revenue improvements contributed to consistent operating surpluses and solid reserve levels. The pledged property tax is the major revenue source for the district's operations, but the tax is levied at the maximum rate limiting management's overall budgetary flexibility.

CONCENTRATED, CYCLICAL TAX BASE: The local economy is heavily dominated by the energy and chemical industries. The district's assessed value gains in the past several years reflect strengthening of the sector, which is facing headwinds due to recent energy price drop.

AFFORDABLE LONG-TERM LIABILITIES: Debt ratios are low with no plan for further issuance. Carrying costs for debt, pension and other post-employment benefits (OPEB) liabilities are manageable.

NO RATING DISTINCTION FROM ULTGO: Given the district's reliance on pledged revenues for operations and its substantial financial cushion, the limited tax bonds achieve the same rating as implied ULTGO.

RATING SENSITIVITIES

FINANCIAL FLEXIBILITY: Satisfactory financial performance and sufficient reserves are key considerations to maintain the current rating level given the district's limited revenue raising ability, highly cyclical tax base, and exposure to weather related event risk.

CREDIT PROFILE

The district is coterminous with St. Charles Parish, a 401 square mile parish located within the New Orleans metropolitan area. The St. Charles Parish Sheriff, funded by the district, is the operating entity that provides law enforcement and corrections services within the parish.

WELL-MANAGED FINANCES WITH ROBUST FISCAL CUSHION

Sheriff's office finances are well-managed with consistent general fund operating surpluses (after transfers), primarily due to attrition and maintenance savings, as well as improving property tax revenue performance. At the end of fiscal year 2014 general fund unrestricted reserves totaled a solid $22 million or 59% of spending. Management informally budgets to maintain a general fund balance of 33% of expenditures and consistently meets this target.

The pledged property tax revenue in fiscal 2014 is equivalent to 12 times maximum annual debt service of total parity bond debt service, and provides over 50% of annual general fund operating revenues. The revenue stream has benefited from the expansion of district taxable assessed values (TAV), enabling the sheriff's office to continue pay-go capital funding. The district has been levying at the 17.5 mill maximum, fully utilizing its revenue flexibility. Revenue raising ability beyond the levy cap is very limited.

Other important revenues include a 3.7 mill levy for employee salaries and benefits (levied at the maximum rate and not pledged to the bonds) and per diem payments from federal and state governments to house their prisoners in the district's correctional facility, which make up approximately 11% and 10% of general fund revenues, respectively. While these revenues have been historically stable, Fitch views a declining demand for prisoner housing and/or discontinuation of the prisoner agreements as an inherent revenue risk.

The fiscal 2015 operating budget was adopted with recurring salary increases and a less than 1% deficit after transfers. Fitch views positively management's track record of outperforming the initial budget by year-end, which management currently expects for the current fiscal year (given improving property tax revenues, attrition and fuel savings). Budgets in fiscal 2016 and beyond may include fund balance draw-downs primarily for capital outlays, as well as staff increases.

CONCENTRATED, COMMODITY-BASED ECONOMY

The tax base is heavily concentrated. The top 10 taxpayers constitute about 60% of fiscal 2014 TAV and consist of electric generating, oil refining and chemical manufacturing facilities, all of which represent significant assets to the regional and national economy. The top taxpayer is Entergy Louisiana (15% of the tax base), which owns the Waterford 3 nuclear plant; this plant provides a significant amount of the state's energy needs. Other major taxpayers include Motiva, Valero, Union Carbide and Shell; many are in expansion mode.

Taxable values increased significantly over the last three years by a cumulative 24% following a one-year contraction in fiscal 2011. The district's tax base remains susceptible to future volatility given the high concentration in commodity-based activities and is facing headwinds in light of recent energy price drops. Offsetting factors include the expiration of large industrial exemptions over the near and medium term, and recently stable home prices.

The area economy relies heavily upon its industrial base which provides a significant portion of parish employment. In general, the parish experienced larger employment swings compared with the state or the nation, a reflection of the sector's cyclicality. Historically the parish and the state enjoy favorable unemployment rates compared with the nation. More recently the trend has reversed, with the parish at 6%, Louisiana at 6.2%, compared with 5.4% nationally, due to growth in labor force outpacing job creation.

LIMITED DEBT BURDEN AND AFFORDABLE FIXED COSTS

Overall debt levels are low to moderate with direct and overlapping debt at 1.5% of full value and $3,229 on a per capita basis. Amortization of direct debt is slightly above average at 60% of principal within 10 years.

A new training facility is primarily funded through a $7.5 million issuance of limited tax bonds in 2014, representing a further leverage of pledged revenues. Management estimates remaining capital needs can be met using general fund pay-go.

Pension benefits are provided through the state-wide Sheriff's Pension and Relief Fund, a cost-sharing multiple employer plan. The plan is satisfactorily funded at 75% as of 2014, using a Fitch-adjusted 7% investment return. The district consistently funds its actuarially-determined annual required contribution (ARC); the required contribution rate has increased modestly over the past few years to 13.89% of payroll in fiscal 2014.

Other post-employment benefits for retiree healthcare are funded on a paygo basis. The unfunded liability was $45 million as of 2014, or 0.4% of full value. Combined carrying costs for debt service, pension ARC, and OPEB paygo consumed an affordable 12% of governmental expenditures in fiscal 2014.

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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, and Zillow.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=985255

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