Fitch Affirms Jefferson County, CO's Open Space Sales Tax Revs at 'AA'; Outlook Stable

Fitch Ratings has affirmed its 'AA' rating on the following Jefferson County, Colorado (the county) revenue bonds:

--$44.2 million open space sales tax bonds, series 2009;

--$15.9 million open space sales tax bonds, series 2010.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by net sales tax revenues from the county's portion of the permanent half-cent sales tax adopted in 1972 for the acquisition and preservation of open space.

KEY RATING DRIVERS

SOUND FINANCES; SOLID RESERVE LEVELS DESPITE DRAW-DOWNS: The county has a history of sound financial management and budgeting practices resulting in the maintenance of good reserve levels. While reserves were drawn down in fiscal 2013, and are budgeted to be drawn on again in fiscal 2014, they are expected to remain adequate.

STRONG ECONOMIC INDICATORS: The county's economic base is diverse and expanding. County employment trends are positive and unemployment, which has been declining, remains below state and national levels. Income and wealth indicators are above average.

MODERATE DEBT PROFILE: County debt per capita and debt to market value ratios are low and debt service as a percent of spending is midrange. Amortization is rapid and there are no near-term borrowing plans.

HEALTHY COVERAGE LEVELS: Coverage from pledged sales tax revenues of maximum annual debt service (MADS) on the outstanding sales tax bonds remains solid at more than 2.0 times (x).

SALES TAX TAXPAYER CONCENTRATION: While there is sales taxpayer concentration, it is largely mitigated by the essentiality of taxed goods and services, as well as the multiple locations of these sales tax generators.

RATING SENSITIVITIES

The rating is sensitive to shifts in debt service coverage driven by economic trends affecting pledged revenues, and is predicated on no further leveraging that would materially erode coverage. The rating is also sensitive to shifts in fundamental credit characteristics including county financial management practices. Despite recent reserve draw-downs, chiefly for capital purposes, reserve levels remain satisfactory. Continued fund balance draws, particularly for operating purposes, that significantly reduce reserve levels could pressure the rating.

CREDIT PROFILE

Spanning 773 square miles, Jefferson County encompasses a relatively wealthy area extending from Denver on its eastern side and into the Front Range of the Colorado Rocky Mountains on the west. Twelve incorporated cities that include Lakewood and portions of Arvada, Westminster, and Littleton are located within the county. While the county's population rose substantially during the 1990s, it has remained fairly stable since 2000. The 2013 population of 551,798 represents an increase of about 5% from 2000.

SOLID RESERVE LEVELS DESPITE DRAW-DOWNS

Sound financial management practices have contributed to the county's healthy finances, including a recent multi-year trend of general fund operating surpluses and increasing ending balances. Fiscal 2013 ended this trend with a draw-down, largely driven by capital spending, which moderately reduced the general fund unrestricted ending balance to a still sound $61 million or 35.2% of spending.

The 2014 general fund budget reflects significant property tax revenue growth ($10.4 million, or 9.4%, due to a tax levy increase), and conservatively projected declines in most other revenue sources. The budget also includes strong expenditure growth (5% overall), including $5.5 million related to a 3% staff salary increase. The budget assumes a deficit of $9.9 million ($6.6 million capital-related and $3.3 million for operations), which if realized would reduce the unrestricted balance to $51 million or a still adequate 28% of spending. However, current estimates indicate lower than budgeted expenditure needs that will likely decrease the deficit to about $7 million. The county tends to budget conservatively and actual revenue and expenditure results have outperformed budgeted expectations in recent years.

Although the county anticipates additional annual reserve draws for pay-go capital spending in the near term, ending balances should remain adequate. Fiscal 2015 finances are expected to be structurally balanced, benefiting from projected continued revenue growth. In addition, the county plans on implementing reductions in recurring operating expenditures related to supplies and services.

The county's largest revenue source is property taxes, accounting for about 64% of general fund revenues in fiscal 2013. The county is subject to maximum mill levy requirements, and very limited flexibility remains under the cap. The county's millage rate was increased from 24.346 in fiscal 2013 to 25.846 in fiscal 2014, which is just below the maximum levy of 25.978. The increase resulted in $10.4 million in additional property tax revenue for fiscal 2014.

ABOVE AVERAGE ECONOMIC INDICATORS

County unemployment rates have been historically lower than the state and national averages. As of May 2014 county unemployment (5%--down from 6.2% a year prior) remains below state (5.5%) and national (6.1%) averages. Per capita money income and median household income both are nearly 130% of national averages. The county's largest employers include county government and schools, federal government, Lockheed Martin, the Miller Coors brewing company, and hospitals and other health care related companies.

Taxable assessed value (TAV) declined by 4.8% in fiscal 2011, and was essentially flat in fiscal 2012. TAV grew by 1% in fiscal 2013 and the county expects flat to modest growth in the near term. The property tax base is diverse and the top 10 taxpayers constitute a modest 7.6% of total fiscal 2013 TAV. The largest taxpayer, the Public Service Company of Colorado, represents 2.6% of total TAV.

SOLID COVERAGE LEVELS AND LEGAL PROTECTIONS

The pledged open space sales tax consists of one-half of collections of a 0.5% sales tax (net a fixed administrative cost paid by vendors), plus the county's share of the remaining half that is shared between the county and cities based on the relative share of motor vehicle registrations. Some taxpayer concentration exists, with the top 10 taxpayers representing about 37% of total collections in fiscal 2013 and the top taxpayer representing 9.4%.

Net collections saw strong growth of 4.7% and 6.3% in fiscal years 2012 and 2013, respectively. Net fiscal 2013 collections provide about 2.05x coverage of MADS, an increase from 1.91x in fiscal 2012. Continued, though modest, net revenue growth of about 1% is budgeted for fiscal 2014. Year to date revenues through May 2014 are flat versus the same period a year prior.

Legal provisions for the bonds are fairly weak and include an additional bonds test of 1.25x MADS and a reserve account that will be funded from pledged revenues only when coverage falls below 1.35x MADS. The reserve account can be funded over a 24-month period and must be maintained as a continuing reserve even if coverage improves to or exceeds 1.35x.

MODERATE DEBT PROFILE

Debt ratios are low on a direct basis ($328 per capita and .29% of market value) and remain moderate even when estimated overlapping debt, largely school district related, is included (about $1,686 per capita and 1.5% of market value). Debt service as a percentage of governmental spending is midrange at 6.6% of governmental spending and principal pay out of total county debt obligations is rapid, with more than 80% retired in 10 years. No further leveraging of the open space sales tax is planned as the authorization has been exhausted, and no other near term debt issuance is planned.

County employees participate in the Colorado County Officials and Employees Retirement Association, a defined contribution plan. The county's fiscal 2013 contribution was $12 million or 3.3% of governmental spending. The county does not offer post-employment healthcare benefits.

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.

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=841747

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