Fitch Rates South Jordan Utah's $23MM Water Rev & Rfdg Bonds 'A+'
Source: Business Wire
The 'A+' rating on the city of South Jordan (the city) water system's (the system) water revenue bonds is based on the system's favorable financial operations, long-term water supply contract for potable water, and an economically strong service area. Credit concerns are centered on the rapidly growing customer base which has necessitated increased debt levels in the near term and the need for regular rate increases to maintain adequate debt service coverage, although rate increases for the next five years have already been passed by the city council. Water rates and debt levels are affordable under the current plan, and after completion of this project the water system will be well positioned to maintain its strong financial condition.
The system primarily provides potable water service to city residents through its culinary system, but also provides irrigation water to a limited number of customers through its secondary system. Customer accounts for the culinary system total around 11,300, with growth averaging about 7% annually over the last five fiscal years. Culinary water is supplied by the Jordan Valley Water Conservancy District (JVWCD), a regional wholesale provider, through a perpetual take-or-pay contract. JVWCD's water revenue bonds are rated 'AA-' by Fitch.
City officials estimate JVWCD's supplies are sufficient to meet city needs as it expands to an expected 100,000-110,000 persons in around 20-25 years. Financial performance has been good over the last five fiscal years with the system maintaining solid coverage and cash balances. For fiscal 2006, unrestricted cash and investments equal to 240 days of operating expenditures and transfers outs. With the issuance of the current offering, projections indicate adequate annual coverage of at least 3.2 times (x) through fiscal 2011.
Proceeds from these bonds will be used to advance refund outstanding parity debt for interest rate savings and to help finance the expansion and replacement of lines throughout the system. The improvements are part of the city's master plan for the culinary system. After the current transaction the city expects to issue further debt in fiscal 2009 to meet growth-related capital needs, but customer debt levels should remain affordable. To fund the capital improvements the city enacted an average annual 5.7% increase in the monthly culinary water charge for fiscal 2008-2012.
The city is primarily a residential community, but has a growing commercial presence. Population growth remains strong, at 4.8% in 2006 over the previous year or 57% since 2000; the current population is estimated at 46,800. Despite the growth pressures, economic prospects for the city are favorable due to low unemployment rates, strong tax base growth, and above-average wealth levels. Historically the city's unemployment rate has remained well below that of the county, state, and nation, falling to a very low 1.8% in 2006. The city's tax base, which has benefited from the close proximity to Salt Lake City, grew a high 13.6% in 2006 with further residential development expected in the near future.
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