OREANDA-NEWS. February 16, 2015. Fitch Ratings has affirmed the following ratings for Arvada, Colorado (the city):

--\\$14.36 million sales and use tax bonds series 2009 and 2013, at 'AAA';
--Implied unlimited tax general obligation rating at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from Arvada's 3% sales and use tax.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: Arvada's financial position is very strong, characterized by large reserves, ample liquidity, and resilient revenue sources. The city benefits from voters' permanent waiver of growth limitations on all revenues.

SALES TAX CONCENTRATION: Financial operations rely heavily on economically volatile sales and use tax receipts. However, receipts from the largely residential base were stable during the last recession.

CASH-FUNDED CAPITAL PROGRAM: The city's practice of funding most capital needs with cash results in a very positive debt profile, characterized by a modest overall debt burden, rapid principal amortization, and limited debt plans.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics, including the city's strong financial management practices and economic factors affecting sales tax collections. Maintenance of solid financial reserves, given Arvada's high sales tax revenue exposure, is essential to credit quality.

CREDIT PROFILE

The city of Arvada is located 20 miles northwest of downtown Denver, with an estimated 2013 population of 111,707. The city's population growth has been modest.

RETAIL ANCHORS STABLE ECONOMY

Arvada is characterized by steady yet modest growth and development. The local economy benefits from a stable residential base, as well as extensive retail activity along its transportation corridors. The city is part of the broader Denver MSA, which is a hub for state and federal government, telecommunications, and energy.

The area has experienced a sharp increase in housing starts following the recession. The city reports ongoing residential activity in a single-family subdivision and a large mixed-use development. Strong building activity in 2014 was evidenced by a 49% increase in permit revenues over 2013.

The city's assessed valuation (AV) was essentially flat throughout the recession, but has registered a modest increase in each of the past three years, driven by residential growth. Officials project an AV increase of 4% for fiscal 2015 due to property reassessments and construction activity. Fitch considers this projection reasonable, given similar reappraisal estimates for the region.

Market value per capita is strong at \\$96,000 and wealth levels in Arvada are above state and national averages. Median household income is 117% of the Colorado average and 129% of the U.S. average. The city's unemployment rate has trended downward after spiking in 2010. The November 2014 rate of 3.8% was just below the Colorado rate (4%) and well below the U.S. rate (5.5%). Fitch believes that Arvada's economic prospects remain positive.

EXEMPLARY FINANCIAL PERFORMANCE

The city's strong financial management practices have produced positive financial operations each year before consideration of transfers for capital outlay. Arvada's biennial budget includes the development of a conservative 10-year financial projection that underestimates revenues and overestimates expenditures. As a result, the city maintains reserves well in excess of its policy to maintain at least 17% of expenditures throughout the 10-year model. The fiscal 2013 unrestricted general fund balance equaled a strong \\$23 million or 36% of spending.

Preliminary results for fiscal 2014 indicate a strong general fund surplus of \\$5.1 million (6.7% of spending). Very strong sales tax growth of 8% and capital project carryovers helped the city outperform a conservatively budgeted drawdown. The fiscal 2015 proposed budget has a planned drawdown of \\$2.6 million (3% of spending).

Arvada's revenue base is heavily dependent on sales and use tax receipts, which comprised 69% of general fund revenues in fiscal 2013, followed by license and permit revenues and intergovernmental revenues. Property taxes comprised only 7% of general fund revenues; accordingly, the city's mill rate is modest at 4.31 and has gone unchanged for over 20 years.

Sales and use tax receipts remained flat through the recession, reflecting the relatively stable activity associated with the grocery stores and utility companies that dominate the retail base. In fiscal 2014 this revenue increased by 10.2% over fiscal 2013, representing the largest increase in eight years. Year to date trends point to continued modest growth.

Arvada's financial flexibility has been aided by voters' approval of a permanent exemption in 1996 to the state's Taxpayer Bill of Rights (TABOR) legislation. This waiver allows the city to collect, retain, and spend all excess revenues without being subject to TABOR restrictions limiting revenue growth to the rate of inflation plus the actual value of new construction.

MODEST LONG-TERM LIABILITY BURDEN

The city's overall debt burden is modest at \\$1,037 per capita and 1.1% of market value, attributable to Arvada's largely cash-funded capital program. All sales and use tax revenue bonds mature by 2018. The city's certificates of participation also amortize rapidly, with 100% retired within 10 years. Pensions are provided through defined contribution programs and the city's liability for other postemployment benefits (OPEB) is modest at \\$2.3 million or 0.02% of market value, funded on a pay-as-you-go basis. Carrying costs related to debt service, pension, and OPEB liabilities are only 5% of fiscal 2013 governmental fund spending.

STRONG DEBT SERVICE COVERAGE

Debt service coverage of the city's sales and use tax revenue bonds has been historically stable, remaining strong at 14.1x in fiscal 2014, up from 13.8x in fiscal 2013. Coverage for fiscal 2015 is projected at 14x using fiscal 2014 pledged revenues, and coverage of maximum annual debt service (MADS) in 2018 at 13.7x. At this level of coverage, MADS can still be met under Fitch's stress models, which assume severe and sustained pledged revenue loss. Legal provisions are strong with a 3x additional bonds test and all sales tax bonds are on a parity lien.