OREANDA-NEWS. Fitch Ratings affirms the following St. George, Utah (the city) sales tax revenue bonds at 'AA':

--$11.3 million sales tax revenue refunding bonds, series 2009.

The Rating Outlook is Stable.

SECURITY
The bonds are backed by a first lien pledge of local sales and use tax revenues.

KEY RATING DRIVERS
ROBUST COVERAGE: Debt service coverage has strengthened with the city's economic recovery and performs well under Fitch-designed stress scenarios. A portion of the pledged revenue is generated statewide, providing insulation from local sales tax fluctuations.

SOLID FINANCIAL PERFORMANCE: The city maintained stable operations during the last recession and in subsequent years.

AFFORDABLE DEBT: Overlapping debt levels are moderate and carrying costs for debt service and retiree benefits are manageable.

TOURISM AND TRADE ECONOMY: St. George's economy has benefited from tourism and trade-related activity arising from its location along a major commercial corridor adjacent to a unique desert landscape. Employment levels have grown steadily since 2011 but remain well below their pre-recession peak.

RATING SENSITIVITIES
REVENUE VOLATILITY: The rating is sensitive to declines in pledged revenues that could reduce debt service coverage. The Stable Outlook reflects Fitch's expectation that potential declines are unlikely to reduce coverage materially.

CREDIT PROFILE
St. George is the eighth largest city in Utah and is located in the state's southwest corner, approximately 125 miles northeast of Las Vegas. The city has seen strong growth in recent years, with a population increase of nearly 50% since 2000. New residents include many retirees and visitors attracted by the region's desert climate and numerous recreational opportunities.

ROBUST DEBT SERVICE COVERAGE

Sales tax revenues supporting the bonds have performed strongly in recent years, increasing a cumulative 35% from 2010 levels and surpassing the pre-recession peak. Annual debt service requirements have declined during this same period, contributing to robust coverage gains. Coverage rose to a 5.4 times (x) maximum annual debt service (MADS) under Fitch's base scenario, which conservatively assumes 1% annual growth through the bonds' 2018 final maturity. Coverage levels also remain adequate under Fitch-designed stress scenarios of 5% and 10% annual declines in sales tax revenues, dropping to 3.9x MADS under the latter scenario.

Sales and use taxes supporting the bonds are collected by the state and distributed to cities pursuant to a formula that considers both local sales and population. St. George receives 50% of its locally generated sales and use tax, plus a share of statewide taxes proportional to its population. This arrangement provides some protection against local downturns and helps to stabilize an economically sensitive revenue source.

Additional bonds may be issued on a parity basis if pledged revenues for any 12 consecutive months within the 24 months preceding issuance exceed MADS for the outstanding and proposed bonds by 2.25x. Management reports no current plans for issuance of additional sales tax-supported debt.

TOURISM AND TRADE ECONOMY

The city's economy faces above-average volatility as a result its economic concentration in tourism and trade. The city's March 2015 unemployment rate of 3.8% compares favorably to a national average of 5.6% but saw large swings during the last recession, rising from a low of 2.4% to a high of 10.7% over the course of three years. Taxable assessed values (TAV) have experienced similar volatility, with a 120% increase between 2005 and 2009 followed by a 30% decline through 2012. TAV levels have recovered some of these losses in subsequent years, but remain about 20% below pre-recession peaks.

Further TAV gains appear likely over the next several years with the continued strengthening of the St. George housing market, but the city's economy is likely to remain sensitive to cyclical downturns.

SOLID FINANCIAL PERFORMANCE

St. George's financial performance remains solid. General fund operations are balanced and revenues have rebounded in the wake of the recession, increasing by nearly 25% since fiscal 2010. The city has continued to make regular year-end transfers to capital reserves and unrestricted fund balance was adequate at 11.3% ($5.7 million) at the end of fiscal 2014. In addition, the city retained approximately $18.7 million in capital and economic development reserves at the end of fiscal 2015, which could be transferred to the general fund if needed.

Management projects breakeven results for fiscal 2015 after accounting for the consolidation of the city's golf course operations in its general fund. The fiscal 2016 budget is balanced and provides for modest increases in general fund revenues and expenditures.

MANAGEABLE LIABILITIES

Overall debt levels are moderate at $2,527 per capita and 2.4% of market value. Amortization is rapid with 94% of outstanding principal retired in 10 years. The city also benefits from limited exposure to other long-term obligations due to historically strong funding for the state-sponsored pension plan and the absence of other post-employment benefits. Carrying costs for debt service and retiree benefits were moderate at 21% of governmental expenditures in fiscal 2014.