OREANDA-NEWS. Fitch Ratings affirms the following ratings for Taylorsville, Utah (the city):

--$0.9 million sales tax revenue bonds, series 2006 at 'AA';
--Implied general obligation (GO) bonds at 'AA'.

The Rating Outlook is Stable.

SECURITY

The sales tax revenue bonds are payable from an irrevocable first lien on the city's 1% sales and use tax revenues collected on nearly all goods sold within city limits.

KEY RATING DRIVERS

SOUND FINANCIAL PROFILE: The city's sound financial profile reflects solid reserves, a growing revenue base, structurally balanced budgets, and conservative financial policies.

RECOVERING ECONOMY: Sales tax revenues and assessed values (AV) continue to grow but are still below their respective pre-recession peaks.

SALT LAKE CITY BEDROOM COMMUNITY: The city is part of the Salt Lake City metropolitan area and benefits from a strong regional labor market with consistently low unemployment rates. Moderate concentration exists in the local tax base and top employers.

STRONG COVERAGE, LOW DEBT: The implied ULTGO rating serves as a ceiling for the sales tax revenue bond rating. Sales tax revenue bond coverage remains healthy under various Fitch-designed stress scenarios. Overall debt is very low, and long-term obligations are well-funded.

RATING SENSITIVITIES

STABLE OUTLOOK: The rating is sensitive to shifts in fundamental credit characteristics including the city's conservative financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Taylorsville is the 11th largest city in Utah, located nine miles southwest of Salt Lake City. The 11 square mile city is a bedroom community with roughly 60,000 residents and is mostly built out with limited population growth expected.

SOUND FINANCIAL PROFILE

The city has a good track record of achieving structural balance, producing operating surpluses in eight of the past 10 years. Fiscal 2015 ended with $4.9 million or 19% of spending in unrestricted general fund balance. Fiscal 2016 performance is helped by healthy sales tax revenue growth and tight expenditure control. Management expects the current year to end with another surplus, sufficient to boost the ending restricted fund balance to 25% of spending (the legal maximum in Utah) after transfers to various capital projects funds.

The general fund revenue base is concentrated, with 56% from volatile sales and franchise revenues and less than 15% in the more stable property tax revenues. This places more emphasis in Fitch's analysis on the maintenance of adequate reserves.

The city established two formal financial policies in December 2015, setting the minimum fund balance at 19.5% of spending and requiring a minimum annual transfer to capital funds to $500,000. Fitch views both as evidence of conservative financial management.

SALES TAX PROVIDES STRONG COVERAGE DESPITE VOLATILITY

Volatility of the pledged sales tax revenue is evidenced by a cumulative 20% fall in two years at the beginning of the recession. The loss has yet to be fully recovered, with the fiscal 2015 amount still 6% below the pre-recession peak.

Even at this lower level, fiscal 2015 sales tax revenues provide solid coverage for parity sales tax bonds, with maximum annual debt service (MADS) coverage at around 7x in fiscal 2015. MADS coverage remains above 1.0x under various stress scenarios, including the loss of top taxpayers, revenue declines, and additional debt issuances. Although the additional bonds test allows for issuance if pledged revenues provide debt service coverage of more than 2x, additional leverage is likely to be more limited since the city is dependent on residual sales tax revenues for general operations.

RECOVERING BEDROOM COMMUNITY, MODEST CONCENTRATION

The city's housing market experienced a more severe downturn and a slower recovery than Salt Lake County as a whole, as evidenced by a 2015 AV at 10% below the pre-recession peak, compared with Salt Lake County's 5%. Zillow anticipates a 5% increase in the city's house price index next year, in line with its prediction for the county.

The city benefits from a healthy local labor market. The city's unemployment rate has historically been low, and is trending further down. At 3.6% in January 2016, it compared favorably with the national average of 5.1%.

The city's own employment base is somewhat limited, with two major call center operations accounting for approximately 15% of jobs located in the city. The city's tax base is not as concentrated, with the top 10 taxpayers comprising 11% of total AV, with the largest taxpayer at almost 2%. Income levels are average.

STRONG LONG-TERM LIABILITIES PROFILE

The city's overall debt ratios remain very low, at $326 per capita or 0.5% of market value. Direct debt, all in the form of sales tax revenue bonds, amortizes rapidly. The city does not anticipate any additional debt issuance in the near term, due to limited needs and planned pay-go funding.

The city participates in the well-funded Utah Retirement System and pays 100% of actuarially required contributions (ARC). The combined funded ratio is estimated at 86% using a more conservative 7% investment return assumption. The city does not offer other post-employment benefits (OPEB). Total debt and pension carrying costs were very low at 5.5% of total governmental spending in fiscal 2015, and are expected to stay affordable based on the existing debt service schedule and slowed growth in pension ARC.