Fitch Rates Monarch-Chesterfield Levee District, MO's Special Tax Bonds 'A-'; Outlook Stable.

AUSTIN, Texas -- Fitch Ratings assigns an 'A-' rating to Monarch-Chesterfield Levee District, Missouri's (the district) approximately $3.4 million levee district improvement bonds, series 2009, scheduled for a negotiated sale on or about May 28, 2009. In addition, Fitch affirms its 'A-' rating on the district's approximately $27.1 million in outstanding series 1999, 2003, and 2006A bonds and the 'A-' rating on approximately $2.4 million of outstanding series 2006B sub-district bonds. While the underlying rating for the series 2006A was assigned July 6, 2006, the rating was not reflected on Fitch's web site. With this affirmation, the full rating history is now available on Fitch's web site. The Rating Outlook is Stable.

The series 2009 bonds will finance improvements to the district's existing levee and federal levee project, engineering studies, fund a standard debt service reserve, and pay costs of issuance. The bonds are secured by a special tax levied against each parcel of taxable property in proportion to the benefits conferred by the construction of the respective improvements. Each series of bonds is paid from distinct debt service funds and debt service reserve funds, as established by each series' respective bond resolutions.

The 'A-' rating reflects the district's history of strong financial performance, steady gains in assessed valuation, and favorable prospects for continued development due to the growth and affluence of neighboring communities. Typical of many special districts, there is taxpayer concentration. However, credit risks are partially mitigated by the strength of the special tax and enforcement provisions, which help to ensure adequate funding of debt service as well as the low lien-to-current market value of the district. Furthermore, no additional borrowing is planned.

The district includes approximately 4,722 acres bordering the Missouri River and bisected by Interstate 64 in the cities of Chesterfield and Wildwood, approximately 20 miles west of downtown St. Louis. The district is charged with protecting and reclaiming land within its borders from the effects of flooding and erosion, as well as sanitary and agricultural purposes. In 1999, the district implemented an extensive program to fortify its levee system to protect against an estimated 500-year flood event. Including the current offering, the district and sub-district will have approximately $33 million in outstanding debt, equaling approximately 3.7% of combined district market value of $898.8 million for 2009.

Approximately 73% of available land within the district is developed (up from approximately 50% in 2006), and includes the St. Louis County-owned Spirit of St. Louis Airport, which serves general aviation and a variety of commercial development and is reportedly the second busiest airport in the state. Approximately 2,000 acres in the district are devoted to agricultural uses, and less than 5% of land within the district is residential. Historically, development has been strong within the district, with taxable assessed valuation increasing on average 14.6% annually between 2004 and 2008, reflecting ongoing development as well as periodic reassessment. Also, officials report significant growth has occurred within the sub-district, with the value increasing by $1 per square foot since 2006, or $41 million.

Under Missouri law, the district generates revenues from two primary sources: an installment tax and a maintenance tax. The installment tax is a special tax levied against property in the district in proportion to the benefits received from the levee improvements. The sub-district levies an additional installment tax on property in proportion to the benefits received from the infrastructure improvements funded by the series 2006B bonds. Proceeds of the installment tax may be set equal to the cost of improvements, including interest from any related debt, with an additional 10% of the cost of improvements allowance as a contingency for emergencies. The separate maintenance tax is levied in a similar fashion for the maintenance and operation of the district's facilities. While the installment tax may not be used for operations, the maintenance tax may be used for debt service if needed.

Unpaid taxes result in a lien placed upon the delinquent parcel of land, for which only the liens of the state, county, school, and road taxes are superior. The county collects the taxes for the district, which are due Dec. 31 of each year; liens on delinquent taxes may be enforced by suit instituted in circuit court within six months of delinquency. Officials report that there has never been a foreclosure within the district. Current tax collections are somewhat weak, but overall collections improve to more favorable levels. In addition, the district maintains sizable reserves, including a $600,000 surplus account to cover delinquencies.

The major taxpayers of the district represent 37.1% of the district's total assessed benefit, indicating a high level of concentration, although this percentage is down from 41.8% in 2006. There is higher concentration in the sub-district, although the lien-to-market value remains low. Major taxpayers include utilities and the THF development company, a large regional and national developer, with a completed retail development containing a number of large national and local retailers. In addition, stability is afforded through the sizable presence of state and local government-owned properties within the district, mostly St. Louis County (general obligation bonds rated 'AAA' by Fitch). Past Missouri court rulings have established the ability of levee districts to tax municipal governments based on assessed benefits. Overall, officials report that vacancy rates within the district are relatively low.

Operating expenditures of the district are minimal, with capital outlays and debt service expenses representing nearly 75% of the district's total expenditures in fiscal 2008. The unreserved, undesignated portion of the general fund balance has consistently been substantial, fluctuating primarily due to capital outlay spending. For fiscal 2008, the district's general fund recorded a $5.2 million unreserved, undesignated balance, representing 115% of expenditures and transfers out. The debt service fund balance is also large, with reserves equaling about 110% of annual debt service. For the close of fiscal 2009, officials expect little change in fund balance levels.

Local economic and wealth indicators are strong, and population growth is reportedly among the highest in the state. The 2007 median household income for Chesterfield is 208.7% of the state and 185.9% of the nation. The March 2009 unemployment rates for Chesterfield and Wildwood were 5.6% and 5.2%, respectively, well below the county (8.6%), state (9.1%), and nation (9%).

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.