Fitch Rates Westminster, Colorado's 2007C Sales Tax Bonds 'AA'; Outlook Stable.

AUSTIN, Texas -- Fitch Ratings has assigned an 'AA' rating to Westminster, CO's (the city) $11.4 million sales and use tax revenue refunding bonds, series 2007C. The bonds are scheduled to sell via negotiation to Stifel, Nicolaus on Oct. 2. Additionally, Fitch has affirmed the following ratings for the city:

--$43.1 million sales tax bonds 'AA';

--$15.1 million special purpose sales and use tax revenue bonds 'A+'.

The Rating Outlook for all bonds is Stable.

The 'AA' rating reflects favorable debt service coverage by pledged revenues, the city's strong fiscal planning and conservative management practices, and the absence of additional borrowing plans secured by this sales tax. Credit risks include the economic sensitivity of pledged revenues, some sales taxpayer concentration, and the competitive retail sales market in the Denver metropolitan area. Sales tax receipts have grown erratically since the sharp decline recorded in 2002, and collections remain below pre-recessionary levels. Fitch expects future sales tax growth to remain slow in the next few years, the result of store closings at an older mall and greater retail development in numerous urban renewal areas (URAs), whose incremental sales tax receipts are excluded from pledged revenues. However, the city is considering reducing the level of sales tax revenues captured by the URAs, resulting in additional revenues for general city use.

Westminster is a relatively wealthy and moderately growing community between Denver and Boulder, with a population of approximately 107,000, up 6.4% since 2000. Median household buying income is 133% of the U.S. average. Unemployment rates have come down from the previous high of 5.7% in 2003, with the city's 2006 rate at 4%. In addition to participating in the broad Denver metropolitan economy, the city's own economic base is fairly diverse. Taxable values continue to record moderate growth, reflecting both new construction and rehabilitation of existing properties. The city is approaching full development.

Since posting an 11% decline in 2002 due to the recession and the opening of a mall in a neighboring community, pledged sales taxes have grown by less than 2% annually on average, except in 2006 in which receipts grew by almost 4%. However, due to the declining number of tenants at the city's largest and oldest shopping mall (the Westminster Mall), the city budgeted a 1.5% decline in sales tax receipts in 2007. Year to date collections are on budget for the first seven months of the fiscal period ending Dec. 31. Given the significance of sales taxes for operating support (total sales tax receipts represent 67% of general fund operating revenues), debt service coverage, as expected, is substantial. Collections in 2006 of $51.3 million provided 9.0 times (x) coverage of maximum annual debt service (MADS). With the 1.5% decrease in collections anticipated for 2007, MADS coverage decreases to a still strong 8.9x.

Some taxpayer concentration exists, with the top 10 taxpayers representing about 35% of total collections, although no one generator represents more than 7%. The city has several economic development efforts planned or under way, which should benefit collections, reduce taxpayer concentration, and eventually offset declines in tax revenues from store closures at Westminster Mall. As with all sales tax-secured bonds, there is vulnerability to economic cycles and competing retail opportunities.

Debt ratios are moderate on a direct basis but somewhat above average on an overall basis. No additional borrowing secured by the 3% sales tax is planned; the city's capital plan calls for sizable pay-as-go financing from excess sales and use taxes. The current offering is projected to result in about $512,000 in net present value savings. Bond security is protected by strong legal provisions, including an additional bonds test of 2.0x MADS coverage by historical revenues. Principal pay out of the 3% sales tax bonds is rapid with 85% retired in ten years.

The city's financial operations are well-maintained. Despite the significant decline in sales and use taxes in 2002, the city retained strong reserves, implementing an effective contingency plan to stabilize its financial position. Reserves are at healthy levels, with the 2006 general fund balance totaling $17.6 million, or 20% of operating expenditures and transfers out. The unreserved portion represented more than 12% of expenses and transfers out. Break even results or a small operating surplus is projected for the close of 2007, with the ending fund balance above the city's prescribed 7%-10% goal. The 2008 budget, adopted as part of the city's biennial spending plan, is also balanced. The maintenance of sizable reserves offsets concerns regarding the city's dependence on a potentially volatile revenue stream.

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