Fitch Rates Yuma County Free Library District, AZ $43.7MM GO Bonds 'A+'.

AUSTIN, Texas -- Fitch Ratings has assigned the following rating to Yuma County Free Library District (the district), Arizona's general obligation bonds, series 2007:

--$43.7 million general obligation bonds 'A+'.

The bonds are scheduled to sell competitively on July 16.

Fitch has also affirmed the following rating:

--$8.2 million outstanding general obligation bonds A+'.

The Rating Outlook is Stable.

The 'A+' rating is based on the strength of the property tax pledge, the growing tax base and economy within the county, and the lack of additional debt-financed capital plans upon completion of the current bond program. Although there are no legal limitations on property tax levies for the library district's debt service and operations and maintenance, practical limitations on the county's total tax rate remain. As a result, debt retirement of this authorization is on a 30-year schedule, allowing a lower tax rate impact but resulting in slower than average repayment. Cooling of the county's housing market is projected to reduce future tax base growth to more moderate historical rates.

The library district has boundaries that are coterminous with Yuma County and shares the same board as the county. There are currently six library branches and completion of the 2005 bond program will result in seven facilities plus technology enhancements. The tax base for the county and district are identical and the district levies property taxes based upon the secondary assessed valuation (SAV), which is more liberal in regard to growth in value as compared to primary assessed valuation (PAV). General county operations are funded from a PAV levy.

Yuma County, in the southwest corner of Arizona, spans over 5,500 square miles, bordering Mexico to the south and California to the west. The county seat is the city of Yuma (GO bonds currently rated 'A+' by Fitch), and nearly half of the county's estimated 196,000 residents live there. SAV growth has been steady and moderate, averaging over 10% annually over the past five years, including a 25% surge in fiscal 2007 due mostly to reappraisal of existing property. After peaking in 2004, residential building activity has trended down notably although it has been offset by a substantial increase in commercial development. Primary employment sectors include agricultural, military, government, services, and manufacturing. Unemployment rates are high, due in part to seasonal employment related to the agricultural sector, and income levels are below average but growing faster than state and national averages.

The current offering represents the second and final installment of a $53.8 million authorization approved by 52% of voters in November 2005 for new and replacement facilities, as well as the expansion and renovation of existing facilities. Only the district has general obligation (GO) debt outstanding currently. Including county sales tax debt and annual appropriation debt, direct debt levels remain moderate despite the large current offering. Including overlapping debt, overall debt levels are also moderate. The principal pay out rate of the district's GO debt is low at only 25% in ten years.

Library district operations are primarily funded from property taxes and the district functions as a single purpose entity. Its expenses are solely related to the provision of library services throughout the county. Fiscal 2006 ended with a district fund balance of over $2.7 million, which represents a high 64% of expenditures. Projections for fiscal 2007 point to a large $1.5 million operating surplus and the fiscal 2008 budget includes another $1 million addition to fund balance. The growing reserve levels are intended to help absorb the operational costs of the new facilities as management intends to avoid any increase in the district's maintenance tax levy, relying on continued SAV growth.

The county's general fund, in fiscal 2006, posted a nearly $1 million operating deficit, due to over $4 million in pay-as-you-go capital outlays. However, the general fund still reported a strong fund balance of almost $17 million or 33% of spending. The revenue mix for the general fund is diverse, with property taxes representing about 27%, local sales taxes 19%, and state shared sales taxes at 29%. After growing by double digits in recent years, state-shared sales tax growth has trended down to a still solid 7% in fiscal 2007. As a result, fiscal 2007 projections point to a $2.9 million drawdown, due to the slower than budgeted revenue growth (including a decline in building permit revenue). The fiscal 2008 budget is expected to be balanced based on 6% sales tax growth. Although service demands are increasing from a growing population, general fund revenues should continue to benefit from the increased economic activity.

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