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[GuruTrader]

Fitch Downgrades St. Joseph County (Indiana) GOs; Outlook Negative
Press Release
Source: Fitch Ratings
On Monday July 20, 2009, 6:46 pm EDT
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CHICAGO--(BUSINESS WIRE)--Fitch Ratings assigns an 'A+' rating to St. Joseph County, Indiana's (the county) $5,350,000 million limited tax bridge refunding bonds (Cumulative Major Bridge Fund), series 2009, scheduled to sell on a negotiated basis the week of July 27, 2009. The bonds are limited tax general obligations of the county payable from property taxes collected and deposited in the Major Bridge Fund.

Concurrently, Fitch downgrades the county's outstanding debt consisting of:

--$1.8 million unlimited tax general obligation (GO) bonds (Judgment Funding Bonds), series 2007 to 'AA-' from 'AA';

--St. Joseph County Jail Building Corporation's $27.1 million first mortgage revenue bonds, series 1998 to 'AA-' from AA;

--St. Joseph Airport Authority's approximately $2 million unlimited tax GO bonds, series 1998B to 'AA-' from 'AA';

--Approximately $8.6 million limited tax major bridge fund bonds, series 2000 and 2005 to 'A+' from 'AA-';

--St. Joseph County Redevelopment District's approximately $1 million unlimited special taxing district bonds, series 2001 to 'A+' from 'AA-'.

Fitch also affirms the county's $3.8 million economic development income tax revenue bonds, series 2000 at 'AA-'.

The Rating Outlook for all debt remains Negative.

The downgrades reflect the significant deterioration of the county's financial profile due in part to the revenue implications of the circuit breaker and trending property tax reforms, amid a weaker local economy. While management has taken steps to improve its fiscal position through raising taxes and cutting spending, the county continues to face substantial budgetary pressures and general fund balances are currently minimal. Despite increased income tax revenue, additional cuts will likely be necessary to fully offset the effects of property tax limitations. The Negative Outlook is based on concerns regarding the continued general fund shortfalls, the deficit in the county's internal service funds, the likely contraction of income tax revenues in the next two fiscal years, and the need to achieve structural balance in operating funds. The local economy, although somewhat weakened due to the current recession, is centered on the University of Notre Dame, which adds some stability. However, the slight tax base expansion achieved in the past two years has had little effect on the county's fiscal position as tax caps become fully phased in during fiscal 2010. Further erosion of the county's finances characterized by continued structural imbalance of revenues and expenditures, or the depletion of reserves, could cause further downward pressure on the rating.

St. Joseph County, located in north-central Indiana, ranks as the state's fourth largest in terms of population and fifth in economic output as measured by total personal income. The county's economy is relatively stable, due to both higher education and health care sectors. Despite a slow down in residential housing starts, commercial investment in the county continues to be strong, with commercial building activity more than doubling from 2007 to 2008. Nonetheless, the area has a high unemployment rate of 11% in May 2009, above the state (10.4%) and the nation (9.1%), in part due to exposure to the automotive industry.

The county's financial performance had already been eroding prior to the current recession and the implementation of circuit breaker legislation, as revenues declined and significant deficits in internal service funds required general fund support. In the past three years, the changes in the tax assessment system caused massive delays in property tax collections across the state. This affected the county significantly, as collections in the fiscal year only represented one payment of property taxes rather than two; as in most areas of the state, bills for the 2008 tax year are still being sent out, and although the county has benefited from some voluntary early payment, it remains behind in its tax collections. Also, fiscal 2008 marked the first year of property tax assessment trending downward and the county saw a less than 1% increase in taxable value. Changes in property tax assessments, billing, and collection process state-wide has introduced a significant loss of financial flexibility as well as a degree of uncertainty regarding financial results for most Indiana local governments.

As a result, the county has used much of its general fund balance and reserves are at a minimal level. In fiscal 2007, the last year of audited results, the county's general fund balance equaled $2.2 million or 3.1% of spending, down from $8.5 million (15.5%) in 2002. Preliminary results for 2008 indicate another year of operating shortfall despite a transfer from available revenues in other funds. The county increased its income tax rate in July 2009, which will offset the general fund impact of the circuit breaker in 2010. However, the effect of the full 0.95% increase is muted as the county will provide property tax credits to residents with funds garnered from the income tax increase. Also, as noted in Fitch's prior review, the self insurance fund's cumulative deficit of $8.9 million in fiscal 2007 represents an ongoing fiscal challenge to the county as its elimination will require operating support. While the county had a workout strategy for the fund, the current fiscal environment has impeded progress on the plan. Fitch expects the county will have to continue to reduce costs to regain fiscal balance and the overall financial picture remains fragile.

Unlike many Indiana governments, the county has refrained from issuing cash flow notes to offset tax revenue uncertainty and despite ongoing financial pressures, does not expect to issue short-term debt in the current or succeeding fiscal years. The county's overall debt burden is moderate in per capita terms, equal to $2,005 per resident, but higher compared to property values at 5.3% due to the presence of the University of Notre Dame. Future debt issuance plans are modest and relate primarily to landfill capping which may be financed using income tax revenue bonds in 2009 or 2010. The county's pension systems are well funded, but its obligation for retiree health care benefits is substantial at $36.9 million.

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.


Contact:
Fitch RatingsMelanie A.J. Shaker, [phone] (Chicago)Lindsay Trzaska, [phone] (New York)Media Relations:Cindy Stoller, [phone] (New York)[e-mail]

[Dredinvestments]

i wasn't into it at all but then i learned you have to put the whole thing in your mouth and not take bits..lol