Utah Association of Special Districts Economic Overview November 5, 2015

Transcription

1 Utah Association of Special Districts Economic Overview November 5, 2015

2 Utah is One of the Fastest Growing CA 0.9% States in the Country Percent Change in Population for States: 2012 to 2013 WA 1.1% OR 0.8% NV 1.3% AK 0.7% ID 1.0% National U.S. Rate = 0.7% VT ND Economic MT 3.1% MN 1.0% 0.8% SD WI 1.3% 0.3% MI WY PA 1.0% IA NE 0.5% OH 0.7% IL IN 0.2% UT Conditions 0.5% WV 1.6% VA CO MO KY - KS 0.9% 1.5% 0.3% 0.4% 0.3% NC 1.0% TN 0.6% AZ OK SC AR NM 1.2% 0.9% 1.1% 0.3% MS AL GA 0.2% 0.3% 0.8% HI 1.0% TX 1.5% LA 0.5% 1.15% or more.075% to 1.10% 0.5% to 0.9% 0% to 0.4% Population Loss FL 1.2% NH NY 0.4% ME -0.01% DC 2.1% CT DE 0.9% MD 0.7% MA 0.7% RI NJ 0.4% Source: U.S Census Bureau

3 Utah is One of the Fastest Growing CA 0.9% States in the Country How long will interest Percent Change in Population for States: 2012 to 2013 U.S. Rate = 0.7% NH rates stay so low?... WA ME 1.1% VT -0.01% ND MT 3.1% MN 1.0% OR 0.8% NY 0.8% 0.4% NV 1.3% ID 1.0% WY 1.0% SD 1.3% NE OH 0.7% IL IN 0.2% UT 0.5% WV 1.6% VA CO MO KY - KS 0.9% 1.5% 0.3% 0.4% It s up 0.3% to the Fed NC 1.0% TN 0.6% AZ OK SC AR NM 1.2% 0.9% 1.1% DC 0.3% 2.1% AK 0.7% HI 1.0% TX 1.5% IA 0.5% WI 0.3% LA 0.5% MS 0.2% MI AL 0.3% 1.15% or more.075% to 1.10% 0.5% to 0.9% 0% to 0.4% Population Loss GA 0.8% PA FL 1.2% CT DE 0.9% MD 0.7% MA 0.7% RI NJ 0.4% Source: U.S Census Bureau

4 Payroll Change 000 s National Job Growth Improving Million Jobs Lost Million Jobs Recovered Source: Bureau of Labor Statistics

5 National Employment Change Percent Change in National Employment by Industry: Sept 2014 to Sept 2015 Ntl. Res. & Mining -11.1% Total: 2.0% Construction 3.3% Manufacturing 0.9% Trade, Trans., Utilities Information Financial Activity 2.0% 1.6% 1.8% Prof. & Bus. Serv. Ed. & Health Serv. Leisure & Hospitality 2.6% 3.2% 2.9% Other Services Government 1.0% 0.7% -13% -11% -9% -7% -5% -3% -1% 1% 3% 5% Source: Utah Department of Workforce Services

6 National Employment Change Total Change in Number of Jobs by Industry in Thousands: Sept 2014 to Sept 2015 Ntl. Res. & Mining -101 Construction 205 Manufacturing 104 Trade, Trans., Utilities 536 Information 44 Financial Activity 147 Prof. & Bus. Serv. 616 Ed. & Health Serv. 568 Leisure & Hospitality 426 Other Services 58 Government Source: Utah Department of Workforce Services; Seasonally Adjusted

7 U.S. Unemployment Rates Dropping % in Sept 3.0 Sources: U.S. Bureau of Labor Statistics, Utah Department of Workforce Services

8 Contribution to GDP Growth Consumption Drives Growth 5% Total GDP Growth 3% 1% -1% Fixed Investment Inventories -3% Net Exports -5% Government Personal Consumption Source: Bureau of Economic Analysis

9 Apr 2012 Jul 2012 Oct 2012 Jan 2013 Apr 2013 Jul 2013 Oct 2013 Jan 2014 Apr 2014 Jul 2014 Oct 2014 Jan 2015 Apr 2015 Jul 2015 Oct 2015 Consumer Confidence is Rising, but Not Robust Source: U.S. CCI from The Conference Board

10 Growth in Consumer Spending Remains Low 5.0 Personal Consumption Expenditure Yearly Percent Change Source: Bureau of Economic Analysis

11 May-06 Sep-06 Jan-07 May-07 Source: U.S. Bureau of Labor Statistics Note: Growth rate calculated using real chained dollars Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 U.S. Monthly Wage Growth Average 0.00%

12 Thousands Cumulative Job Loss by Months of Recession Source: Euler Hermes analysis of Bureau of Labor Statistics Data

13 Thousands Cumulative Job Loss by Months of Recession Source: Euler Hermes analysis of Bureau of Labor Statistics Data

14 Thousands Cumulative Job Loss by Months of Recession Source: Euler Hermes analysis of Bureau of Labor Statistics Data

15 Fed Fund Rate, Inflation, and Unemployment Effective Fed Rate 12-month change in PCE price index Unemployment Rate (right axis) Sources: U.S. Federal Reserve, Bureau of Economic Analysis, U.S. Bureau of Labor Statistics Note: PCE is total personal consumption expenditures

16 Federal Funds Rate Outlook Median FOMC Forecast 1.875% 0.25% 2 moves 25 bps 0.625% 4 moves 25 bps $0 $0 $0 Mar Jun Sep Dec Mar Jun Sep Dec Source: American Bankers Association Analysis of Data from the Federal Reserve

17 Utah is One of the Fastest Growing CA 0.9% States in the Country Percent Change in Population for States: 2012 to 2013 WA 1.1% OR 0.8% U.S. Rate = 0.7% NH What Does It VT ND MT 3.1% MN 1.0% 0.8% NY ID SD WI 0.4% 1.0% 1.3% 0.3% MI WY PA 1.0% IA Mean To You NE 0.5% OH 0.7% IL IN 0.2% UT 0.5% WV 1.6% VA CO MO KY - KS 0.9% 1.5% 0.3% 0.4% 0.3% NC 1.0% TN 0.6% AZ OK SC AR NM 1.2% 0.9% 1.1% 0.3% NV 1.3% AK 0.7% HI 1.0% TX 1.5% LA 0.5% MS 0.2% AL 0.3% 1.15% or more.075% to 1.10% 0.5% to 0.9% 0% to 0.4% Population Loss GA 0.8% FL 1.2% ME -0.01% DC 2.1% CT DE 0.9% MD 0.7% MA 0.7% RI NJ 0.4% Source: U.S Census Bureau

18 How Do Interest Rates Affect Your District Directly: Interest Earnings on Cash Reserves Debt Service Payments on Borrowed Money Rate on New Bonds or Leases Refunding Opportunities on Existing Debt Indirectly: Home construction/ownership Business formation/investment Job Creation 18

19 Components of an Interest Rate (simplified) Real Rate (Time Value of Money) 2 Inflation (Expected) 3 Risk (Specific to the borrower) = Interest Rate 19

20 Real Rate (Time Value of Money) 20

21 21

22 Inflation 22

23 23

24 Source: Standard & Poor s 24

25 Thousands Cumulative Job Loss by Months of Recession Source: Euler Hermes analysis of Bureau of Labor Statistics Data

26 Fed Fund Rate, Inflation, and Unemployment Effective Fed Rate 12-month change in PCE price index Unemployment Rate (right axis) Sources: U.S. Federal Reserve, Bureau of Economic Analysis, U.S. Bureau of Labor Statistics Note: PCE is total personal consumption expenditures

27 Interest Rate Trend 20 Year 20 Bond Buyer Index January 1988 to October

28 Utah is One of the Fastest Growing CA 0.9% States in the Country Percent Change in Population for States: 2012 to 2013 U.S. Rate = 0.7% NH Utah Economic WA ME 1.1% VT -0.01% ND MT 3.1% MN 1.0% OR 0.8% NY 0.8% ID SD WI 0.4% NV 1.3% AK 0.7% 1.0% WY PA 1.0% IA Conditions NE 0.5% OH 0.7% IL IN 0.2% UT 0.5% WV 1.6% VA CO MO KY - KS 0.9% 1.5% 0.3% 0.4% 0.3% NC 1.0% AZ 1.2% HI 1.0% NM 1.3% TX 1.5% OK 0.9% AR 0.3% 0.3% LA 0.5% MS 0.2% MI TN 0.6% AL 0.3% 1.15% or more.075% to 1.10% 0.5% to 0.9% 0% to 0.4% Population Loss SC 1.1% GA 0.8% FL 1.2% DC 2.1% CT DE 0.9% MD 0.7% MA 0.7% RI NJ 0.4% Source: U.S Census Bureau

29 CA 2.8% OR 2.8% WA 3.1% NV 2.8% Note: Seasonally Adjusted Source: Bureau of Labor Statistics Utah s Employment Growth AK - ID 3.1% HIGHEST in the Nation Percent Change in Employment for States: Sep 2014 to Sep 2015 UT 3.7% AZ 2.2% MT 0.6% WY -0.9% HI 1.3% CO 1.7% NM 0.8% ND -1.6% SD 1.6% NE 0.6% TX 1.9% U.S. Rate = 2.0% KS 0.6% OK 0.2% MN 1.3% IA 1.5% MO 0.6% AR 1.9% WI 1.9% LA IL 0.5% MS 1.1% MI 2.0% IN 2.2% TN 1.7% AL 1.6% 3.0% or more OH 0.9% KY 1.8% GA 2.0% WV -1.5% VT 0.6% PA 0.7% NC 2.6% SC 3.2% VA 1.0% FL 3.0% NH 0.6% NY 1.4% 2.1% to 2.9% (at or above the U.S. rate) 1.6% to 2.0% 1.0% to 1.5% 0.9% and below ME 1.0% DC 1.4% CT 1.6% DE 1.7% MD 1.7% MA 2.0% RI 0.6% NJ 1.0%

30 Thousands of Jobs Utah Total Employment at New Highs 1,600 1,500 Gain of 212,000 jobs 1,400 1,300 1,200 1,100 1, Loss of 92,000 jobs 800 Source: U.S. Bureau of Labor Statistics

31 UT Industries - Employment Gains Percent Change in Utah Employment by Industry: Sep 2014 to Sep 2015 Ntl. Res. & Mining -8.1% Total: 3.9% Construction 6.1% Manufacturing 4.1% Trade, Trans., Utilities 2.3% Information 7.5% Financial Activity 3.8% Prof. & Bus. Serv. Ed. & Health Serv. 5.0% 5.7% Leisure & Hospitality 7.2% Other Services Government 0.5% 1.1% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% Source: Utah Department of Workforce Services

32 UT Industries Seeing Growth Ntl. Res. & Mining -1,000 Total Change in Utah Employment by Industry: Sep 2014 to Sep 2015 Total: 51,700 Construction Manufacturing 5,000 5,000 Trade, Trans., Utilities 5,900 Information Financial Activity 2,500 2,900 Prof. & Bus. Serv. Ed. & Health Serv. Leisure & Hospitality 9,300 9,300 10,000 Other Services 200 Government 2,600-2, ,000 4,000 6,000 8,000 10,000 12,000 Source: Utah Department of Workforce Services

33 Utah Employment Change Rates By County Sep 2014 to Sep 2015 Box Elder 5.5% Tooele 1.5% Davis 4.1% Cache 3.8% Rich 9.5% Weber 3.7% Morgan 8.3% Salt Lake 3.1% Utah 6.5% Summit 3.7% Wasatch 2.8% Duchesne -12.4% Daggett 9.6% Uintah -8.6% State Rate = 3.9% Juab 6.0% Carbon 0.7% 6.5% or more Millard 0.7% Sanpete 4.3% Sevier 2.5% Emery -6.4% Grand 3.2% 3.9% to 6.4% Beaver 6.2% Piute 0.5% Wayne 7.9% 2.0% to 3.8% 0.0% to 1.9% Iron 0.8% Garfield 2.6% San Juan 1.3% Below 0.0% Washington 5.1% Kane 2.5% Source: Utah Department of Workforce Services, Not seasonally adjusted

34 OR 6.2% CA 5.9% WA 5.2% NV 6.7% ID 4.2% UT 3.6% AZ 6.3% UT Unemployment Rates Among Lowest in Nation MT 4.1% WY 4.0% CO 4.0% NM 6.8% Sep 2015 U.S. Rate = 5.1% ND 2.8% SD 3.5% NE 2.9% KS 4.4% OK 4.4% MN 3.8% IA 3.6% MO 5.3% AR 5.2% WI 4.3% IL 5.4% MS 6.1% MI 5.0% IN 4.5% TN 5.7% AL 6.0% OH 4.5% KY 5.0% GA 5.8% WV 7.3% VT 3.7% PA 5.3% NC 5.8% SC 5.7% VA 4.3% NH 3.4% NY 5.1% ME 4.4% DC 6.7% CT 5.2% DE 4.9% MD 5.1% MA 4.6% RI 5.4% NJ 5.6% AK 6.4% TX 4.2% LA 6.0% 4.0% or less 4.1% to 5.0% FL 5.2% Note: Seasonally Adjusted Source: Bureau of Labor Statistics HI 3.4% 5.1% to 5.5% (at or above the U.S. rate) 5.6% to 6.0% 6.1% or more

35 Utah vs. U.S. Unemployment Rates U.S. Utah Sources: U.S. Bureau of Labor Statistics, Utah Department of Workforce Services

36 Utah Unemployment Rates By County Sep 2015 State Rate = 3.6% 3.5% or lower Box Elder 3.6% Tooele 4.0% Millard 3.6% Juab 3.9% Cache 3.1% Weber 4.0% Morgan Davis 3.4% 3.1% Salt Lake 3.3% Utah 3.2% Sanpete 4.2% Sevier 4.5% Rich 3.7% Summit 3.2% Wasatch 3.3% Duchesne 7.8% Carbon 5.9% Daggett 4.6% Uintah 7.3% Emery 6.5% Grand 5.7% 3.6% to 3.9% Beaver 3.9% Piute 6.0% Wayne 8.5% 4.0% to 5.0% 5.1% to 7.0% Iron 4.4% Washington 4.0% Kane 4.4% Garfield 8.2% San Juan 7.5% 7.1% or greater Source: Utah Department of Workforce Services

37 Utah Population Seventh Fastest Growing in U.S. CA 1.0% OR 1.1% WA 1.3% NV 1.7% ID 1.3% UT 1.4% AZ 1.5% AK - MT 0.9% WY 0.2% CO 1.6% NM - HI 0.8% Percent Change: 2013 to 2014 U.S. Rate = 0.7% ND 2.2% SD 0.9% NE 0.7% TX 1.7% KS 0.3% OK 0.6% MN 0.6% IA 0.5% MO 0.3% AR 0.3% WI 0.3% LA 0.4% IL - MS MI IN 0.4% TN 0.8% AL 0.3% 1.0% or more OH 0.2% KY 0.3% 0.7% to 0.9% (at or above U.S. rate) 0.4% to 0.6% 0.0% to 0.3% Population Loss WV -0.2% VT 0.0% PA 0.0% NC 1.0% SC 1.3% GA 1.0% VA 0.7% FL 1.5% NH 0.3% NY 0.3% ME DC 1.5% CT - DE 1.1% MD 0.6% MA 0.5% RI 0.2% NJ 0.3% Source: U.S Census Bureau

38 Utah Population Growth Rates By County 2013 to 2014 Box Elder 1.3% Tooele 1.4% Davis 2.1% Cache 0.9% Weber 0.9% Morgan 4.0% Salt Lake 1.0% Utah 1.6% Rich 0.7% Summit 1.7% Wasatch 4.3% Duchesne 1.4% Daggett -1.2% Uintah 3.3% State Average = 1.4% Juab 1.5% Carbon -1.3% Increase of 2.0% or Greater Millard -0.2% Sanpete 0.8% Sevier -0.3% Emery -0.8% Grand 0.7% Increase of 1.5% to 1.9% Beaver 0.0% Piute -2.6% Wayne -0.3% Increase of 1.0% to 1.4% Iron 1.2% Garfield -0.8% Increase of 0.0% to 0.9% San Juan 1.7% Population Loss Washington 2.9% Kane 0.2% Source: U.S. Census Bureau

39 Utah Components of Population Change 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, ,000-20,000 Population Change Natural Increase Net Migration Source: Utah Population Estimates Committee, U.S. Census Bureau, State of Utah Revenue Assumptions Working Group

40 Utah is an Urban State 100% Percent Urban 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: U.S. Census Bureau

41 Utah s Population Centers 2014 Box Elder Tooele Cache Rich Weber Davis Morgan Summit Salt Lake Wasatch Utah Duchesne Daggett Uintah Four counties are home to 2,222,883 residents, or 76% of the state s population Millard Beaver Juab Piute Sanpete Sevier Wayne Carbon Emery Grand 3 out of every 4 people in Utah live along the Wasatch Front Iron Washington Kane Garfield San Juan Source: U.S. Census Bureau

42 Utah s Population Centers 2014 Box Elder Tooele Cache Rich Weber Davis Morgan Summit Salt Lake Wasatch Utah Duchesne Daggett Uintah Ten counties are home to 2,423,912 residents, or 82% of the state s population Millard Beaver Juab Piute Sanpete Sevier Wayne Carbon Emery Grand Iron Garfield San Juan Washington Kane Source: U.S. Census Bureau

43 Utah s Population Centers 2014 Box Elder Tooele Cache Rich Weber Davis Morgan Summit Salt Lake Wasatch Utah Duchesne Daggett Uintah Thirteen counties are home to 2,741,472 residents, or 93% of the state s population Millard Beaver Juab Piute Sanpete Sevier Wayne Carbon Emery Grand Iron Garfield San Juan Washington Kane Source: U.S. Census Bureau

44 A Look at Utah s Population 6,000, ,000,000 4,000,000 3,000,000 2,000,000 1,000, Source: Historical U.S. Census Bureau; Projections - Utah Governor s Office of Management and Budget

45 1.4% UT Population as a Percentage of Total U.S. Population % 1.1% 1.2% 1.3% 1.1% 1.0% 0.9% 1.0% 0.8% 0.7% 0.7% 0.8% 0.6% 0.5% 0.5% 0.4% 0.2% 0.0% Source: Historical U.S. Census Bureau; Projections - Utah Governor s Office of Management and Budget

46 Utah Population Annual Average Growth Rates By County 2010 to 2060 Box Elder 1.2% Tooele 2.6% Davis 1.3% Cache 2.1% Weber 1.6% Morgan 2.1% Salt Lake 1.4% Utah 2.3% Rich 1.2% Summit 2.1% Wasatch 3.0% Duchesne 1.1% Daggett 1.3% Uintah 1.3% State Average = 1.8% Juab 2.3% Carbon 0.3% Increase of 2.3% or Greater Millard 0.5% Sanpete 1.2% Sevier 0.9% Emery 0.5% Grand 0.9% Increase of 1.8% to 2.2% Beaver 1.6% Piute 0.9% Wayne 1.7% Increase of 1.3% to 1.7% Iron 2.3% Garfield 1.2% Increase of 1.0% to 1.2% San Juan 1.0% Increase of 0.0% to 0.9% Washington 3.3% Kane 1.7% Source: U.S. Census Bureau

47 Population by Multi-County District 6,000, to ,000,000 4,000,000 3,000,000 2,000,000 1,000, Uintah Basin MCD Southeast MCD Central MCD Bear River MCD Southwest MCD Mountainland MCD Wasatch Front MCD Source: Historical U.S. Census Bureau; Projections - Utah Governor s Office of Management and Budget

48 100% 90% Multi-County District Population as a Percentage of UT Total Population 1990 to % 70% 64.0% 61.8% 59.1% 56.9% 54.9% 53.2% 51.4% 49.9% 60% 50% 40% 30% 16.9% 18.6% 20.9% 22.6% 23.9% 25.2% 26.3% 26.9% 20% 10% 0% 4.8% 6.3% 7.4% 8.3% 9.7% 10.7% 11.7% 12.6% 6.3% 6.1% 6.0% 5.9% 5.9% 5.8% 5.8% 5.9% Uintah Basin MCD Southeast MCD Central MCD Bear River MCD Southwest MCD Mountainland MCD Wasatch Front MCD Source: Historical U.S. Census Bureau; Projections - Utah Governor s Office of Management and Budget

49 Population Growth Rates by Multi-County District 5.0% % 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Bear River MCD Central MCD Mountainland MCD Southeast MCD Southwest MCD Uintah Basin MCD Wasatch Front MCD Source: Wasatch Front Regional Council

50 Utah Economic Indicators Population Nonfarm Employment Unemployment Rate Personal Income Home Prices Retail Sales e 2016f Source: State of Utah Revenue Assumptions Working Group e = estimate f = forecast

51 Robert Spendlove Economic and Public Policy Officer Phone: Presentations are offered for informational purposes only and should not be construed as tax, legal, financial or business advice. Please contact a professional about your specific needs and advice. Presentations may contain trademarks or trade names owned by parties who are not affiliated with Zions Bank. Use of such marks does not imply any sponsorship by or affiliation with third parties, and Zions Bank does not claim any ownership of or make representations about products and services offered under or associated with such marks.

52 Utah is One of the Fastest Growing CA 0.9% States in the Country Percent Change in Population for States: 2012 to 2013 OR 0.8% U.S. Rate = 0.7% NH Your District s VT ND MT 3.1% MN 1.0% 0.8% NY ID SD WI 0.4% WA 1.1% NV 1.3% 1.0% 1.3% 0.3% MI WY PA 1.0% IA Risk Factors NE 0.5% OH 0.7% IL IN 0.2% UT 0.5% WV 1.6% VA CO MO KY - KS 0.9% 1.5% 0.3% 0.4% 0.3% NC 1.0% TN 0.6% AZ OK SC AR NM 1.2% 0.9% 1.1% 0.3% AK 0.7% HI 1.0% TX 1.5% LA 0.5% MS 0.2% AL 0.3% 1.15% or more.075% to 1.10% 0.5% to 0.9% 0% to 0.4% Population Loss GA 0.8% FL 1.2% ME -0.01% DC 2.1% CT DE 0.9% MD 0.7% MA 0.7% RI NJ 0.4% Source: U.S Census Bureau

53 Major Rating Agencies Moody s Investors Service 53

54 Bond Ratings 54

55 The Four Primary Rating Factors Economy Finances Rating Process Management Debt 55

56 Municipal Credit The basic analytical factors used to determine credit-worthiness vary depending upon the type of bonds General Obligation Bonds Financial Statements Analysis Debt Affordability Tax Generating Capacity Economic Fundamentals Management/Administrative Controls Revenue Bonds Debt Service Coverage Stability of Pledged Revenues Economic characteristics which affect revenues Essentiality of the Enterprise Financial Statement Analysis + + Common Credit Factors Security Legal Authorization Legal Covenants 56

57 Standard & Poor s G.O. Bond Rating Criteria Economy Income levels as a % of national average Market value per capita Taxpayer concentration Finances Ending general fund balance as a % of operating revenues Unreserved general fund balances Property tax burdens Debt Debt to market value Debt service to operating expenditures Overall debt per capita Debt to annual income Appropriate debt amortization Management Best practices Worst practices 57

58 S&P Analytical Framework for GO Bond Ratings Source: Standard & Poor s 58

59 Moody s G.O Bond Rating Criteria Factors & Sub-Factors Weight Factor 1: Economy/Tax Base 30% Tax Base Size: Full Value 10% Full Value Per Capita 10% Socioeconomic Indices: MFI 10% Factor 2: Finances 30% Fund Balance as % of Revenues 10% 5-Year Dollar Change in Fund Balance as % of Revenues 5% Cash Balance as % of Revenues 10% 5-Year Dollar Change in Cash Balance as % of Revenues 5% Factor 3: Management 20% Institutional Framework 10% Operating History: 5-Year Average of Operating Revenues / Operating Expenditures 10% Factor 4: Debt/Pensions 20% Net Direct Debt / Full Value 5% Net Direct Debt / Operating Revenues 5% 3-Year Average of Moody's Adjusted Net Pension Liability / Full Value 5% 3-Year Average of Moody's Adjusted Net Pension Liability / Operating Revenues 5% Source: Moody s Investor s Service 59

60 New Criteria From Fitch Out for Public Comment More emphasis on the economy More detail on essential purpose 60

61 Economy Income as a % of nation Per capita and median household figures Compare against local cost of living indexes Market value per capita Rate payer concentration Percent of assessed value or total revenue in the top 10 payers Low 65% Adequate 90% Good 110% Strong 130% Very Strong 130% Low $35,000 Adequate $55,000 Strong $80,000 Very Strong $100,000 Extremely Strong +$100,000 Very Diverse <15% Diverse 15% to 25% Moderately Concentrated 26% to 40% Concentrated >40% 61

62 Credit Ratings The Economy Warning Signs Decreasing property tax values Increasing tax rates Increasing taxpayer (or customer) concentration Decreasing number and value of building permits issued Increasing incidence of actual revenues below budgeted revenues (and actual expenditures above budgeted amounts) Increasing expenditures in excess of inflation Reduced aggregate short-term investments Decreasing population Increasing need to borrow to meet cash flow requirements Increasing use of long-term debt to fund capital expenditures 62

63 Credit Ratings Trust indenture and legal opinion for most types of revenue bonds should provide the investor with legal comfort in: Flow of funds Rate, users charges, fees, tax covenants Priority of pledged revenues Additional bonds tests Other relevant covenants and issues 63

64 Credit Ratings Structure An issuer of revenue bonds can be a special service district, a local district, an enterprise or department within the overall structure of a municipal government. Management Rating agencies, among other management related items, review degree of authority, capability of management, where decision making authority lies, decision making independence Local Economy The stability and vitality is of utmost importance and a review of population trends, assessed valuation and full valuation growth, employment, industry sector diversification, top 10 employers, wealth and income measures, etc. is done Environmental and regulatory issues The impact of noncompliant systems will be evaluated as well as the impact of new regulations 64

65 Credit Ratings Rate covenants designed to protection for the investor that the water and sewer issuer will maintain and collect rates, charges and fees sufficient to cover D/S requirements. Typically minimum levels are 1.00 X to 1.25 X Debt service reserve fund (DSRF) temporarily support to make D/S payments and is typically sized as the lesser of 1) 10% of principal, 2) 125% of average annual D/S, or 3) the maximum annual D/S Additional bonds test (ABT) prevents an issuer from using too much leverage and weakening the ability to meet D/S coverage levels Flow of funds Outlined in the indenture and typically the funds flow is REVENUE FUND O&M FUND BOND FUND DSRF 65

66 Credit Ratings Operating Performance o Revenue trends o Charges o Operating margin Leverage o Too much debt can be a burden o Long-term debt to capitalization o Higher debt to capital ratios are common with older systems upgrading aging assets or newer systems expanding capacity Liquidity o Annual D/S coverage at least 1X o Max annual D/S coverage o Failure to keep covenants triggers a technical default 66

67 Other Credit Risk Factors For Water and Sewer Revenue Bonds 67

68 Strong Ratings for Water/Sewer Bonds Debt Profile Debt per customer is $1,500 or less Debt per capita is $500 or less Debt funding of capital projects is 50% or less 90% of more of debt is amortized in 20 years Rate covenant is 1.25x annual debt service (or more) Additional Bonds Test is 1.25x maximum annual debt service (or more) Cash-funded debt service reserve fund is at its legal maximum 68

69 Strong Ratings for Water/Sewer Bonds Financial Profile Total debt service coverage is 2.0x or more 365 days (or more) of cash on hand Residential charges for utilities are less than 1.2% of median household income Significant percentage of revenues are recovered through base charges (rather than volumetric charges) 69

70 Strong Ratings for Water/Sewer Bonds Operating Profile Number of customers is stable or growing at less than 1% annually Top 10 customers account for less than 5% of total revenues No single customer accounts for more than 2% of revenues Treatment capacity is greater than 40% of demand Annual renewal of 100% or more of depreciated assets Full compliance with regulations 70

71 Strong Ratings for Water/Sewer Bonds Management Extensive utility sector experience Objective, engaged, knowledgeable board Strong communication skills from management For wholesalers coordinated members Frequent and accurate forecasting/planning Well-developed and documented policies and procedures 71

72 Thank You Jon Bronson Zions Public Finance One South Main Street, 18 th Floor Salt Lake City, Utah (801)