AUSTIN, Texas--(BUSINESS WIRE)-- Fitch takes the following rating action on San Juan County, New Mexico as part of its continuous surveillance effort:

--$8.2 million gross receipts tax bonds (San Juan Regional Medical Center Project), series 2004, affirmed at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are special limited obligations of the county, payable solely from pledged revenues, which are derived from a dedicated one-eighth of 1% of the county's taxable gross receipts tax.

KEY RATING DRIVERS

STRONG DEBT SERVICE COVERAGE: MADS coverage remains strong, and management anticipates a continuation of extraordinary mandatory redemptions leading to early retirement of these bonds in 2013.

PLEDGED REVENUE VARIABILITY: Gross receipts tax collections have been variable, reflecting both economic swings and exposure to the volatile energy industry.

TAXPAYER CONCENTRATION: The top 10 taxpayers represent over 60% of the county's assessable base and are all connected to the energy industry.

STRONG FINANCIAL MANAGEMENT: The county instituted cost controls to offset weakness in revenues, budgets conservatively, and maintains sizable balances which help to mitigate exposure to energy-concentrated property tax revenues.

LOW DEBT LEVELS: Overall debt levels are below average and the county does not anticipate issuing new debt in the near term.

CREDIT PROFILE

ENERGY BASED ECONOMY

The county is located in the northwest corner of New Mexico and is the retail hub for an area known as the 'Four Corners' describing where the four states of New Mexico, Arizona, Colorado and Utah meet. The 2010 census population of 130,000 represents growth of 14% since 2000. The county's economy is driven by the extraction of natural resources, such as gas, oil and coal.

Measuring 7,500 square miles, the San Juan Basin is one of North America's largest natural gas fields. The county is home to operations of many active industry players including Enterprise Products, El Paso Natural Gas, and Williams Field Service. For the Farmington MSA, unemployment as of September 2011 was 6.5%, comparable to the state of New Mexico and better than the U.S. average for the same period.

Property taxes comprise the majority of county general fund revenues, with only a small amount of GRT revenues recorded in the general fund; most GRT revenues are pledged for repayment of outstanding debt. The county currently levies a modest 8.5 mill property tax rate but has the flexibility to increase rates up to 11.85 mills should it be necessary.

The county's property tax base exhibits heavy concentration with the top ten taxpayers accounting for 62% of property values, led by Public Service Co. of New Mexico (14.3%) and BHP Navajo Coal Co. (7.3%). The remaining taxpayers are also energy related companies. Total assessed value (AV) realized a material increase in fiscal 2012 following a 22% loss of value in fiscal 2011 as a result of the decline in oil and gas production.

STRONG DEBT SERVICE COVERAGE

Fiscal 2011 pledged GRT revenues increased modestly to $4.5 million after declining 20% in fiscal 2010. This decline reversed a previous four year trend of 9% average annual growth. Services (24.1%), retail trade (23.8%), mining/oil & gas (21.9%), and construction (11.2%) were the principal components of the county's GRT revenue in fiscal 2011. Debt service coverage of MADS is strong at 1.75x for fiscal 2011.

PRUDENT FISCAL MANAGEMENT SUPPORTS OVERALL FISCAL STABILITY

Maintenance of strong fiscal stewardship is a key rating driver that offsets Fitch's concern regarding the county's energy-concentrated tax and revenue base. The county's general fund historically maintains large reserves as a result of management's prudent fiscal management practices. The county ended fiscal 2011 with a modest ($695,000) net deficit, bringing the unrestricted fund balance to $21.1 million or 29.9% of total spending. The county adjusted its fiscal 2011 budget to reflect an expected decline in GRT revenues and subsequently outperformed the budget by 6.85%.

The fiscal 2012 budget reflects the continuation of conservative revenue budgeting and cost controls, including the elimination of wage increases and a freeze on 16 positions for a savings of almost $1 million. Although the county budgeted an estimated 2% decline in fiscal 2012 GRT revenues, year to date through December, GRT revenues are up from the year prior by 11%. The county historically outperforms the budget and exceeds the New Mexico state law requirement to maintain general fund reserves equal to 3/12ths of budgeted general fund expenditures.

MANAGEABLE LONG TERM LIABILITIES

The county has no outstanding general obligation debt as it relies on various dedicated GRT revenue streams as leverage for long-term debt. The county's overall debt levels are low at $2,172 per capita and 2.5% of market value. Amortization is rapid, with 68.5% of principal scheduled for repayment within 10 years. The county anticipates funding near term capital needs primarily with a combination of existing bond proceeds, and state and federal funding.

Substantially all of the county's employees participate in the Public Employees Retirement Association (PERA), a public cost-sharing multiple-employer defined benefit retirement plan. For fiscal year ended June 30, 2011, the county funded its actuarially required contribution of $3.3 million which totaled a manageable 6% of general fund spending. The county also contributes to the New Mexico Retiree Health Care Fund, a cost-sharing multiple employer defined post-employment healthcare plan. The county funds its contributions on a pay-as-you-go basis, which amounted to a manageable $515,873 in fiscal 2011.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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