AUSTIN, Texas--(BUSINESS WIRE)-- Fitch Ratings takes the following action on Yuma County Free Library District, AZ unlimited tax general obligation (ULTGO) bonds as part of its continuous surveillance effort:

--$47.7 million GO bonds series 2006A and 2007 affirmed at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds constitute a general obligation of the district secured by an unlimited continuing direct ad valorem tax levied against all taxable property within the district.

KEY RATING DRIVERS

TAX BASE GROWTH WEAKENING: The district's tax base historically demonstrated strong growth, but moderate contractions of 4% and 7.5% in each of the last two years prompted the need to increase the district's tax rate.

CONSERVATIVE FINANCIAL MANAGEMENT: The district's proactive management team built up fund balance reserves in anticipation of increased operating costs associated with new facilities. Revenues typically exceed budget while expenditure levels remain comfortably below budget. Despite management's intention to slowly reduce the fund balance to 25% of spending, the actual result for fiscal 2010 was an increase to fund balance.

AMPLE GENERAL FUND RESERVES: The district maintains a solid and stable financial position with limited operating pressures as all new facilities have been placed in operation and baseline expenditure growth has been manageable. Ample financial flexibility is provided by a large unreserved fund balance totaling 94% of spending for fiscal 2010.

WEAK SOCIO-ECONOMIC INDICATORS: Unemployment rates in Yuma County are consistently high. The growing presence of government employment in the county offers a stabilizing influence and somewhat offsets concerns over the high unemployment rate. Poverty levels are also above average in the county.

FAVORABLE DEBT PROFILE: Debt levels are low and the district has no plans to issue additional debt. Amortization of outstanding debt is slow.

CREDIT PROFILE

The Yuma County Free Library District is a single-purpose district, with boundaries coterminous with Yuma County. It is located in the southwest corner of Arizona, sharing borders with both Mexico and California. County and district management are identical, with both governed by the elected board of county supervisors.

Both district operations and debt service are funded from an unlimited property tax levy. The district enjoyed solid revenue growth from fiscal 2004 - 2010 due to growth in its tax base, but this trend reversed with moderate declines the past two years. Expansion of the district's tax base was extremely strong between fiscal 2004 and fiscal 2010, with annual secondary assessed value (SAV) growth averaging 14.7%. Due to the weak economy, SAV contracted 4% in fiscal 2011 and another 7.5% in fiscal 2012. Management reports that values are projected to continue to contract for another two years before flattening out, which is consistent with projections of other local governments in Arizona.

The district's solid general fund balance helps to mitigate credit concerns over the weakening tax base. At the close of fiscal 2010, the district maintained a substantial unreserved balance of $9.7 million, or 94% of expenditures and transfers out. Unaudited results for fiscal 2011 point to a modest $259,000 drawdown. Although management is planning to reduce the fund balance to a maximum of 25% of spending, the plan is to reduce it slowly and primarily for non-recurring expenditures. Management continues to budget conservatively and typically outperforms its projections.

The county's economic indicators are weak, featuring a very high unemployment rate and below average income levels. At 26.9% in September 2011, the county's unemployment rate remains at about three times the national average. Fitch has noted in the past that the seasonality of agricultural employment impacts county unemployment levels, as it does in other border states with a significant agricultural presence. At the peak of economic activity in 2007, the lowest county unemployment rate was 13.7%, which was three times the national rate of 4.6% for the same period. Stabilizing factors include the county's strong population growth (averaging 4% annually over the past decade), and a strong base of federal government employment. Federal operations include the premier aviation training facility for the U.S. Marine Corps and the rapidly expanding U.S. Army Proving Ground (at which military equipment is tested).

The district's overall debt burden is manageable with debt at $1,065 per capita and 1.6% of full market value. Debt is amortized slowly, with less than 30% of principal maturing within ten years. The district has no plans to issue additional debt, and all previously bonded improvement projects are now complete and operational.

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 the 'Tax Supported Rating Criteria', this action was informed by information from Credit Scope and Texas Municipal Advisory Council.

Applicable Criteria and Related Research:

--'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

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KEYWORDS:   United States  North America  Arizona

INDUSTRY KEYWORDS:   Professional Services  Finance

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