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MOODY'S ASSIGNS Aa1 RATING TO MINNEHAHA COUNTY'S (SD) $390,000 CERTIFICATES OF PARTICIPATION, SERIES 2010A AND $2.8 MILLION CERTIFICATES OF PARTICIPATION, SERIES 2010B

18 Oct 2010

Aa1 AFFIRMATION AFFECTS $41.9 MILLION POST-SALE PARITY DEBT

County
SD

Moody's Rating

ISSUE

RATING

Certificates of Participation, Series 2010A (GOLT)

Aa1

  Sale Amount

$390,000

  Expected Sale Date

10/26/10

  Rating Description

Certificates of Participation

 

Taxable Certificates of Participation, Series 2010B (GOLT-Recovery Zone Economic Development Bonds)

Aa1

  Sale Amount

$2,785,000

  Expected Sale Date

10/26/10

  Rating Description

Certificates of Participation

 

Opinion

NEW YORK, Oct 18, 2010 -- Moody's Investors Service has assigned a Aa1 rating to Minnehaha County's (SD) $390,000 Certificates of Participation, Series 2010A (GOLT) and $2.8 million Certificates of Participation (GOLT-Recovery Zone Economic Development Bonds). Concurrently, Moody's has affirmed the Aa1 rating on the county's $41.9 million of its outstanding parity debt, including the current offering.

RATING RATIONALE

Certificate security is provided through the lease agreement requiring the county to include in its annual budget funds sufficient to pay for all lease payments. The county's obligation to make lease payments is backed by its absolute and unconditional limited tax pledge. Proceeds will finance additions and improvements to the county jail. Assignment of the Aa1 rating reflect the county's sizeable tax base anchored by a sound Sioux Falls (Sales Tax rated Aa2) economy, sound financial operations supported by healthy reserves, and manageable debt levels.

COUNTY'S MODERATE TAX BASE ANCHORED BY SOLID SIOUX FALLS ECONOMY

Located in southeast South Dakota, Minnehaha County encompasses a large, 810 square miles- much of which is devoted to corn and livestock production. Approximately 80% of the population however lives in Sioux Falls which serves as the county seat and acts as the regional economic driver whose economy is anchored by financial services (Citigroup and Wells Fargo together employ over 6,000), health care, and food processing/agricultural support industries. Sioux Falls is also home to two large hospital campuses (employing over 10,000), making it a regional medical center. A $400 million private donation to Sanford Health Care combined with a significant long term investment by Avera McKennan has siginificantly expanded the regions healthcare presence. As a result of the broader national economic downturn, the local housing market has seen a softening of permit activity, though officials report limited foreclosure activity. We expect the local economy is likely to continue solid growth, fueled by strong population growth, business costs among the lowest in the nation (the state has no personal income tax, corporate income tax, or inventory tax), and high-wage employment opportunities. The county's sizeable $14 billion tax base has grown at a solid 6.2% five year average annual rate. Minnehaha County's wealth levels exceed state indices, but equate national levels, while its July unemployment rate of 4.5% continues to compare favorably to both the state and national rates of 4.4% and 9.5% respectively.

FINANCIAL OPERATIONS EXPECTED TO REMAIN SOUND; OPT OUT PROVISION PROVIDES FOR ADDITIONAL FINANCIAL FLEXIBILITY

The county's financial operations are expected to remain sound given historically responsive management, healthy reserve levels, tight budget oversight, and a series of permanent opt-out levies. Fiscal 2005 was the first full year of expanded operations at the county jail, which showed operating costs closely matched expectations and continue to remain so. A sizeable portion of the prisoners are imported from various jurisdictions (including both federal and surrounding counties) which generates additional revenue for the county. Those revenues, along with expenditure controls and strong bank franchise tax (BFT) receipts, have resulted in operating surpluses from fiscal 2005 to 2007, culminating in a General Fund balance of $11.1 million, or a healthy 28.7% of revenues. Though the amount of revenue derived from jail operations is expected to decline over time as it fills with local inmates, future budgets have incorporated such an expectation in assumptions. To date however, the inmate population has not grown as rapidly as expected, allowing not only for solid prisoner revenue to continue, but delays by several years the need for additional jail expansion. In fiscal 2008 the county realized a $445,000 shortfall followed by a $1.6 million shortfall in fiscal 2009. At the close of 2009, the county's General Fund balance stood at $9.1 million, or 22.2% of revenues. Notably, much of the decline in 2009 was due to one-time planned capital projects. Officials project a shortfalls in fiscal 2010 due to significant declines in interest income. Favorably, BFT receipts have exceeded budgeted expectations which should help to mitigate the total decline. The county's 2011 budget is currently balanced as a result of expenditure reductions which include savings through attrition and a reduction in capital purchases.

While counties in South Dakota are governed by hard property tax mill rate caps ($12.00 per $1,000 of A.V for the General Fund and $0.90 for its Building Fund), it is the allowable rate of levy growth which should be considered. Effective in 1997, the state limited growth in property taxes (allocated mostly to the General Fund and Building Fund) to the smaller of 3% or CPI, plus new construction, which generally creates revenue-generating pressures on counties. In addition, several factors afford the county some operating flexibility despite these limitations. First, under state law the Minnehaha County (and all local governments), must assume only 95% collection rates on all revenue sources. Given historical property tax collection rates between 98-99%, and miscellaneous revenues collected over 100%, the use of cash reserves which are budgeted for typically is not required. The County has successfully put into place several 'opt out' excess levies. A county may institute an excess levy with the approval of two-thirds of the county's commissioners. A protest petition signed by 5% of voters would require it to be successfully approved by a general referendum. Several opt out levies have been approved to cover increased expenses associated with specific functions, or to offset a revenue loss: $1.15 million (2000) and $500,000 (2003). Both excess levies are permanent. Additional opt out levies of $260,000 (2005) and $1.6 million (2006) each carry twenty year terms. None of the four faced a protest petition and no additional opt out levies are under consideration for the near term. Minnehaha does not own or operate a hospital or nursing center, and has a fully funded pension program. As a result, we believe Minnehaha's financial operations will remain stable given sound management, healthy and liquid reserves (despite some near term reductions), and some allowable flexibility.

MANAGEABLE DEBT BURDEN EXPECTED TO CONTINUE

At 0.3%, the County's direct debt level is low (1.3% overall), yielding a very low $218 direct debt per capita. The certificates constitute general obligations of the county and are not subject to appropriation. Like the General Fund, the Building Fund is subject to levy limits- though the growth limit is for the total levy. Minnehaha County retains the option as to how to allocate its allowable levy growth between the two funds. Minnehaha County still retains significant margin under the 90 cent ceiling and under state statute, the county can exceed its limitation on revenue growth in order to pay debt service (the aforementioned 3% or CPI cap, though the 90 cent cap remains). No major issuance plans have been identified over the near term although regional juvenile detention space needs will likely need to be addressed over the near to medium term. Given limited future borrowing needs, average principal amortization, and continued tax base growth, we believe the county's debt burden should remain manageable.

What could change the rating - UP

- Preservation or improvement of General Fund balance at adequate levels over the near to medium term

- Maintenance of tax base and demographic profile

What could change the rating - DOWN

- Significant structural imbalance in the General Fund leading to material declines in fund balance and liquidity

- Deterioration of the district's tax base and demographic profile

KEY STATISTICS

2007 Population (Estimate): 173,800 (17.2% increase since 2000)

2009 Full Valuation: $14 billion

2009 Full Value per Capita (Estimate): $80,361

Minnehaha County Unemployment Rate (October 2010): 4.5%

2000 Per Capita Income as a % of State: 117.9% (96.0% of US)

2000 Median Family Income as a % of State: 120.3% (104.0% of US)

Direct Debt: 0.3%

Overlapping Debt: 1.3%

Fiscal 2009 General Fund Balance: $9.1 million (22.2% of revenues)

The principal methodology used in rating Minnehaha (County of) SD was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning a credit rating.

MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY'S is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Analysts

Iliana Beltran
Analyst
Public Finance Group
Moody's Investors Service

Elizabeth Foos
Backup Analyst
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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New York, NY 10007
USA

MOODY'S ASSIGNS Aa1 RATING TO MINNEHAHA COUNTY'S (SD) $390,000 CERTIFICATES OF PARTICIPATION, SERIES 2010A AND $2.8 MILLION CERTIFICATES OF PARTICIPATION, SERIES 2010B
No Related Data.
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