Leading up to 2020, Colorado metropolitan districts had demonstrated overall positive credit quality for several years, supported by strong economic growth in the state, continued housing development, and lower debt ratios through good assessed value (AV) growth for several districts. However, the COVID-19 pandemic has introduced some uncertainty to the recently stable property tax collection history for districts created pursuant to the Colorado Special District Act (Title 32, Article 1).
Despite the recessionary impacts as a result of the pandemic, S&P Global Ratings expects the credit quality of Colorado metropolitan districts with tax rate flexibility and additional reserves to remain stable in the near term. For districts with limited-tax structures and little available reserves, a prolonged recession and decline in property tax collections could lead to downward rating pressure in the near term. In addition, should the trend of fluctuating oil prices in 2020 persist, there could be rating implications for districts with concentration in oil and gas.
According to U.S. Census Bureau population estimates, Colorado was the third-fastest-growing state in the nation from 2010 to 2019, with a cumulative population growth rate of 14.1% during that time. Metropolitan districts' responsibilities include both the construction of residential area improvements and the ongoing operation and maintenance of those improvements.
- Strong AV trends in recent years, in addition to continued development that does not appear to be slowing as a result of the pandemic
- Historically strong tax collections across the state
- Strong overall financial indicators stemming from growth in property tax revenue in recent years
- Current economic uncertainty related to the COVID-19 pandemic, with a rise in unemployment rates statewide
- Elevated debt-to-AV ratios for high growth districts, as well as issuances of nonrated subordinated or junior-lien bonds that we include in our overall net debt to market value ratios
Change In State Law Could Affect Revenues Available For Debt Service
In June of 2020, the Colorado State Legislature passed House Bill 20-1421 (HB-1421), which allowed for the delay of property tax payments without an associated penalty through Oct. 15, 2020. The majority of districts we rate have principal or interest payments, or both, due Dec. 1 of each year, and in our view, an additional state delay or larger-than-expected delinquencies could result in immediate rating pressure for several districts we rate. While we do not anticipate statewide collections to significantly decline, districts with debt service reserves or additional supplemental reserves maintain stronger credit quality through this period of economic uncertainty. Although the full impact of HB-1421 is still unknown, we will continue to monitor the impact these changes may have on districts throughout the state.
Oil Price Fluctuations Add Uncertainty For Some Districts
S&P Global Ratings believes a prolonged period of fluctuating oil prices could pressure employment, AV, and the general economic outlook of local governments throughout oil-producing states. The risks vary across states given industry exposure, particularly when considering the different facets of upstream, midstream, and downstream operations. For metropolitan districts that are highly concentrated in oil and gas, more notably, entities with limited tax structures, a prolonged period of low oil production would likely be detrimental to the budget in the long run, as these districts would have a narrow ability to generate additional revenue beyond their respective tax caps. For more information, see our report titled "Lower Oil Prices May Create Budget Pressures For Some U.S. Local Governments And School Districts," published March 13, 2020, on RatingsDirect.
We note that in June of 2020, Extraction Oil & Gas filed for Chapter 11 bankruptcy, largely because of very weak conditions in its industry due to the effects of both the global overproduction of crude oil and the demand destruction stemming from the social distancing policies intended to help combat the spread of the coronavirus. In May of 2020, S&P Global Ratings lowered the rating on Extraction Oil & Gas to 'D' from 'CC' because of a missed interest payment on the company's senior notes, and later withdrew the rating upon the company's request (for more information, see our reports on RatingsDirect). Extraction Oil & Gas is a major taxpayer for certain districts rated in Weld County, Colo. In addition, we note that Weld County conducts annual tax lien sales to collect unpaid taxes, and the taxes are purchased by investors and become a lien against the property if successfully sold. Oil and gas production is assessed at 87.5% of its value, as opposed to residential property, which is assessed at 7.15%. Title 39 of Colorado Revised Statutes states that valuations of oil and gas property are determined from net taxable revenue from the producer for the sale of its oil and gas. Net taxable revenue is calculated from the producer's gross revenue at the site, minus deductions for gathering, transportation, manufacturing, and processing costs, and minus all sales of oil and gas to the U.S., the state, or any political subdivisions. As a result, oil and gas production is a determinant for county assessor calculations of property valuations. Property values in Colorado are assessed every two years, resulting in an 18-month lag in market activity. In 2019, property values in Colorado were reassessed, reflecting market activity for the period of July 1, 2016-June 30, 2018.
Key Credit Characteristics Of Metro Districts
The majority of Colorado metropolitan districts we rate are largely residential in nature, and hence, have an overall diverse taxing base. However, districts such as the Denver International Business Center Metropolitan District No. 1, Concord Metropolitan District, and SBC Metropolitan District currently have a top 10 taxpayer allocation above 70% of total AV, which we consider concentrated. The top taxpayers for the three rated entities are mostly commercial and industrial, and all three issuers are currently rated in the 'BBB' rating category.
Colorado Metropolitan Districts Data
Colorado Metropolitan District Means And Medians
|Ratings||Average AV total ($000)||Average direct mill levy rate||Available general fund balance (% of expenditures)||Total debt (% of AV)|
|BBB category & below||35,460||43.1||591||61|
|Ratings||Average AV ($000) Total||Direct mill levy rate||Available general fund balance (% of expenditures)||Total debt (% of AV)|
|BBB category & below||27,696||42.1||130||44|
Breakdown Of Colorado Metropolitan Districts Vs. Special Districts, And The S&P Global Ratings Criteria Differences For Each
Special districts, defined as quasi-municipal corporations and political subdivisions of Colorado and created pursuant to the provisions Title 32, Article 1 of the State Statutes, help bridge the gap between what residents need and what state or local municipal governments are able or willing to pay for. Some of the common services provided to local residents include drainage and street improvements, traffic and safety controls, park and recreational facilities, water and sanitation improvements, television relay and translators, public transportation facilities, and fire protection.
Although all special districts in Colorado are created pursuant to the Special District Act (Title 32, Article 1), S&P Global Ratings typically rates the districts to either our "GO Debt" (Oct. 12, 2006) or "Methodology And Assumptions: Rating Unlimited Property Tax Basic Infrastructure Districts" (March 17, 2009) criteria. Colorado metro districts are usually created at the request of real estate developers seeking to benefit from tax-exempt financing of infrastructure improvements to serve future development, and there are factors separating metro districts from being rated under our "GO Debt" criteria, including our view of the development process, management practices, and limited service responsibilities. In comparison to special districts rated under our "GO Debt" criteria, ratings on metro districts are lower on average because many rated districts are in the early stages of development, have higher-than-average debt levels, or are concentrated in a few leading taxpayers.
|Colorado Metropolitan Districts: Ratings List|
|As of Aug. 27, 2020|
|This list was prepared by individuals on behalf of the USPF Group of S&P Global Ratings and is current as of Aug. 27, 2020. For the most up to date, accurate, and complete information on any credit ratings referenced in this list, please visit www.standardandpoors.com.|
|Arrowhead Metro Dist||AA-||Stable|
|Aspen Highlands Residential Metro Dist||BBB+||Stable|
|Bachelor Gulch Metro Dist||A+||Stable|
|Beacon Point Metropolitan District||BBB||Stable|
|Beaver Creek Metropolitan District||AA-||Stable|
|Belle Creek Metro Dist #1||BB+||Stable|
|Bowles Metro Dist||A-||Stable|
|Breckenridge Mountain Metro Dist||A-||Stable|
|Broadlands Metro Dist #2||A||Stable|
|Buttermilk Metro Dist||A+||Stable|
|Canterberry Crossing Metro Dist||A||Stable|
|Castle Pines North Metro Dist||AA-||Stable|
|Central Platte Valley Metro Dist||BBB||Stable|
|Chatfield Corners Metro Dist||BBB||Stable|
|Concord Metro Dist||BBB+||Stable|
|Consolidated Bell Mtn Ranch Metro Dist||BBB+||Stable|
|Dancing Willows Metropolitan District||BBB+||Stable|
|Deer Creek Metro Dist||A||Stable|
|Denver Intl Bus Ctr Metro Dist No. 1||BBB-||Stable|
|Dove Vy Metro Dist||A+||Stable|
|Eagle Bend Metro Dist No. 2||A-||Stable|
|Eagle Ranch Metropolitan District||BBB+||Stable|
|Eagle Shadow Metropolitan District No. 1||A||Stable|
|Eagle-Vail Metro Dist||A+||Stable|
|East Smoky Hill Metro Dist #2||A+||Stable|
|Erie Commons Metropolitan District No 2||BBB-||Stable|
|Fossil Ridge Metropolitan District No. 2 and No. 3||BBB||Stable|
|Gateway Regl Metro Dist||BBB-||Stable|
|Glen Metropolitan District No. 1||BBB+||Stable|
|Heather Ridge Metropolitan District No. 1||BBB||Stable|
|Heritage Greens Metro Dist||A||Stable|
|Horse Creek Metropolitan District||A||Stable|
|Huntington Trails Metropolitan District||BBB||Stable|
|Ken-Caryl Ranch Metropolitan District||A-||Stable|
|Lincoln Pk Metro Dist||BBB||Stable|
|Liverpool Metro Dist||A||Stable|
|Lorson Ranch Metropolitan District No. 2||BBB+||Stable|
|Meridian Metro Dist||A-||Stable|
|Poudre Tech Metro Dist||BBB||Stable|
|Red Leaf Metro Dist #2||A-||Stable|
|Saddle Rock Metro Dist||A||Stable|
|SBC Metro Dist||BBB+||Stable|
|South Timnath Metropolitan District No. 2||BBB||Stable|
|Starwood Metropolitan District||A+||Stable|
|Stetson Ridge Metropolitan District #2||A-||Stable|
|Stoneridge Metropolitan District||BBB||Stable|
|Tablerock Metro Dist||A-||Stable|
|Tallyn's Reach Metro Dist #3||BBB+||Stable|
|Thompson Crossing Metropolitan District No. 2||BBB-||Stable|
|Triview Metro Dist||A-||Stable|
|Waterview I Metropolitan District||A-||Stable|
|West Point Metro Dist||A||Stable|
|Wildgrass Metro Dist||A-||Stable|
|Willow Trace Metro Dist||A-||Stable|
|Woodmen Road Metropolitan District||A||Stable|
This report does not constitute a rating action.
|Primary Credit Analyst:||Michael Parker, Centennial + 1 (303) 721 4701;|
|Secondary Contact:||Savannah Gilmore, Centennial (1) 303-721-4656;|
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