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Medians And Credit Factors: Colorado Metropolitan Districts

Overview

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.

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

Chart 1

image

Colorado Metropolitan District Means And Medians

Table 1

Means
Ratings Average AV total ($000) Average direct mill levy rate Available general fund balance (% of expenditures) Total debt (% of AV)
AA category 206,946  20.8 171 12
A category 68,168  27.3 274 25
BBB category & below 35,460  43.1 591 61

Table 2

Medians
Ratings Average AV ($000) Total Direct mill levy rate Available general fund balance (% of expenditures) Total debt (% of AV)
AA category 166,426  19.0 226 11
A category 43,114  26.3 123 28
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.

Table 3

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.
Organization Rating Outlook
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;
michael.parker@spglobal.com
Secondary Contact:Savannah Gilmore, Centennial (1) 303-721-4656;
savannah.gilmore@spglobal.com

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