OREANDA-NEWS. Fitch Ratings has affirmed the following Glenwood Springs Rural Fire Protection District, Colorado (the district) bonds:

--$235,000 limited tax general obligation (LTGO) bonds, series 2001 at 'BBB-'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an LTGO mill levy on all taxable property within the district at a rate not to exceed 3.126 mills.

KEY RATING DRIVERS

CONTINUED STRUCTURAL IMBALANCE: Weak property tax revenues in recent years have been insufficient to cover district operating costs, and management has minimal control over either revenues or expenditures. However, enhanced city support and recent tax base growth are expected to improve financial operations in the medium term.

LIMITED ECONOMY: The local economy is limited and assessed valuation (AV) endured drastic declines in two of the last three biennial reassessments.

POSITIVE DEBT CONSIDERATIONS: The district has ample capacity to raise the debt service millage and has a low long term liability burden.

RATING SENSITIVITIES

STABILIZED FINANCIAL OPERATIONS: Positive rating consideration is possible if the district's AV and property tax revenue show sustainable recovery to the level sufficient to cover operating costs and rebuild a moderate level of reserves. Fitch takes comfort in the stability afforded by the amended intergovernmental agreement (IGA), and expects that adherence to this agreement will allow the district to cover revenue shortfalls until tax base growth is realized.

CREDIT PROFILE

The district spans 67 square miles in unincorporated Garfield County in northwestern Colorado, approximately 150 miles west of Denver. The district's population is estimated at 4,200 as of 2010. It is an independent taxing entity which only funds fire protection and ambulance services, and operates under an IGA with the city. The district's boundaries are located entirely outside those of the city.

LIMITED OPERATIONS, CONSTRAINED FINANCIAL FLEXIBILITY

The district has limited control over both revenue and expenditure levels. Operating revenues are derived almost entirely from property taxes and the district levies at the maximum allowed rate for operations.

The district is responsible for funding limited but essential fire services which it contracts out to the city. According to the IGA, the city bills a portion of its overall fire service costs to the district based on the district's share of AV and service calls.

STRESSED OPERATIONS; ENHANCED CITY SUPPORT

Recent operating deficits are a result of significant AV declines, service level increases, and general fire protection cost increases. AV fell by a cumulative 31% between fiscals 2011 and 2014, while city officials indicate that fire service costs increased by nearly 17% during the same period.

A successful 2013 referendum increased the maximum levy by two mills or a large 32% for five years, providing interim relief while maintaining rates comparable to neighboring fire districts. However, the increase was not sufficient to offset tax base declines.

In light of the district's continuing financial stress, the city and district amended the IGA in 2014 to limit the district's share of fire and emergency service costs to 97% of the district's annual property tax revenue in years when property taxes do not cover operating costs. The amended agreement allows the district to use the additional 3% of revenue to build a reserve up to 5% of the annual operating levy. The IGA extends through the end of fiscal 2018.

Fiscal 2014 ended with an operating deficit of 9% of spending, reducing general fund balance to a very low $17,000 or 2.6% of spending, all of which is restricted for emergencies under state law. However, audited results do not reflect adjustments pursuant to the 2014 IGA amendment, which was adopted retroactively for the entire year. Management indicates that such adjustments, which will be evident in 2015 financials, result in an ending fund balance of $67,000. This includes approximately $16,000 of property tax revenue deposited in an operating reserve.

IMPROVING REVENUE TREND

Inclusive of an expected city subsidy of about $180,000 and before any cost limitation under the IGA, 2015 is projected to end with a surplus of $23,000 and a total fund balance of $90,000 (14.5% of spending), which includes the state-required 3% emergency reserve. The 2016 budget is proposed with a modest surplus and a slightly smaller city subsidy, benefiting from strong 16% projected property tax growth.

Fitch expects that the city has incentive to honor the agreement as the district's operations enhance the city's own safety. The subsidy is a relatively small amount compared to the city's budget, and Fitch believes the city has sufficient resources to meet this obligation, although Fitch does not rate the city's debt. In addition, the district is effectively run by the city.

LIMITED ECONOMY

The district is primarily residential with limited commercial development due to its mountainous topography. County income levels and unemployment rates are comparable to the state and slightly favorable to U.S. norms. Housing market recovery seems to have taken shape, as reflected in noteworthy AV growth of 16.6% in the 2016 reassessment. Management projects flat valuation for 2017, as the planned construction of a new shipping facility will be offset by the loss of a large commercial property slated for annexation by the city.

FAVORABLE LIABILITY BURDEN

Debt ratios are low and bonds have a final maturity of 2019. Debt service carrying costs are moderate at 19% of governmental spending in 2014, including a partial early defeasance in December. There are no plans for additional debt issuance as capital needs are mostly funded by a separate levy. The district has no direct pension or other post-employment benefit obligations.

The district has separate levies for debt service and capital expenditures. Both have ample rate-raising flexibility. The debt service levy is currently at 1.08 mills, substantially below the cap of 3.126 mills.