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Fitch Rates Kalkaska County Hosp Auth (Michigan) $8.4MM Hospital Bonds 'BBB'

Posted on: Tuesday, 27 November 2007, 18:00 CST

Fitch Ratings has assigned a 'BBB' rating to the Kalkaska County Hospital Authority, MI's $8,400,000 hospital authority bonds, series 2007. The bonds are scheduled to sell via negotiation in the week of Dec. 3, 2007 through Lancaster Pollard, with Bendzinski & Co. serving as financial advisor. Bond proceeds will finance various capital improvements to the Kalkaska Memorial Health Center. The Rating Outlook is Stable.

The 'BBB' rating reflects the pledge of unlimited ad valorem taxes by each of the participating public corporations (i.e., municipalities). The county's economy, while limited, remains stable, with continued population and tax base growth. The hospital authority's financial operations are self-supporting, benefiting from higher Medicare reimbursements due to its designation as a critical access hospital (CAH). Also, the participating public corporations' financial operations are adequate, with overall affordable debt levels.

The hospital authority services the 12 townships and one village (i.e., the participating public corporations) that comprise Kalkaska County. The bonds were authorized by a referendum in May 2007, which approved a joint and several unlimited capital improvement tax levy for 10 years on all taxable property within each respective participant's jurisdiction. The capital improvement levy is pledged to meet only debt service on the bonds. Though the levy initially is set at 1.6 mills per $1,000 of taxable property value, the obligation of each participant to levy sufficient property taxes for the bond's debt service is an unlimited general obligation pledge. Participants levy and collect taxes in segregated funds between Dec. 1 and March 1 and submit collections to the authority on March 1 for debt service payments on May 1 and Nov. 1. The participants recover all tax delinquencies on or before March 1 by remitting them to the County Treasurer for reimbursement through the county's delinquent tax revolving fund.

The county encompasses an area of 829 square miles in the northwestern portion of the state, approximately 25 miles east of Traverse City. Although primarily rural, the county's population has grown 0.7% annually since 2000 and now totals an estimated 17,330. Equalized property values have grown 8.9% annually since 1999, primarily due to steady residential construction. Kalkaska Township is the largest participant, accounting for 29% of the county population and 23% of the taxable property base. The top 10 taxpayers represent 13% of the total taxable property base, with the majority concentrated in natural gas extraction, storage and transmission.

County personal income grew 3.6% annually over the last decade, near the state's 3.8%, but both less than that of the nation at 5.2%. As a result, county per capita personal income equals 63% of the state average and 60% of the national average. Government, other services, and construction sectors account for the county's largest economic sectors, each growing at a stronger rate than that of the county's employment base as a whole. Countywide employment has grown 1.7% annually since 1997, led mostly by retail trade and service sector expansion. The 2006 county unemployment rate of 7.7% is above that of the state (6.9%) and nation (4.6%), but less than the county's peak unemployment rate of 8.1% in 2003.

Financial performance and fund balance levels for each individual participant government are adequate. Overall debt levels are approximately 2% of market value. The hospital authority operates under the Joint Hospital Authority Act 47, which requires the hospital board to close projected operating budget shortfalls through annual tax levies. The hospital authority is a designated CAH by the Center for Medicare and Medicaid Services. Under the CAH program, the hospital authority recovers 101% of cost for Medicare reimbursements. In fiscal 2007 (June 30 year-end), the hospital authority generated $1 million in operating income on $18.9 million of net patient revenues and carried $3.3 million in unrestricted cash. The hospital authority generated a positive operating margin of 5.3% in fiscal 2007, excluding property tax receipts. Medicare and Medicaid represent 61% of patient receivables.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Business Wire

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