Fitch Ratings takes the following rating action on Mayers Memorial Hospital District, CA (district):
–$5 million general obligation (GO) bonds, 2010 election, 2011 series A affirmed at ‘BBB-‘.
The Rating Outlook is Stable.
The bonds are general obligations of the district, secured by an unlimited ad valorem tax pledge on all taxable property in the district.
KEY RATING DRIVERS
NARROW TAX BASE: The district is geographically large but sparsely populated with economic concentration in natural resources including timber and energy production, food processing and other land-based enterprises.
STRONG MARKET SHARE AND VOTER SUPPORT: Over 65% of service area residents receive their medical care at the hospital and the nearest competitor is more than 50 miles away. Overall community support for the hospital is strong as demonstrated by the 72% approval for the November 2010 bond authorization.
GROWING DEBT BURDEN: Direct debt levels have risen sharply since 2010 with the issuance of both GO and non-GO debt. State-mandated seismic improvements are likely to be funded with substantial new debt to be issued within the next year, increasing debt burdens further.
WEAK BUT IMPROVING FINANCIAL PERFORMANCE: The district’s financial position remains pressured but saw modest improvement in fiscals 2011 and 2012. The hospital benefits from its status as a critical access hospital, providing a sound base of revenue, but continues to be challenged by low profitability and liquidity.
Mayers Memorial Hospital District spans the upper northeast corner of Shasta County, approximately 70 miles northeast of Redding, with portions in adjoining Modoc and Lassen Counties. The district has a population of approximately 14,000 in a largely rural 8,000 square mile area.
LIMITED ECONOMY; INDUSTRY CONCENTRATION
The district’s tax base is largely rural and agricultural in nature, with most of the top taxpayers in the timber, food processing, agricultural and recreational industries. Assessed valuation (AV) declined an aggregate 5% in fiscals 2010 and 2011, but shows strong growth prospects due to recent major investments in wind farms within the district and the proposed expansion of the district’s boundaries. Management reports that revenues from the district’s share of the 1% countywide property tax increased by 20% in 2012 due to AV growth and estimates that the proposed expansion of the district’s boundaries would provide a further 20% AV increase if approved.
Employment statistics for the hospital district are not available. For the Redding MSA and Shasta County as a whole, unemployment levels have historically exceeded state and national averages and this gap increased during the recent downturn. Employment levels have shown recent improvement with 14 consecutive months of year-over-year gains, but unemployment rates remain elevated at 11.5% as of October 2012. Statistics for Redding, the county seat and the regional population center (though not in the district) show population and income levels at roughly 75%-85% of state and national levels respectively. Given the rural character of the hospital district, income and wealth levels are likely to be even lower than for Redding.
WEAK BUT IMPROVING FINANCIAL PERFORMANCE
The district operates a 121-bed health facility with 22 acute and 99 skilled nursing beds. As a federally-designated critical access hospital, the district receives Medicare payments based on the actual cost of services, helping to stabilize its operations and finances. The next closest hospital is 70 miles away, and approximately 65% of service area residents receive their medical care at Mayers Memorial Hospital.
Following several years of deteriorating financial performance, the district has seen improved operating over the past two years and recorded a small operating surplus in 2011. Investments in service improvements and staff retention contributed to a small operating deficit in 2012, but net assets continued to show positive results. Liquidity has improved significantly over the past two years but remains weak at 22.6 days cash on hand (unaudited) at the end of fiscal 2012.
GROWING DEBT BURDEN
Overall debt levels are currently moderate at $1,548 per capita and 2.8% of AV, but could more than double with the planned issuance of $9 million in remaining GO bond authorization and more than $20 million in new non-GO debt. The new money issuances would support the district’s efforts to meet state mandates for seismic strengthening of acute care facilities prior to a 2020 deadline. The district has no pension or other post-employment benefit liabilities.
In addition to the sources of information identified in Fitch’s Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope and IHS Global Insights.
Applicable Criteria and Related Research:
–‘Tax-Supported Rating Criteria’ (Aug. 14, 2012);
–‘U.S. Local Government Tax-Supported Rating Criteria’ (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria