The booming real estate market in Basalt and the town government’s “strong financial management” outweighed concerns about a one-dimensional, tourism economy in the eyes of Standard & Poor’s Global rating.
Basalt received an “AA stable” rating Dec. 9, prior to it offering nearly $18 million in general obligation bonds for sale on Wednesday.
“The favorable rating report will help to attract investors, which puts downward pressure on interest rates,” Basalt financial director Christy Chicoine wrote in a memo to the town council.
The S&P Global ratings report provides an independent assessment of the local economy, without spin from parties who would benefit from a rosy outlook. In addition to the AA rating for the bond issuance, S&P Global gave Basalt a long-term rating of AA stable.
“The town’s economy relies heavily on tourism, but continued development, steady population growth, and a strong financial position bolster credit stability,” S&P’s report said. “In the past six years, assessed valuation grew an aggregate 40%, largely reflective of strong economic development within and around the town’s boundaries.”
The strong economy reflects high income and wealth indicators despite reliance on tourism, the report said.
“We recognize that a portion of homes in the town are second homes and that almost 30% of local employment is based in the leisure and hospitality sector, reflecting some economic risk through long-term cycles,” the report said. “However, the recent national recession that resulted from the pandemic has not led to significant slowdown or deterioration of the tax base. As a result of the grow in recent years, the town has also benefited from steady increases in sales taxes, which are the largest source of general fund revenue.”
The town has collected $8.22 million in sales tax revenues so far this year, according to its November sales tax report. That is up 17.4% from the same point in 2020, which was a record year.
While unemployment initially surged during the COVID-19 pandemic, the Roaring Fork Valley’s economy quickly bounced back. The unemployment rate jumped to 9.5% in Eagle County and 10.5% in Pitkin County during the height of the pandemic in 2020, but the rates are down to 5.5% and 6.2% respectively, the report noted.
The scorching hot real estate market took only a brief timeout at the beginning of the pandemic, and then buyers in the urban exodus snatched property up. Between one-quarter and one-third of the residences in Basalt are second homes, the S&P report noted. Real estate values have been soaring in recent years and shows signs of further growth in 2022.
“Fiscal 2022 preliminary (assessed valuation) for the town totaled approximately $214.6 million, reflecting a 12.5% increase from the prior year,” S&P wrote. “Fiscal 2022 actual value (market value) is about $1.95 billion, or roughly $425,000 per capita, which we consider extremely strong. We consider the tax base diverse, with the 10 leading taxpayers accounting for roughly 17.7% of total (assessed value).”
The AA rating means Basalt has a strong capacity to meet its financial commitments. Only the AA+ and AAA ratings are higher; several ratings are below AA.
The rating was also boosted by the town government’s fiscal practices, according to S&P Global. The highlights include the town is conservative in estimating future sales and property tax revenues; there is a policy in place to maintain a reserve equal to 40% of general fund expenditures; and a moderate debt burden, according to the report.
“We view the town’s management as strong, with good financial policies and practices under our financial management assessment methodology, indicating our view that financial practices exist in most areas but that governance officials might not formalize or monitor all of them on a regular basis,” the report said.
In her memo to the town council, Chicoine wrote that the AA rating was “a good outcome given the uncertainty caused by the pandemic.”
The town also had an AA stable rating the last time it issued bonds. Wednesday’s issuance of $17.6 million in general obligation bonds was approved by voters in November. A top selling point was the fact that the property tax rate won’t increase because of the new bonds. Instead, the rate will be maintained after older bonds expire.
The new revenues will be used for a major overhaul of the Midland Avenue streetscape and utilities, construction of affordable housing and environmentally friendly projects.