DALLAS—Oil price volatility continues to take a toll on bond ratings in Williston, North Dakota.
S & P Global Ratings this week lowered its rating on $44.5 million of public safety sales tax revenue bonds from a 2015 issue to A from A-plus and warned of the possibility for further erosion by assigning a negative outlook.
"The downgrade reflects our view of the steep decline in pledged sales tax revenues and debt service coverage in the past year, largely due to the slowdown in oil production and associated activity in the region since late 2014," said analyst Scott Nees.
Williston's debt burden is largely paid from sales tax revenues. Tax revenues are strongly tied to the oil industry in and around the county and from individuals working in the oil industry.
The trend in taxable sales and purchases has followed the decline in oil production for the region. Sales and purchases fell to $2.37 billion in 2015, down about half from peak levels and by 38% from the prior year's sales and purchases of $3.83 billion, according to data from the North Dakota Office of the State Tax Commissioner.
The newly downgraded bonds are still faring better than other now junk-rated debt backed by the city's sales tax due to an intergovernmental agreement between Williston and William County in which the county splits a public safety sales tax equally with the city. On Nov. 4, 2014, Williams County voters authorized the new 1% sales and use tax to provide supplemental funding to public safety departments and agencies in the county.
The countywide public safety sales tax is levied on all taxable sales in Williams County. It is in addition to the state sales tax of 5% and Williston's 1% sales and use tax.
A little more than half of that 1%, or the city share's, secures the 2015A and B bonds. City share collections will continue through March 2025 with the final payment expected in May 2025. The bonds mature July 15, 2025, shortly following the expiration of the sales tax.
"The use of the city share of sales tax revenues for supplemental funding to city public safety department and agency operating costs, in our view, reduces the risk that the city will bond down to its additional bonds test," said S&P.
In April, S&P dropped the city's 2010 sales tax revenue bonds six notches to BB-minus from A-minus. The rating agency also dropped the city's series 2011B and 2013A and B sales tax revenue bonds to BB from A. All of those bonds don't benefit from the shared public safety sales tax.
Williston is at the center of the Bakken Shale formation, which was home to a boom driven by hydraulic fracturing, or fracking, techniques.
Fiscal 2015 sales tax collections for Williston -- a portion of which secures its revenue bonds -- declined 13.5% compared to fiscal 2014 collections. January 2016 collections have dramatically fallen by 65% compared to January 2015, and February receipts were down 46%.
In March, Moody's downgraded the city's general obligation credit two notches to the junk-level of Ba1, and lowered its sales tax-backed bonds four notches to Ba3.
On Feb 19, North Dakota lost its AAA issuer credit rating from S&P because of the impact of oil price volatility on the state's economy. The rating was cut one notch to AA-plus.