Fitch Ratings affirms the following Pleasant Grove, Utah (the city) bonds:

--$4.3 million excise tax road bonds, series 2008 'A+'.

The Rating Outlook is Stable.

SECURITYThe bonds are secured by a first lien pledge on Class C road revenues. They are considered a special limited obligation payable only by the revenues, and do not constitute a debt of the city. The majority of such revenues historically have been composed of gas taxes, though other sources include taxes and fees on highway use, safety inspections, vehicle registrations, and others. Distributions of the revenues are based 50% on population and 50% on Class B and C road mileage. There is a cash funded debt service reserve funded to the IRS standard.

KEY RATING DRIVERS

SATISFACTORY DEBT SERVICE COVERAGE: The 'A+' rating reflects the bonds' satisfactory debt service coverage levels, rapid amortization, the relatively narrow nature of the tax, a moderate degree of historical revenue volatility, and an adequate 1.25 times (x) additional bonds test (ABT).

IMPROVING FINANCIAL POSITION: The rating also reflects the city's improving financial operations, exhibited by balanced operations before transfers out for capital, a diversified revenue stream, solid fund balance levels, year of prudent expenditure reductions, and an expected operating surplus in fiscal 2012.

RESILIENT ECONOMY: Located close to the Provo employment market, the city benefits from a low unemployment rate, resilient health care and education sectors, and an expanding local employment base.

DIVERSE, PRESSURED TAX BASE: Although the city's property tax base is diverse, it has faced two years of modest contraction resulting from declining home prices.

GOOD DEBT PROFILE: Debt levels are moderate, capital needs are manageable, and debt amortizes rapidly.

CREDIT PROFILE

OVERALL SOUND ECONOMIC CONDITIONSPleasant Grove (Fitch implied GO rating of 'AA') encompasses nine square miles with a population of 33,500 residents in Utah County. The city's economy benefits from its proximity to expanding employment centers in Salt Lake City and Provo, and from several freeways that converge nearby. As a result, the city's population growth historically has been very high, although growth has slowed due to the housing-led recession. Declining home values have lowered the city's assessed valuation (AV) by a moderate cumulative 7% from fiscal 2009-2011. Because the city's tax rate generally floats to achieve a pre-determined tax levy, fluctuating AV generally does not directly impact property tax revenues.

The city's economy has been performing well despite a pressured housing market. December unemployment fell an impressive 23.6% year over year to just 4.2% versus 5.5% the year prior. During the same period employment grew at about four and two times the state and national rates, respectively, while the labor force also expanded. Household income levels are above state and national averages, and the poverty rate is well below state and national levels.

ADEQUATE DEBT SERVICE COVERAGEPledged excise tax revenues in fiscal 2011 covered maximum annual debt service (MADS) a satisfactory 1.30x. Debt service coverage has benefitted from two years of pledged revenue growth in excess of 6%. However, historical revenue performance has been volatile. Fiscal 2009 coverage fell to just 1.15x MADS due to a substantial 13.2% revenue loss that year. For fiscal 2012 management is estimating a modest 1.4% revenue gain, which Fitch believes is reasonable in light of the city's historical budgeting conservatism. Based on Fitch's stress scenarios, 2011 pledged revenues could decline 4% annually and revenues would be sufficient to repay the debt. Alternatively, 2011 pledged revenues could withstand a one-time revenue decline of up to 24% in 2012 and revenues would still be sufficient to service the debt. The additional bonds test is adequate with historical revenues at least 1.25x pro forma average annual debt service.

SOUND FINANCIAL POSITIONThe city's financial position is sound despite generating general fund operating deficits after transfers for the past three fiscal years. Audited general fund operations produced a $1.9 million operating deficit (after transfers) in fiscal 2011, lowering the total and unrestricted fund balances to still sound levels of $4.2 million (25% of expenditures and transfers out) and $2 million (12%). However, the fund balance drawdown in fiscal 2011 consisted of large one-time transfers out for capital intended to lower the fund balance below the 18% legal cap set by the state. Management indicated that ongoing operations in fiscal 2011 were structurally balanced. Management also anticipates a $250,000 operating surplus (before transfers out for capital) in fiscal 2012. Fitch believes such a surplus is realistic given management's historically conservative budgeting practices.

GOOD DEBT PROFILEThe city's debt burden is moderate, with net and overlapping debt equaling $2,107 per capita, or 3.2% of market value. Debt amortization is rapid, with 50% and 77% of principal paid down over five and 10 years, respectively. Capital needs are manageable, and the city does not have any plans to issue debt in the near term. The city phased out its OPEB plan, which has a very small remaining liability, and the city's pension contributions seem manageable with the 2011 actuarially required contribution equaling 5.3% of general fund expenditures.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope.

Applicable Criteria and Related Research:--'Tax-Supported Rating Criteria' (Aug. 15, 2011);--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:Tax-Supported Rating Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898U.S. Local Government Tax-Supported Rating Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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