SAN FRANCISCO - (Business Wire) Fitch Ratings assigns an 'A+' rating to city of Fresno Joint Powers Financing Authority (JPFA), CA's approximately $34.2 million lease revenue bonds series 2008C and $2.4 million lease revenue bonds series 2008D (federally taxable). The bonds will be sold through negotiation on or about May 6. The Rating Outlook is Stable.
Also, Fitch affirms the following ratings, all with a Stable Rating Outlook:
--$108.5 million in Fresno Joint Powers Financing Authority, CA outstanding lease revenue bonds series 2004A, B and C; 2006A and B; and 2008A and B at 'A+'.
--City of Fresno, CA implied general obligation at 'AA-'.
Proceeds from the new issues will fund park and recreation improvements. While the City has covenanted to make lease payments from all legally available funds, the city plans to pay some or all of the debt service cost from developer impact fees dedicated to parks and open space uses and other recreation and park-related revenues.
The 'A+' rating reflects Fresno's consistently strong financial results characterized by prudent management practices, above-average reserves and sound lease structure balanced by economic concerns regarding the severity and duration of the substantial housing market declines and its economic impact. Fitch believes the city's strong reserves and conservative spending patterns will aid in retaining a sound financial position as rising mortgage delinquencies and home foreclosures result in weak tax revenue performance. Fresno's economy has diversified into health care, education and other service sectors, but its role as an agricultural center still dominates.
Fresno's economy is experiencing weakness after several years of very strong gains, largely the result of severe distress in the housing sector. Mortgage delinquencies (60 days or more) and home foreclosures are rising rapidly, and construction employment fell nearly 10% in 2007. The construction sector remains vulnerable to further decline given the sector's importance to the economy, still making up 7% of all jobs county-wide. The financial activities sector also had a small employment decline. The city's unemployment rate has risen dramatically in recent months, reaching 9.2% in December 2007, well above the December 2006 rate, 7.5%. The city's property tax base has not yet been impacted by the downturn because of California's tax lien and collection timing, but fiscal 2009 could be impacted if taxpayer assessments are numerous. Fitch expects assessed value gains to slow dramatically from their historically strong increases, averaging 10% per year from fiscals 2003-2007.
As the state's sixth largest city and an agricultural center, the recent growth has added diversity to the city's economy, largely in health care and other services. The county's job base rose 13% from 2000-2007, with only a slowdown during the nationally weak 2003. Despite job losses in construction and financial activities in 2007, total employment rose 1.2%. The city's unemployment rate is typically high, resulting from the agricultural part of the economy, but declined to 7.5% in 2006 from a 10-year high of 12.8% in 1998. The city's downtown area has undergone significant development through both public and private projects, including market-rate housing, a regional medical center, federal courthouse, and multi-purpose stadium.
Fresno's financial operations are well managed, with conservative revenue forecasting and cost control measures contributing to strong year-end results. The city's general fund has run break-even or operating surpluses in each of the last nine fiscal years, bringing the 2007 fund balance to $59.6 million, a very high 24.1% of expenditures and transfers out. The unreserved fund balance also is high at $33.4 million, 13.2% of spending. Fitch views these levels as prudent given the area's economic volatility and the fiscal strain foreseen in the next few years. The unreserved balance includes a designation for emergencies, which can only be used during times of extreme financial distress or natural disasters. The city plans to add to this amount in fiscals 2008 and 2009 despite budget pressures, and keep the fund in excess of the council-adopted 5% policy.
As a result of a 1994 pension obligation bond issue and moderate benefits, the city's two pension systems are over-funded, which has enabled the city's annual contribution to be paid from the actuarial surplus until this year. The surplus also has funded a supplemental benefits fund, which covered the retirees' health insurance costs. The city's liability for other post employment benefits (OPEB) is valued at $82.9 million, resulting from the implicit subsidy of retiree premiums. The actuarial required contribution is $9.9 million, a moderate rise from the $5.9 million spent on OPEB in fiscal 2007. However, since the benefit is funded from a designated amount of the actuarial surplus, the total cost is limited to available funds. Fitch believes that the ability to eliminate this funding if no resources are available may require trade-offs with labor groups.
This transaction's legal provisions are sound and benefit from a master lease structure that includes two issues sold in March, 2008. The leased assets consist of parts of a large city park and five essential other city facilities, all of which have been in use for several years. The leased assets have a combined market value that equals the combined bond par.
The city's economic growth has kept the debt burden to moderate levels despite recent issuances. Overall debt now is $2,636 per capita and 4.1% of taxable market value. Future debt needs appear manageable, with the city working to identify revenue sources to be used to pay some or all of the future debt service.
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Fitch Ratings, San Francisco
Amy S. Doppelt, 415-732-5612
Scott Monroe, 415-732-5618
Karen Ribble, 415-732-1756
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