SAN FRANCISCO - (Business Wire) Fitch Ratings assigns an 'AA' rating to $343,555,000 County of San Diego, CA's taxable pension obligation bonds series 2008A. The bonds will be sold through negotiation on or about July 29.
Also, Fitch affirms the following ratings:
--Implied general obligation at 'AA+'
--$583.1 million in parity pension obligation bonds that will be outstanding after this and a subsequent refunding are done, at 'AA';
--$197.9 million in certificates of participation (1996 North & East County Regional Justice Facilities Refunding) and series 1998, 1999, 2005, and 2006 at 'AA';
--$27.6 million in San Diego Regional Building Authority certificates of participation at 'AA'.
The Rating Outlook for all ratings is Stable.
The rating reflects the county's very low debt burden, sound financial operations, and very strong and effective financial and debt policies, as well as concern over the economic and financial impact of the evident weakness in the residential real estate market. Fitch believes the county's strong fiscal discipline and high reserve levels should enable it to sustain sound finances despite minimal tax base growth and likely state aid reductions.
The county's economy is performing reasonably well despite the severe housing market downturn. The residential decline is evident in a variety of measures, including a 24% drop in the single-family home median sales price from the first quarter of 2006 to the first quarter of 2008, a more than four-fold increase in the number of foreclosures in 2007 as compared to 2006, and an equally dramatic rise in the number of taxable parcels with assessment appeals pending. Nonetheless, job growth continues, albeit at a slower pace, and the county's unemployment rate remains below that state's average. The county's April 2008 jobless rate rose to 5.1%, putting it well below the state's 6.5% but above the nation's 5%. Tax base growth has slowed to a moderate 4.6% for fiscal 2009, down from an average 10.4% per year from fiscals 2002-2008.
San Diego County's financial operations remain healthy and leave it well-positioned to handle an economic and revenue slowdown. Prior years benefitted from the county's economic growth and related revenue generation as well as prudent spending and adherence to strong financial policies. Audited results for fiscal 2007 show the general fund running its sixth and largest operating surplus in the last eight fiscal years. The unreserved general fund balance rose to $744.8 million, a very high 25.2% of the year's nearly $3 billion in spending. The county expects fiscal 2008 to show a moderate operating deficit as reserves were used to make up for weaker sales tax performance, and for costs associated with last fall's firestorms. Nonetheless, the county projects retaining strong reserves that exceed policy levels. Fitch expects the county's prudent management efforts to continue and long-term fiscal stability to be retained.
The fiscal 2009 budget is balanced using $203.6 million in prior years' fund balance. Fitch views this level as acceptable given the county's sizable reserves, the use for one-time expenses, and the county's history of showing better than budgeted performance. Spending growth is moderate at 3.9%, smaller than in recent years, reflecting the slowing economy. Appropriations incorporate increases in priority areas such as public safety and health and human services that are partially offset by reductions in other areas.
The budget does not adjust for possible actions by the state to close its sizable budget gap. The county will amend the budget in response to the state's actions once the state's budget is adopted. County officials have stated their intent to make program reductions equal to any state funding changes. The budget also is vulnerable to the recently settled changes to eligibility for the County Medical Services program. While the county estimates the cost increase to be manageable relative to the budget, the new eligibility encompasses a substantially larger group than previously covered, making the budgeted figure inherently susceptible to revision.
The county's very low debt burden and history of early debt defeasance also support the high ratings. Proceeds from this issue will be combined with a subsequent variable rate issue and $44 million in county funds to retire $485.1 million in outstanding pension obligation bonds, series 2002B-1, B-2, B-3, and B-4. The 2002 bonds currently are auction rate securities, with interest rates resetting at their maximum rate. The refunding is expected to yield a moderate present value savings even after the county's cash contributions are deducted.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Amy S. Doppelt, +1-415-732-5612 (San Francisco)
Alan Gibson, +1-415-732-1752 (San Francisco)
Sandro Scenga, +1-212-908-0278
(Media Relations, New York)
