Fitch Ratings assigns an 'AA' rating to San Diego County's (California) $82.5 million certificates of participation (Justice Facilities Refunding), series 2009. The certificates of participation (COPs) are expected to sell via negotiation during the week of Sept. 28, 2009, with a final maturity of Oct. 1, 2025. Proceeds will refund 1997 and 1998 COPs to achieve debt service savings.
Fitch also affirms the following ratings:
--Implied San Diego County general obligation at 'AA+';
--$879.4 in San Diego County pension obligation bonds at 'AA'; and
--$455.4 million in San Diego County and San Diego County Regional Building Authority COPs at 'AA'.
The Rating Outlook is Stable.
The implied general obligation rating of 'AA+' reflects the county's stable general fund financial trend, the result of strong, institutionalized management policies and practices (including disciplined pension funding and effective actions to limit retiree pension and healthcare costs). On the assumption that the current economic downturn represents a major reset in the economy, the county is focusing on how to reduce its cost structure in order to maintain structural balance, strong fund balances, stable reserves, and its ongoing capital program.
The county's residential property market remains weak and its commercial property market appears to be softening. Future financial operations will be strained by this weakness and a corresponding retrenchment from the strong economic patterns residential construction generated. Since the county board remains committed to not backfilling state revenue cuts, the county is preparing for various levels of spending reduction in fiscal 2010 while facing potential social service caseload growth at the same time. Debt management is very conservative, with significant cash financing and early debt retirements, resulting in healthy general fund balances and reserves, and low debt levels in fiscal 2010. The county has proactively and effectively reduced retiree health care benefits, substantially reducing its future liability.
The county's financial position remains sound, with an unaudited fiscal 2009 unreserved general fund balance totaling $897.9 million or 25.2% of spending. Despite the economic pressures faced by the county during fiscal 2009, these results represent only a minor decline from fiscal 2008 balances.
Fitch believes that the sizable reserves leave the county with a good deal of additional flexibility to weather further financial challenges, including fewer employment opportunities and the county's unemployment rate (which rose to 10.3% in July 2009), the county's first TAV decline in decades (-2.5%), the softening commercial property market, and the reduced value of the county's pension fund. The county has allocated $75 million to a priority capital project, funded its reserves above policy levels, and already prepaid $100 million of its outstanding pension obligation bonds to achieve ongoing annual cost savings and eliminate its last remaining variable-rate debt. This prepayment lowers the county's already low direct debt level to $472 per capita or 0.4% of taxable AV, the product of a preference for cash project financing and early debt defeasance. Debt levels remain low to moderate when overlapping entities' debt is taken into account; $3,383 per capita or 2.5% of TAV.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public web 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.
Contacts:
Fitch Ratings, San Francisco
Alan Gibson, 415-732-7577
Amy
Doppelt, 415-732-5612
or
Media Relations:
Cindy Stoller,
212-908-0526, New York
Email: cindy.stoller@fitchratings.com
