As part of ongoing surveillance, Fitch Ratings has affirmed the 'A-' rating on approximately $15.5 million of Allegheny County Redevelopment Authority, Pennsylvania's (the authority) tax increment financing bonds (waterfront project), series A and B of 2007 and series A, B, and C of 2000 (collectively, the bonds). The Rating Outlook is Stable.
The 'A-' rating reflects strong coverage from tax increment revenues and the fully developed nature of the project. Additional bonds are prohibited under the trust indenture except for refunding purposes, eliminating leveraging risk. Further, debt service declines significantly after 2010, allowing for consistent coverage through final maturity in 2018. Fitch notes the high level of taxpayer concentration within the project area, which is comprised largely of national retailers, dining, and entertainment concerns subject to economic volatility and operating risk.
The bonds are secured by tax increment revenues generated from parcels within the project area after the payment of base year taxes to the participating taxing units. According to bond counsel, each series of bonds is secured on a parity basis under the trust indenture. However, the authority acknowledges that it was the intent of the project participants that debt service on the 2000C bonds, which were originally issued to finance the cost of constructing a street and bridge system to improve access to the project area, and the 2007B refunding bonds, would be paid solely from the county's share of surplus tax increment available after the payment of debt service on the other bonds and required payments to the project maintenance and development fund have been satisfied. Fitch's rating reflects bond counsel's interpretation of the lien created under the trust indenture and the strong credit fundamentals noted above.
Project development has been phased in since 1999 with all tax parcels considered developed since January 2007. The project has exceeded the authority's original assessed value (AV) projection of $179 million at full build-out. In 2008 AV totaled approximately $209 million, approximately 25 times the base year value in 1998. Tax increment collections have been supported further by growth in the millage rate established by each of the participating taxing units to support their respective general government operations. Coverage of maximum annual debt service (MADS) in 2008 remains a strong 1.9 times (x) following a 0.9% decline in tax increment revenue available for debt service due to negative tax base growth. The county's base-year assessment practice, which has contributed to relatively stable assessment trends, was ruled unconstitutional by the Pennsylvania Supreme Court in 2009. At present, it is not clear if any change in assessment practice would impact tax increment collections.
Taxpayer concentration remains high as the top 10 taxable parcels account for 57% of 2008 total tax increment revenue. However, several parcels contain multiple tenants and one parcel includes a portion of a 235-unit apartment complex. The largest single taxpayer, accounting for 9% of 2008 revenues, is a new research and development center owned by U.S. Steel. According to the authority, project occupancy is at least 90% across property classification and turnover has been low due to the presence of established national retailers. The authority is not aware of any assessment appeals outstanding that would materially impact future tax increment collections. According to the authority, refunds owed as a result of the successful appeal of a property's assessment are not reimbursed from tax increment revenues, but are the responsibility of the participating taxing units.
The project area, referred to as the Waterfront at Homestead, is a regional open-air shopping mall divided into four development areas that contain retail, residential, and office space properties. The project site, the location of the former U.S. Steel Homestead Works, is located within close proximity of downtown Pittsburgh and some of the more affluent communities in the greater Pittsburgh area, in addition to the university communities of the University of Pittsburgh, Duquesne University, and Carnegie Mellon University. The region's large health care and education presence have helped sustain employment levels. Unemployment as of June 2009 stood at 7.7% compared to the state at 8.4% and the nation at 9.5%. The county's per capita income and retail sales average slightly higher than the national average.
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Ann
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