In the course of routine surveillance, Fitch Ratings has affirmed the City of Glendale Financing Authority, California's variable-rate demand certificates of participation (COPs) at 'AA-' (2000 police building project). The Rating Outlook is Stable.
The COPs' full rating is 'AA-/F1+'. The 'F1+' short-term rating is based upon a standby purchase agreement (SPA) provided by JPMorgan Chase Bank, National Association. The 'F1+' rating is not affirmed in conjunction with this press release.
The 'AA-' rating reflects the city of Glendale's (the city) sound financial management, high fund balance levels, low debt burden and significant financial flexibility. The city's solid management practices are evidenced by very high reserve levels supported by a strong policy, conservative budgeting, and regular financial reporting. The city's strong debt service cash balance offsets the risk posed by the COPs' interest rate volatility. Fitch views the city's maintenance of high reserve levels as offsetting concerns regarding the economic sensitivity of a sizable share of general fund revenues.
According to 2009 unaudited operating results, the city continues to maintain sound general fund reserves, providing substantial financial flexibility. For fiscal 2009, the city estimates its unreserved general fund balance at $55.1 million, a very high 38.1% of spending and up slightly from fiscal 2008's $52 million or 37.6%. During fiscal 2009, the city reduced expenditures in response to below budget revenue performance by delaying capital projects, implementing a hiring freeze and selectively filling critical positions. Fitch views management's demonstrated ability to recognize this budget variance and respond with effective mitigation as a credit positive. The city expects to end fiscal 2010 with an operating surplus despite an anticipated decline in sales tax and other economically sensitive revenue.
Glendale is located between Pasadena and Burbank in economically diverse Los Angeles County. The city has a significant tax and employment base of its own, including about one-third of the county's entertainment related jobs and an established retail sales tax base. Glendale's wealth levels are below the state average but trend above the county and national levels. The area's housing market decline and the national recession have had a somewhat moderate impact on Glendale, with assessed value (AV) increasing modestly for fiscal 2010 and the unemployment rate remaining below that of the county and state.
The city's unemployment rate has risen dramatically, though, reaching 11% in August 2009. The city expects AV to increase again in 2011, benefiting from the AV gain limitation imposed by Proposition 13 and the older age of many residential properties and the city's relatively low exposure to subprime mortgages. Nonetheless, Fitch notes that the city's exposure to negative amortization mortgages is above average, which could present vulnerability for AV in fiscal 2011. Also, Fitch believes the current national recession is starting to impact commercial values which also could impact future city AV. Glendale's top ten taxpayers comprise 9.7% of total fiscal 2008 AV, indicating moderate taxpayer concentration.
Debt levels remain low at $1,755 per capita and 1.6% of market value including overlapping debt. Amortization is about average with 46% repaid in 10 years.
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Contacts:
Fitch Ratings
San Francisco
Amy Doppelt, 415-732-5612
New
York
Jonathan Bodner, 212-908-0803
Cindy Stoller, 212-908-0526
cindy.stoller@fitchratings.com