Fitch Ratings takes the following rating action on Anaheim Public Financing Authority, California (the authority) as part of its continuous surveillance effort:
--$44.4 million lease revenue bonds, series 2008 affirmed at 'AA'.
The Rating Outlook is Stable.
RATING RATIONALE:
--While the city's experienced management team is proactively implementing budget measures to respond to weakening revenues, particularly those generated by softening hotel and sales tax receipts, which account for over half of its total budget, the city drew down significant amounts from its unreserved general fund balance in fiscal 2010 and plans a similar drawdown in fiscal 2011.
--Taxable Assessed Value (TAV) declined by a modest 2% over the past two years despite the city's property market downturn.
--The city enjoys moderate taxpayer concentration, with the top 10 taxpayers representing 16% of TAV, of which Disney comprises 12.5%.
--In addition to the general unreserved fund balance, the city could tap approximately $50 million in fully funded internal service funds available in the event of an emergency.
--Per capita debt levels are low to moderate, and the city does not anticipate additional capital needs funded by its general fund.
--The lease revenue bonds are subject to annual appropriation, and are secured by essential pledged assets.
KEY RATING DRIVERS:
--Successful realignment of expenditures with softening revenues in order to maintain a general fund balance consistent with the rating level;
--Maintenance of solid reserves to bolster financial flexibility.
SECURITY:
The bonds are secured by lease payments to the authority subject to annual appropriation by the city, payable from any legally available funds. There is a leasehold interest in one police station, three fire stations, two youth centers, and a gymnasium.
CREDIT SUMMARY:
The 'AA' rating reflects the city's adequate financial performance. Despite making expenditure cuts of about $5.7 million in fiscal 2010 - primarily to police and community services - the city's unreserved general fund balance declined to $29.5 million, or 10.6% of expenditures net of transfers, from $47.7 million, or 16.3%, the prior year. The city expects to draw down an additional $12 million in fiscal 2011, despite the implementation of an additional $2 million in spending reductions, leaving the unreserved general fund balance at 5% to 6%.
Over the past couple of years, the city has experienced lower revenues, notably due to lower hotel occupancy taxes, which make up 30% of total general fund revenues, due to the economic downturn. In addition, sales taxes have declined by about $15 million, or 25%, in the past two years. However, the city has seen a rebound in TOT revenues in fiscal 2011, with year to date collections 6.8% above the prior year. Sales tax and property taxes for fiscal 2011 are currently at budget. In fiscal 2012, the city will still have a structural deficit of $6 million and management plans to identify additional cuts, such as reductions in positions and salaries. The city's approximately $50 million in fully funded internal service funds mitigates some of the concern over the structural imbalance.
Debt levels are low to moderate with net direct debt at approximately $1,500 per capita, or 1.8% of TAV. Overall net debt is about $2,950 per capita, or 3.4% of TAV. The city's overall five-year capital plan totals $525.1 million; however, most of the projects are utility-related. About $180 million included for the Anaheim Regional Transportation Intermodel Center (ARTIC), a public-private project on the eastern border of the Platinum Triangle designed to handle 11.2 million rail and bus passengers, is fully grant funded.
Anaheim, located in Orange County, is the 10th largest city in the state with a population of about 353,000 occupying the city's 50 square miles. The city's largest employer by far is Disneyland Resort (22,660 employees), which has added about 2,500 employees in the last two years. City unemployment rates have historically been greater than the county and nation and in line with the state; they were at 11.8% as of November 2010. While median household income is only 80% of the county, it is in line with the state and nation. Taxpayer concentration is moderate with the top 10 representing 16% of TAV, of which Disney represents 12.5%.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from CreditScope, UFA, LoanPerformance, Inc., University Financial Associates, Private Sector Operator, IHS Global Insight.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated Aug. 13, 2010;
'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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