Fitch Ratings has affirmed the following --
The Rating Outlook is Stable.
The bonds are secured by ad valorem property taxes, unlimited as to rate or amount, levied on all taxable real property in the city.
Key Rating Drivers
Above-Average Socioeconomic Characteristics: The city benefits from significantly above-average wealth levels and a diverse tax base that has fully recovered from slight TAV declines during the recession. The city includes both high-end residential communities and a large commercial component which is currently growing, while maintaining significant protected open space.
Strong General Fund Position: Following three years of drawdowns during the recession, the city has been successfully restoring its general fund balance, reserves, and liquidity through increased revenues, expenditure cuts, efficiency improvements, and labor concessions.
Sound Fiscal Management: In order to secure structural balance and increase the contingency reserve, the council directed the city's management team to focus on fiscal soundness, strengthening financial management policies and reporting, efficiency initiatives, and economic/business development.
Manageable Debt Burden: The city's debt profile is largely conservative with no plans to issue further debt. Retirement and post-employment liabilities are manageable, particularly given labor concessions and the setting aside of funds to pay down the city's relatively small OPEB liability. However, the weakly funded pension system will likely require contribution increases in the future and principal debt amortization is slow.
The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices, strengthening commercial sector, and rebounding property market. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
Above-Average Socioeconomic Characteristics
The city is a wealthy municipality located in southern
The city's tax base is diversified with a low 5.5 percent concentration among the top 10 taxpayers. There is a large economic base which includes auto dealerships, service sector employment, and private schools. After some business contraction due to the recession, there has been renewed expansion. The commercial sector continues to expand, new residential developments are underway, and the city is considering permitting applications for further commercial and residential development projects.
Strong General Fund Results
After general fund deficit spending in fiscal years 2008-2010, when the city failed to curb its expenditures during a period of declining revenues, the city returned to positive operations in fiscal years 2011-2013. During that time, a partially new management team focused on strengthening financial management, efficiency initiatives, and economic/business development. As a result, the city has been able to both increase revenues and reduce expenditures, with positive impacts on general fund balances, reserves, and liquidity.
The unrestricted general fund balance has grown from
During the fiscal 2011-2013 period, the general fund contingency reserve grew from 23.1 percent of current expenditures excluding capital improvement project transfers (less than the minimum 25 percent policy goal) to 38.1 percent. The contingency reserve is on target to reach 47.8 percent in fiscal 2014 and 50 percent (the maximum policy goal) in fiscal 2015. In addition to this reserve, the city also has access to borrowable funds in the event of an emergency from the facilities operations fund (
The city's general fund liquidity position is much improved. At fiscal 2013 year end, the cash and investments balance was a strong
Manageable Debt Burden
Due to significant pay-as-you-go capital financing, the city's debt burden remains low and consists mostly of general obligation bonds and tax allocation bonds issued by the city's former community redevelopment agency. Including overlapping debt, total obligations were
The series 1998A debt service fund has a
The city contributes its full annually required pension contribution to the Orange County Employers' Retirement System each year (
While the city funds OPEB on a pay-as-you-go basis, it has a manageable OPEB unfunded actuarial accrued liability of only
The city's fiscal 2013 debt service, pension ARC, and OPEB pay- go costs represented a manageable 16.7 percent of its total governmental spending that year.
Additional information is available at 'fitchratings.com'.
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Fitch Ratings has affirmed the following