In addition, Fitch affirms the following rating:
--Implied City of Lynwood (city) unlimited tax general obligation bonds (GOs) at 'BBB+'.
The Rating Outlook is revised to Stable from Negative.
The lease revenue bonds are secured by lease rental payments from the city to the authority for use of various essential assets, subject to abatement. The bonds are also secured by cash-funded debt service reserve funds.
The city has no GO bonds outstanding.
KEY RATING DRIVERS
IMPROVED LIQUIDITY: The revision of the Outlook to Stable from Negative reflects the city's recent favorable resolution of deficit balances in its governmental and internal service funds. The city's resulting liquidity and reserve positions are adequate.
BUDGET CHALLENGES REMAINS: A return to deficit operations in fiscal 2014 (estimated) reflect ongoing fiscal challenges resulting from wage and other cost increases outstripping revenue gains. Modest contractual salary increases for fiscal 2015 will contribute to the city's pressured operations.
WEAK LOCAL ECONOMY: The city's economy remains weak but the recently improved unemployment rate primarily reflects employment gains. Its location within the large and diverse
STABLE, DIVERSE TAX BASE: The tax base is well diversified and has been growing modestly.
AFFORDABLE FIXED COSTS: Carrying costs, including annual debt service, pension and OPEB costs are moderate at about 14% of non-capital governmental spending. Direct debt amortization is average and the city's future capital needs are funded from various non-general fund sources.
GOOD LEASE SECURITY FEATURES: The 'BBB' lease rating reflects the city's GO credit characteristics as well as a one-notch distinction below the GO rating due to favorable security provisions that include a covenant to budget and appropriate lease payments for use of essential city assets.
FISCAL IMBALANCE: A return to significant structural deficit operations in the general or internal funds could negatively pressure the rating.
ADEQUATE RESERVES: A material reduction in liquidity could result in negative rating pressure.
The 4.9-square-mile city, with a stable population of approximately 70,000, is situated approximately 11 miles south of downtown
DEFICIT FUNDS PAID OFF
The revision of the Outlook to Stable from Negative reflects the city's improved financial position resulting from paying down deficits in governmental and internal service funds. In
As a result, Fitch will no longer discount the city's unrestricted general fund balance to reflect those deficits. Furthermore, the operating deficits in these funds have been eliminated so Fitch does not expect there to be loans from the general fund in the future. The projected budgetary fund balance for fiscal 2014 of about
DIVERSE REVENUES PROVIDES STABILITY BUT LIMITED GROWTH
The city benefits from diverse revenue sources, though the state constitution limits its ability to raise most revenues without voter approval. Property taxes are the largest contributor to general fund revenues at about 28%, followed by utility user tax (17%), sales tax (12%) and user charges (10%). Overall revenues decreased 3.6% on average annually from fiscal 2007-2011 but have grown modestly since then. Fitch believes the potential for larger gains is limited by the mature and built-out nature of the city and its limited sales tax base.
ONGOING BUDGET PRESSURES
The city ended fiscal 2013 with the first surplus (
For fiscal 2014, the city expects to return to deficit operations with a roughly
The fiscal 2015 budget is currently being developed. Given contractual increased labor costs (1%-2% raises for all employees), increases to the public safety contracts with
The local economy is weak, as exhibited by a 14%
Per capita income levels are extremely low at 43% and 46% of state and national levels, respectively. However, median household income levels are much higher at 72% and 84% of state and national levels, respectively.
The city reports improvement in the residential real estate market with prices up about 6% in
FAVORABLE DEBT PROFILE
The city's debt profile is sound overall. Overlapping debt levels are moderate at
Security provisions on the leases are strong, including a covenant to budget and appropriate. The 2003 lease revenue bonds are secured by lease payments for the city's transit center and the 2010 lease revenue bonds are secured by the city's corporate yard which houses maintenance and capital planning divisions. Both leases are subject to abatement and require standard rental interruption and liability insurance and benefit from cash-funded debt service reserve funds.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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