The Rating Outlook on the excise tax revenue bonds is revised to Negative from Stable.
The Rating Outlook on the COPs remains Negative.
The bonds are secured by a subordinate lien on 1/2 of state sales tax collected on activity within district boundaries. The bonds are also payable from appropriated amounts under certain limited circumstances by the city of
The COPs are secured by lease payments from the city of
KEY RATING DRIVERS
DOWNGRADE REFLECTS EXTREME VOLATILITY: The downgrade of the excise tax bonds results from extreme sales tax volatility, resulting in part from a predated and chronic history of tax collection control failures.
PROCEDURAL TAX COLLECTION PROBLEMS: The Negative Outlook reflects uncertainty over how long it will take for the district to insure that collections accurately reflect sales activity within the district.
ECONOMIC RECOVERY UNDERWAY: Regional recovery from the severe recession continues at a moderate pace, as evidenced by a number of economically sensitive indicators. The regional economy remains diverse and relatively stable, with a good mix of higher education, military and government employment.
COP RATING REFLECTS OBLIGOR CREDIT: The district's COPs rating reflects the general credit characteristics of the city of
COVERAGE ADEQUACY: The investment grade rating on the excise tax revenue bonds assumes resolution of the district's operational issues, pledged revenue improvement and coverage stability consistent with the underlying activity in the district.
COPS DEPENDENCY ON
Rio Nuevo MFD is a public improvement district and a political taxing subdivision of the State. The district covers downtown
VOLATILE REVENUE TRENDS
The district's pledged revenues have been exceptionally volatile, sliding 48% between fiscal 2007 and 2010 due to recessionary pressures, gaining 42% in fiscal 2011 benefiting from a construction activity, and dropping 27% during fiscal 2012 and 2013. Officials project a further 8% pledged revenue decline in overall fiscal 2014 revenues.
It appears that the most recent downward trend of pledged revenues reflects the district's inability to accurately collect and monitor sales tax revenues given the lack of access to taxpayer data. Officials report that they will soon receive access to taxpayer data pursuant to an intergovernmental agreement underway with ADOR which will provide information to equip management to confirm that all eligible businesses within the district are properly filing tax returns and to accurately monitor collections. Fitch believes this remains a significant risk to pledged revenue performance regardless of economic activity.
WEAK DEBT SERVICE COVERAGE
Fiscal 2013 pledged revenues of
Fiscal 2014 pledged revenues of
BELOW-AVERAGE ADDITIONAL BONDS TEST
The series 2008 subordinate lien excise tax bonds are the only issue of outstanding excise tax bonds, although the indenture provides for a senior and junior lien issue.
Issuance of additional bonds would require coverage of 1.25x including debt service on new bonds, which Fitch views as a below-average additional bonds test (ABT). Recent weak coverage levels preclude additional issuance, and the district reports no new debt issuance plans in the near term.
The indenture provides for a monthly distribution of excise tax revenue into the subordinate lien revenue fund account in amounts equal to 1/10th of the interest and principal due in the succeeding year until requisite funds are on deposit.
The district was formed in 1999 by the cities of
CHALLENGES REMAIN DESPITE DEVELOPMENT UPTICK
The district and the city executed agreements between 2011 and 2013 providing clarity on property ownership and clearing the path for downtown development projects. A modest
Public and private investment in the district has accelerated in recent months, due in part to the new street car rail system that extends from downtown to the university campus. Development includes new restaurants, retail, and firm plans for a new
COPS RATING LINKED TO
The city of
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
111 Congress Ste. 2010
Source: Fitch Ratings
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