The Rating Outlook is Stable.
The bonds are secured by a senior lien on all tax increment revenues from the former Turlock Redevelopment Agency's (the RDA) sole project area net of any required housing set-asides and administrative charges.
KEY RATING DRIVERS
ADEQUATE AV CUSHION: The bonds are characterized by an adequate AV cushion, defined as the percentage of the one-time assessed value (AV) decline that the tax base can withstand while maintaining sum-sufficient coverage of maximum annual debt service.
NO IMPACT FROM ANALYTICAL REFINEMENT: Fitch recently refined its analysis of California TABs and is now considering their liens to be effectively closed and surplus housing revenues to be available to pay non-housing debt service. This action did not result in a material improvement of the TABs' credit risk profile, despite somewhat improved debt service coverage.
TAX BASE RECOVERY: The project area's tax base is improving after significantly contracting during the recession. The low incremental value to base value ratio had magnified pledged revenues' deterioration from assessed value declines.
MODERATE TAXPAYER CONCENTRATION: Top taxpayers are moderately concentrated both as a percentage of assessed value, and within the food production industry.
WEAK, NARROW ECONOMY: Agriculture and food production underlie the local economy's base. Socio-economic and labor metrics compare unfavorably to those of the nation.
AV CUSHION CHANGES: Significant shifts in AV resulting in meaningful shifts to the AV cushion could prompt a rating action.
The city of
ANALYTICAL REFINEMENT CONSIDERS POSITIVE EFFECTS OF DISSOLUTION
Although Fitch views these factors as positive credit characteristics increases to the AV cushion and debt service coverage for
Fitch formerly excluded positive dissolution factors from consideration, reflecting a conservative approach to a dissolution environment marked by legislative, administrative, and judicial uncertainty. Two-and-a-half years and six recognized obligation payments schedule (ROPS) cycles have passed since dissolution, during which the factors have benefited TAB credit quality with no successful legal challenges to date. Although uncertainties remain, Fitch views the continued presence of closed TAB liens and surplus housing revenue availability as more likely than not to remain a feature of California TABs.
MODESTLY IMPROVED DEBT SERVICE COVERAGE AND AV CUSHION
Two additional series of TABs (series 2006 and 2011) are ranked pari passau with the Fitch rated 1999 series. There are no housing bonds. Fiscal 2013 coverage of all parity maximum annual debt service (MADS) improved to 1.9x with the inclusion of surplus housing revenues, compared to the 1.5x achieved with non-housing revenues. Fiscal 2014 coverage inclusive of housing revenues is projected at 2.0x MADS. The AV cushion for the TABs rose to an adequate 23.9% from the low 18% based solely on the inclusion of non-housing revenues.
Tax increment revenues are sufficient to sustain other moderate stresses. MADS coverage would remain above 1.0x should the project area experience a repeat of the AV declines seen during the past recession. Historical appeals are moderate and a sustained increase would not materially diminish coverage.
RECOVERY SEEN IN INHERENTLY VOLATILE TAX BASE
The project area's tax base rose 2.1% in fiscal 2014, after a note-worthy 19% cumulative decline in the five years following the onset of the recession. Management reports that growth city-wide is projected at 5% - 8% for fiscal 2015, and that AV trends within the project area mirror those of the city. Fitch believes that the projections may be somewhat liberal, but that overall AV changes will be positive.
The project area's increment value (IV) to base year ratio equals a very low 91%, indicating very high revenue volatility. This low ratio resulted in disproportionate peak-to-trough IV declines during the recession, at a high 34%.
LARGE, CONCENTRATED PROJECT AREA WITHIN LIMITED ECONOMIC BASE
The project area, formed in 1993 and amended in 1996, consists of a significant 4,318 acres. It represents 40% of the city and includes some unincorporated portions of
Taxpayer concentration is moderate at 15% of AV but higher as a percentage of IV, at 32.6%. Several of the largest taxpayers are members of the food production industry.
The city's economic base reflects its location within the
The area continues to show weaknesses after being hard-hit during the recession. Unemployment remains stubbornly high at 10.3% in
SATISFACTORY AB1X26 IMPLEMENTATION
Fitch believes that the successor agency (SA) will continue to reconcile the timing difference in pledged revenue receipts (in January and June) and debt service payments (mostly in September). The state has indicated that the SA should incorporate prorated debt service in both of the semi-annual ROPS submissions, requesting property tax allocations as needed to compensate for semi-annual periods when such allocations would be insufficient to pay obligations due. Fitch believes that prorating allocations in this way will not pressure the SA's ability to pay debt service, given that the state will approve requested reserves in the period when property tax allocations would be insufficient.
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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