Bond proceeds will be used to finance various transportation improvements and pay the costs of the bonds. The bonds will be sold via negotiation the week of
The Rating Outlook is Stable.
The sales tax revenue bonds are secured by revenue from the 1/2 cent retail transactions and use tax (sales tax) authorized by Measure K and levied throughout
KEY RATING DRIVERS
STRONG DEBT SERVICE COVERAGE: Maximum annual debt service (MADS) coverage is projected to remain strong at 2.14 times (x) based on fiscal 2013 revenues and performs well under various stress tests.
LIMITED FUTURE LEVERAGING: Management's additional debt issuance plans are limited and constrained by a satisfactory 1.5x additional bonds test (ABT) and formal policies established through the Measure K expenditure plan that maintain capital funding at low levels.
MODERATELY CONCENTRATED TAX BASE: Sales tax revenues are moderately concentrated with the top 10 revenue generators accounting for 16.7% of total revenues. Revenues are expected to reach a new high in fiscal 2014 after declining by a sharp 25% during the housing-led recession.
RECOVERING, LIMITED ECONOMY: The county continues to recover from the recession with an improving but still-high unemployment rate, above average employment growth, and new businesses entering the area. However, the economy is largely driven by agriculture and socioeconomic characteristics remain weak with below average income and education levels.
LIMITED OPERATING RISK: SJCTA benefits from its limited exposure to operational risks, the essential nature of Measure K's approved projects, and strong voter support.
UNEXPECTED ADDITIONAL LEVERAGING: Additional leveraging beyond current plans or beyond current leveraging policies may pressure the rating.
The authority provides funding for public transit systems and oversees the construction and improvement of roads and highways along with other transit projects. The authority does not own or operate a transit system. Given the entity's narrow role, Fitch believes the authority has limited exposure to operating risks from related transit agencies or the authority itself.
STRONG DEBT SERVICE COVERAGE
The bonds benefit from strong projected debt service coverage levels. Coverage of MADS on the outstanding parity 2011 sales tax bonds and the 2014 Series A bonds is 2.14x, based on fiscal 2013 revenues. Coverage levels are projected to remain sound under various Fitch performed stress tests.
The high coverage levels are protected to some degree by constraints on additional leveraging. Fitch views the 1.5x additional bonds test as satisfactory. However, the legal restriction is bolstered by management's commitment to maintain MADS coverage at 2.0x, which Fitch views as reasonable given the formal policies included in the measure K expenditure plan.
The Measure K expenditure plan dedicates sales tax revenues to various programs, with 35% set aside for capital funding projects. Management's revenue projections, which serve as the base for the expenditure plan's revenue allocation, assume a 4.4% annual growth rate through 2041. Fitch views this as mildly optimistic but within the county's historical average range of 2.4% and 4.6% over the past 10 and 20 years, respectively.
The board has the ability to modify the expenditure plan. Fitch does not anticipate any significant changes will be made to increase capital funding as increases in the absence of revenue growth would likely reduce the funding available to other programs supported with Measure K dollars with direct effects on board member constituencies.
Additional debt issuance plans consist of a potential
SALES TAX REVENUE PERFORMANCE
Sales tax revenues have recovered to near pre-recession levels after falling sharply from their previous high recorded in 2006 (
Sales tax revenue demonstrated economic sensitivity by declining by a sharp 25% during the housing-led recession as measured from the peak year (2006) to the bottom (2010). While the decline was dramatic, Fitch's concerns are somewhat offset by sound MADS coverage and management's very limited debt issuance plans.
Sales tax revenues are generated by a broad-based tax applied on all taxable transactions throughout the county. Sales tax generators are moderately concentrated with the top 10 businesses accounting for 16.7% of sales tax revenues in fiscal 2013.
The county's economy is driven by agriculture, transportation, and its location on the periphery of the
Countywide employment is diverse in terms of industry with government, education and health services, and retail trade as the top three sectors. However, the county's reliance on agriculture (87% of land area is occupied by farms and ranches) and agribusiness are viewed by Fitch as economically limiting. Unemployment rates in the county are structurally high, which is common in agricultural areas. Despite recent improvements, the unemployment rate remained a high 12.1% in
THE AUTHORITY AND MEASURE K
Measure K was extended with 78% of the vote in 2006. The 30-year extension began in
The SJCOG's 12 member board also serves as the authority's board and is comprised of 12 members representing each of the county's seven cities and the five county supervisors.
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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