FITCH RATES SANTA CRUZ, CALIFORNIA'S $7MM LEASE REVS 'AA-'
Fitch Ratings-San Francisco-06 November 2007: Fitch Ratings assigns an 'AA-' rating to $7 million City of Santa Cruz, California's (the city) 2007 lease revenue bonds (public library and water department project). The bonds will be sold competitively on Dec. 4, 2007 and Fieldman, Rolapp & Associates is serving as the city's financial advisors. Fitch also affirms the 'AA-' rating on the city's 2001 certificates of participation (civic center improvement project) and the 2004 lease revenue bonds (Santa Cruz golf course improvement project). The Rating Outlook is Stable. The 'AA-' rating reflects the city's solid financial position, diverse revenue base, sound financial management, low debt burden and strong lease structure. Credit risks are medium to long term and are centered in the potential for ongoing expenses to increase faster than the mature revenue base. The city responded quickly to the economic downturn in the early 2000's through attrition and slow wage growth. As a result, the city will face competition for labor with higher paying neighboring municipalities. Fitch believes the city will take the necessary steps to maintain long term fiscal balance. Bond proceeds will be used to finance the acquisition and improvement of a building to be used by the public library and water departments, but the leased asset is the police department's administration offices building, valued at approximately $7.7 million. Bonds are secured by lease payments made by the city for use and occupancy of the police station; however, the city anticipates using water department revenues and library-dedicated sales tax revenues on a budgetary basis. Legal features are standard including a covenant to budget and appropriate for the lease payments and rental interruption insurance. Santa Cruz is located about 30 miles south of San Jose on California's central coast. As the county seat and location of one of the University of California campuses, the city's economy benefits from a stable core of employment and related economic activity. The university accounts for about 27% of the city's approximately 55,000 residents. Developable land is largely built out, resulting in moderate population and assessed valuation (AV) growth potential. Nonetheless, AV gains averaged a good 7.3% annually from fiscal 2000-2008, the result mostly of redevelopment and infill projects, and property sales returning AV to market value. The property tax base is diverse, composed mostly of real estate holdings, with the top ten taxpayers representing just 3.6% of total AV. The city has a history of solid financial performance, ending with the last three fiscal years with surpluses. During the economic slowdown in the early 2000's, the city responded quickly to slowing revenue growth with several mid-year budget cuts. As a result, the city's unreserved fund balance levels remained strong; unaudited estimates for 2007 show a total fund balance of about $25 million, or 37% of spending. Total fund balance averaged 25% of spending since fiscal 2002, with the unreserved and undesignated portion averaging a healthy 14%. The fiscal 2008 budget conservatively projects about a $900,000 drawdown, but the city typically ends the year better than budget. Financial operations benefit from the diverse revenues notably led by charges for services (30%), and followed by sales taxes (20%) and property taxes (19%). The city's debt levels remain low, and including planned issuances are expected to remain affordable. Including this issue, direct debt is about $400 per capita and 0.3% of market value. Including overlapping taxing entities, debt ratios are moderate at $2,870 per capita and 2.4% of market value. Amortization is below average at about 33% in ten years. Contact: Karen Ribble +1-415-732-1756, Amy Doppelt +1 415-732-5612 or Scott Monroe at +1-415-732-5618, San Francisco. Media Relations: Cindy Stoller, New York, Tel: +1 212 908 0526.
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