Fitch Assigns Pasadena, California Refunding COPs 'AA'; Outlook Stable

SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' rating to the city of Pasadena's (Los Angeles County, California) $73.9 million refunding certificates of participation (COPs), series 2008C. Fitch also affirms the implied general obligation (GO) rating of 'AA+' and the 'AA' rating on the city's following obligations:

--$123.2 million (taxable) pension obligation bonds, series 1999A and 1999B;

--$24.9 million 1993 COPs (Refunding and Capital Projects);

--$7.3 million 2001 COPs (Capital Improvement Refunding Projects);

--$72.3 million variable-rate demand COPs (City Hall and Park Improvements), series 2003 (to be refunded by the refunding COPs, series 2008C);

--$27.1 million COPs, series 2006A;

--$134.7 million variable-rate demand refunding COPs, series 2008A;

--$27.7 million refunding COPs, series 2008B.

The Rating Outlook is Stable.

The series 2008C COPs are expected to sell via negotiation during the week of July 7, 2008.

The 'AA+' implied GO rating reflects the city's ongoing strong financial position, with good general fund balances and above-average reserve levels. The city's revenues are diverse, its debt levels are moderate, and its financial management policies are conservative, as evidenced by the recent decision to increase the general fund reserve minimum requirement in fiscal 2009. While wealth levels are above-average and assessed valuation growth has been solid, supported by a healthy local economy, the local residential property market is slowing. The city's job base is diverse and the unemployment rate is consistently below county and state levels. The city's pensions are well funded and there are no other post-employment employee benefit liabilities.

The 'AA' rating for the 2008 COPs reflects the strong lease features, including a master lease structure with several essential leased assets valued in excess of the outstanding COPs, a covenant to budget and appropriate, standard rental interruption insurance, and a common debt service reserve fund.

Pasadena is a mature community. In 2006, the city's population was an estimated 144,000 (based on census projections), the result of steady growth averaging 1.5% per year since 2000. As a regional employment center with a strong commercial sector, the city estimates that its daytime population almost doubles to 257,000. Tourism is an important industry, along with higher education and research and development. Despite a sizable student population, the city residents enjoy above-average socioeconomic status. Since fiscal 2001, taxable assessed valuation (AV) has grown an annual average of 8.8%. While the local residential property market is showing signs of softening, the commercial property market remains strong and AV is expected to continue to grow.

City finances benefit from good general fund balances, above-average reserve levels, and diverse revenue streams. The total general fund balance in fiscal 2007 declined from the prior year due to a planned drawdown for the city hall seismic retrofit project. Property, retail sales and use, and utility users taxes are the three most important revenue sources, representing 48% of general fund revenues. The general fund also receives annual transfers from its water and electric funds. As an example of the city's conservative financial management policies and practices, the city council increased its 8% general fund reserve policy to 10% with the adoption of the fiscal 2009 budget. While the city anticipates needing to close a small operating shortfall in fiscal 2008, it plans to align revenues and expenditures fully in fiscals 2009 and 2010, as additional tax revenues accrue from new commercial developments currently under development and the city considers what service modifications need to be made to ensure structural balance.

The city's debt burden is moderate. Direct debt is $3,777 per capita, or 2.8% of market value. Overall net debt is $5,374 per capita, or 4.0% of market value. While the overall net debt figure is reasonably large, it is offset by the city larger daytime population as a net importer of jobs, the population's above-average wealth levels, high market value per capita ($133,994), and some of the debt being supported by parking revenues.

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