Fitch Affirms Rohnert Park, California's COPs at 'A+'; Outlook Revised to Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the following rating on the city of Rohnert Park, California's (the city) obligations as part of its continuous surveillance effort:

--$3.6 million certificates of participation (COP) at 'A+'.

The Rating Outlook is revised to Stable from Positive.

The Stable Outlook reflects use of high fund balances in the current economic environment to balance operations.

RATING RATIONALE:

--The city's financial position remains sound, having entered the recession with sizable fund balance levels that have provided a financial cushion against sizable tax revenue declines in the past three years.

--Management actions to date have included revenue increases, including a new sales tax approved by voters and one-time revenues provided by land sales, as well as expenditure reductions.

--Recent city forecasts show budget gaps over the near term that will require further spending cuts or use of a significant amount of the remaining fund balance to address the fiscal imbalances.

--Given the city's dependence on economically sensitive taxes, its revenue base remains vulnerable to weak economic conditions.

--The overall debt burden is moderate and future debt plans are minimal, although amortization of principal is below-average.

--The city's economy continues to exhibit unemployment levels below the county and state averages and the city is largely built-out.

--The lease is a standard lease transaction, secured by the city's lease payments, subject to annual appropriation.

KEY RATING DRIVERS:

--Adoption of the final fiscal 2011 budget in August 2010, following budget hearings with the new city manager to discuss the assumed expenditure reductions and in light of the recently approved Measure E sales tax.

--Management and city council's ability to address the structural deficit in the next two years, while maintaining strong reserve levels over the next couple of years.

--Stabilization in tax revenues and assessed valuation levels.

SECURITY:

The certificates are secured by city lease payments subject to annual appropriation to the trustee (as assignee of the lessor) for use and occupancy of leased facilities. The city covenants to budget and appropriate annually for lease payments.

CREDIT SUMMARY:

The city, located approximately 45 miles north of San Francisco in Sonoma County, is home to approximately 40,496 people and has contracted by 2.1% since 2000. The city has a limited employment base, anchored by Sonoma State University and is in the process of implementing a general plan that includes commercial, industrial and residential development. Rohnert Park's economy has softened, evidenced by elevated foreclosures (9.7% of non-agency loans in 2009's fourth quarter), an increasing unemployment rate (9.8% in May 2010) and a sizable decline in taxable assessed values (TAV; 6% in fiscal 2010 and an estimated 4% for fiscal 2011). This TAV decline follows a healthy increase in TAV between fiscal years 2006-2009. Nevertheless, management expects the economy to start stabilizing in fiscal 2011 and has budgeted for a modest 1.7% increase in property taxes and expects year-over-year transit occupancy tax collections to remain flat. Taxpayer concentration remains low, with a diverse top 10 taxpayers that make up a modest 8.2% of TAV.

In recent years, strong revenue growth and prudent management practices positioned the city well to manage through the recession. In fiscal 2010 the city's unreserved general fund balance is projected to decline to a still robust $5.6 million or 22.6% compared to $9.6 million or 30.3% of spending. The city has continued its hiring freeze, implemented layoffs, reduced departmental budgets, and sold property in an effort to offset declines in its economically sensitive tax revenues. Moreover, the labor unions agreed to salary rollbacks and furlough days. Recently, the city passed a Measure E half cent sales tax that is expected to generate $2.8 million annually, for a period of five years. Even with these reductions, the unreserved fund balance is expected to decline to $3.6 million or 17.6% in fiscal 2011. As a result, management is in the process of identifying new revenue streams and further expenditure reductions in an effort to balance the city's budget in the near term. Budgetary pressures are expected to remain over the medium term, but the city is committed to maintaining adequate fund balance levels. Fitch views the maintenance of high financial reserves as crucial to preserving the city's current credit quality.

The city's debt position is manageable. Overall debt as a percentage of market value remains moderate at $3,621 per capita or 4% of market value, and amortization is slightly below average with 41.2% of outstanding principal repaid within 10 years. The city does not plan to issue additional debt in the near future, and has $6 million in redevelopment funds available for routine maintenance costs. As of fiscal 2010, the city's other post employment benefits (OPEB) costs are moderate at about $1,500,000 in pay-as-you-go costs, compared with $3,200,000 annual required contribution to prefund the liability. Due to market conditions the city is not in a position to create a self insurance fund or an irrevocable trust

Applicable criteria available on Fitch's website at 'www.fitchratings.com':

--'Tax-Supported Rating Criteria,' dated Dec. 21, 2009;

--U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.

Additional information is available at 'www.fitchratings.com'.

Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492466

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.