Fitch Affirms Town of Fairfax, CA GOs at 'AA+'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings affirms the following Town of Fairfax, California's outstanding general obligation (GO) bonds at 'AA+'.

--$1.6 million GO bonds Series 2006.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by unlimited ad valorem property taxes on all taxable property within the town.

KEY RATING DRIVERS

STRONG FINANCIAL POSITION: The town's strong financial position reflects high unreserved general fund balances relative to spending and generally balanced financial performance.

STABLE REVENUES: The town's revenue base has remained stable due to the high percentage of revenue generated from property taxes and the stability of property values in the area. It is also assisted by a voter approved parcel tax that provides additional local support not common in other California cities.

LOW DEBT BURDEN: The town's debt ratios are low and no additional debt issuance is planned in the near future. The town makes its annual required contribution to its pension plans and has a very affordable unfunded other post-employment benefits liability.

RESILIENT LOCAL ECONOMY: The town benefits from its participation in the diverse and broad San Francisco Bay Area regional economy and features above average wealth levels, an unemployment rate below the state average, and a stable real estate market.

WEAK DISCLOSURE PRACTICES: The town's annual financial statements have been completed more than twelve months after the end of the fiscal year on repeated occasions over the past several years despite continuing disclosure agreements that promise such information with seven months.

CREDIT PROFILE
The town of Fairfax is a residential community of about 7,400 located in the southern portion of affluent Marin County, approximately 20 miles north of San Francisco. The resilient local economy benefits from its location and participation in the economically diverse San Francisco Bay Area. Unemployment rates in the County remain relatively low at 6.3% in May 2012, compared to the state and national averages of 10.4% and 7.9%, respectively. Wealth levels in Fairfax are above average with per capita income levels and median household income at 174% and 185%, respectively, of the national average.

STRONG FINANCIAL POSITION
The town's financial position remains strong and the general fund has achieved healthy operating surpluses in most recent years. Results for 2009 were an exception to this trend, with a net deficit of $953,000 (10.9% of spending) due in part to pension costs exceeding a parcel tax dedicated to this purpose. In fiscal 2010 the general fund returned to surplus operations, adding $1.4 million (20% of spending) to fund balance for a total unreserved fund balance of $3 million (47.2% of spending). Town officials report continued surplus results for fiscal year (FY) 2011 and FY12 based on higher than budgeted sales tax receipts and one-time state reimbursements.

Fairfax reduced personnel expenses for fiscals 2012 and 2013 by keeping several positions vacant and increasing pension contributions for the town's 28 employees, whose contracts expire in FY13. In addition, Fairfax voters approved a half-cent sales tax in November 2011 that is expected to offset potential future budget gaps. The town's small size and workforce limit options for reducing spending, but management actions to date demonstrate both an ability and willingness to make adjustments as necessary to maintain a balanced budget.

STABLE REVENUES
The town's revenues have remained relatively stable despite the nationwide economic downturn. This stability is largely due to the town's reliance on local property taxes, which comprised approximately 58% of total revenue in fiscal 2010. The town's relatively stable assessed value (AV) and diversity of ownership have supported the performance of this revenue source. AV contracted a very modest 1.1% from fiscal 2010 through fiscal 2012 and the top ten taxpayers comprise less than 3% of total AV.

Officials stated that the town has been affected by the nationwide housing slump, but has not had a significant increase in foreclosures or other signs of a distressed real estate market. In addition, the town receives support from a voter approved parcel tax that generated approximately $465,000 in fiscal 2010 or nearly 8% of total revenue.

WEAK DISCLOSURE PRACTICES
Audited financial statements for fiscal 2011 were not available at the time of this review and the town has a history of late filings. Financial statements were completed later than required in the town's continuing disclosure agreements for four of the last five fiscal years. Fitch views this deficiency as a limitation on the city's rating despite the notable strength of other credit factors.

MANAGEABLE LIABILITIES
Overlapping debt for the town is low at $2,926 per capita and 2% of fiscal 2012 assessed value (AV). According to management, the town's capital needs include transportation projects and general maintenance. Town officials plan on using designated funds and restricted revenue sources to make the improvements and do not plan on issuing any additional new money debt in the near future. The town participates in a statewide pension plan and makes its annual required contribution. In addition, the town has a $958,500 unfunded liability for other post-employment benefits, which is a very affordable 0.1% of AV.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Contacts

Fitch Ratings
Primary Analyst:
Stephen Walsh, +1-415-732-7573
Director
Fitch, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst:
Karen Ribble, +1-415-732-5611
Senior Director
or
Committee Chairperson:
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Stephen Walsh, +1-415-732-7573
Director
Fitch, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst:
Karen Ribble, +1-415-732-5611
Senior Director
or
Committee Chairperson:
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com