AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has affirmed the Regional Transportation Authority of Pima County, AZ 's (RTA) $229.5 million outstanding transportation excise tax bonds, series 2011 and 2014, at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are special obligations of the RTA, secured solely by a senior pledge of voter-authorized excise tax revenues levied by the RTA, whose boundaries are coterminous with Pima County. Payments of debt service are not subject to annual appropriation, nor are they subject to any constitutional or statutory limitations.
KEY RATING DRIVERS
Analytical Conclusion: The 'AA' transportation excise tax revenue bond rating is supported by a solid financial cushion and sound growth prospects. The coverage, even assuming issuance to the maximum level allowed under the indenture, provides ample cushion to absorb a downturn in expected revenues in a moderate recession.
Economic Resource Base: The RTA is located in Pima County Arizona (GO bonds rated 'AA' by Fitch), which has a population of about one million and is home to Arizona's second-largest city, Tucson.
Lack of Operating Risk: The RTA is a municipal taxing and bonding corporation. It has no operations and bears no project or construction risk. Therefore, Fitch does not believe an Issuer Default Rating is relevant to its analysis.
Revenue Growth Potential: Revenue growth prospects are strong, benefiting from a diverse and relatively stable regional economy and recent transportation infrastructure improvements.
Satisfactory Legal Provisions: Legal provisions include an additional bonds test requiring 2.0x coverage of parity maximum annual debt service (MADs).
Long-Term Liability Burden:
Fitch expects the overall long-term liability burden, 4% of personal income, to remain low based on a lack of authority issuance plans during the remaining 10 years of RTA's effective plan life and potential for additional overlapping debt. The authority has no defined benefit pension obligations.
RATING SENSITIVITIES
Coverage Adequacy: The rating is sensitive to shifts in cyclical pledged revenue declines that would adversely affect anticipated coverage levels.
CREDIT PROFILE
Pima County is home to Tucson, Arizona's second largest city, with a population of about one million. The county's diverse economy features higher education, healthcare, government, technology, tourism and manufacturing as primary anchors. The top 10 taxpayers represent the retail, healthcare, utility and mining sectors, comprising a modest 7% of total fiscal 2016 assessed valuation. Pima County's economy continues to perform well. Expansion is evidenced by 6% growth in fiscal 2016 market value, and Fitch anticipates additional near-term tax base growth based on regional trends and new development. The county's housing market continues to strengthen, as evidenced by a reported uptick in permits and housing starts.
Accelerated private investment in Tucson has been sparked by the 2014 completion of the Authority-funded Sun Link Tucson Streetcar, which extends from downtown to the University of Arizona campus. Major southern Arizona employers include the University of Arizona, Raytheon Missile Systems, Davis-Monthan Air Force Base, state and local government, Wal-Mart Stores Inc., Tucson Unified School District, U.S. Customs & Border Protection/U.S. Border Patrol, Freeport-McMoRan Copper and UA Healthcare.
RTA Formed to Coordinate and Fund Transportation Plan
The authority is a municipal taxing and bonding corporation, formed in 2004 to develop a 20-year multi-modal plan, the Regional Transportation Plan for Pima County (RTP). The voter-approved plan includes 51 roadway, safety, environmental and economic vitality and transit elements. Roadway improvements account for 35 projects at an estimated $1.2 billion, followed by eight transit projects at $534 million. During the first 10 years of the plan, RTA has completed 750 multi-modal projects improving regional mobility and safety, and spurring economic development. RTA members will soon begin discussing options to address additional mobility needs subsequent to the authority's current plan sunset date of June 2026.
The RTA board of directors has sole authority to implement elements of the transportation plan. The RTA board is composed of Pima Association of Governments (PAG) council members representing the cities of South Tucson and Tucson, the towns of Marana, Oro Valley, and Sahuarita; the Pascua Yaqui Tribe; the Tohono O'odham Nation, Pima County and a governor appointee from the Arizona State Transportation Board. PAG manages the RTA through a memorandum of understanding.
The authority serves as fiscal manager of the plan. Members manage the transportation projects through intergovernmental agency agreements (IGAs) and are reimbursed by RTA for allowable costs. RTA members must fund additional project costs in excess of the initial project estimates.
Voter-Approved Excise Tax
The voter-approved half-cent tax is assessed county-wide against a broad tax base including retail, contracting, utility, restaurant and bar, real and personal property, hotel and motel, communications tax base components. Revenues are collected by the Arizona Department of Revenue and deposited on a monthly basis into the bond account of the Pima County Regional Transportation Fund held by the depository on behalf of the authority. Remaining tax revenues are deposited in the construction account to pay for approved project costs.
Drivers of and Growth Prospects for Dedicated Revenue Steam
Solid growth prospects are supported by a diverse and relatively stable regional economy and recent transportation improvements. Fitch anticipates that future pledged revenue growth will exceed CPI. Growth since RTA's inception was muted by the housing bust that disproportionately affected Arizona to an extent that Fitch believes is unlikely to be repeated in the future.
Sensitivity and Resilience of Security through Economic Declines
Although not anticipated given limited remaining plan authorization, assuming issuance up to the 2.0x ABT, below current MADs coverage, the structure could maintain a financial cushion consistent with a 'AA' rating.
Fiscal 2015 pledged revenues of $74.2 million cover MADs a solid 2.7x. To evaluate the sensitivity of the dedicated revenue stream to cyclical decline, Fitch considers both revenue sensitivity results (using a 1% decline in national GDP scenario) and the largest consecutive decline in revenues over the period covered by the revenue sensitivity analysis. Given the limited pledged revenue history for the authority, Fitch used surrogate historical revenue data (Pima County privilege, use and severance tax data from 1999-2014) to assess pledged revenue volatility. Fitch's analytical sensitivity tool (FAST) generates a 5% decline in the authority's pledged revenues associated with a 1% decline in U.S. GDP using the surrogate Pima County data. The largest actual cumulative decline in historical revenues was 19.8% (2008 through 2010) using the surrogate data. Assuming issuance to the 2x ABT, the structure could tolerate a sizable drop in revenues, with 2.5x being the largest actual revenue decline. Fitch considers these results consistent with the 'AA' rating outcome.
Long-Term Liability Burden
The authority has $224.5 million of excise transportation bonds (series 2011 and 2014) outstanding secured by the county-wide transportation excise tax. Voters approved the levy of the tax for 20 years commencing July 1, 2006 and ending June 30, 2026 to fund the RTP (the bonds mature June 1, 2026).
The RTA does not plan to issue additional debt under its current authorization. In addition to the dedicated excise tax revenues, RTA receives federal and state funding. Additionally, the authority's board has committed use of future regional funds approximating $200 million to ensure full funding of the transportation plan. The authority has initiated preliminary discussions with stakeholder groups to discuss next phases of regional transportation planning beyond the scope of the current plan funding (through 2026). Fitch believes the long-term liability burden (4% of personal income) will remain low, incorporating the potential for increasing overlapping debt to support regional growth.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.
Applicable Criteria
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478
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