SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has affirmed the following ratings on Vista, California:
--$96.1 million Vista Joint Powers Financing Authority 2015 refunding lease revenue bonds (LRBs) at 'AA';
--Issuer Default Rating (IDR) at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from lease rental payments, subject to abatement, for use and occupancy of various city facilities, and are supported by the city's covenant to annually budget and appropriate for lease payments.
KEY RATING DRIVERS
The 'AA+' IDR reflects the city's strong operating performance, low long-term liability burden, and moderate fixed costs. The city's reliance on sales tax and limited legal ability to raise revenues could present challenges in adverse economic conditions, but strong reserve levels and budgetary flexibility are likely to offset such weaknesses.
Economic Resource Base
Vista is a residential community in northern San Diego county, 30 miles north of the city of San Diego, with a population of approximately 101,000. Wealth and income levels are below state and national averages but the city's tax base has grown steadily following a moderate decline in the last recession.
Revenue Framework: 'a' factor assessment
Revenues have outpaced inflation and U.S. national economic performance over the last decade, in part due to a local sales tax measure, but the city's legal ability to raise revenues is constrained by Proposition 13, which requires voter approval for tax increases.
Expenditure Framework: 'aa' factor assessment
The city, with a moderate fixed cost burden, has demonstrated a solid ability to manage spending at times of economic and revenue decline. On average, growth in spending is likely to be in line with revenue growth over time.
Long-Term Liability Burden: 'aa' factor assessment
The city participates in an adequately funded state pension plan and funds the bulk of its capital needs from current resources, resulting in a long-term liability total that is low relative to its resource base.
Operating Performance: 'aaa' factor assessment
Reserve levels are very strong and would allow the city to readily withstand a moderate recession scenario. Management has made consistent efforts to improve financial flexibility in the wake of the recession.
RATING SENSITIVITIES
IDR SENSITIVE TO FINANCIAL PERFORMANCE: The 'AA+' IDR could come under downward pressure if the city fails to maintain satisfactory financial flexibility, including reserves sufficient to address periodic economic volatility.
CREDIT PROFILE
Residents have access to the broad and diverse San Diego regional economy, which has experienced sustained growth in recent years. In addition, the city is home to a substantial business park employing more than 23,000 individuals across approximately 800 firms.
Revenue Framework
Property and sales taxes comprise the majority of city revenues. Property tax growth has historically been modest but steady, while sales taxes have proven more volatile.
Overall general fund revenue growth has exceeded inflation and U.S. economic performance historically and prospects for further growth appear solid.
The state constitution requires voter approval of tax increases, limiting the ability of the city to control revenues. Property tax growth is constrained by a fixed tax rate and an annual limit on assessed value increases on taxable property absent a change in ownership.
City voters approved a 30-year half-cent sales tax in 2006 which has contributed to recent revenue gains. Proceeds of the tax have supported various municipal services with an emphasis on public safety capital improvements.
Expenditure Framework
The city provides a broad range of municipal services with public safety accounting for the majority of general fund expenditures.
Based on the city's current spending profile, such costs are likely to be in line with, to moderately above, expected revenue growth.
The city's ability to reduce expenditures is constrained by a high share of costs for public safety and staffing levels that remain near recession lows. Fixed costs for debt service and retiree benefits are low to moderate, providing some offsetting flexibility to reduce costs if required.
Long-Term Liability Burden
Long-term liabilities are low relative to the city's resource base, and direct debt levels are minimal. The city participates in a state-sponsored pension plan and funding levels are adequate.
The city offers retiree health benefits under very limited circumstances and bears no material other post-employment benefit liability.
Operating Performance
City reserves are very high relative to expected revenue declines in a moderate recession scenario. Fitch expects that the city would demonstrate superior financial resilience in such circumstances.
The city budgets conservatively and has continued to improve financial flexibility since the last recession. Voter-approved sales taxes have been set aside to support capital improvements, the city has made one-time contributions to reduce long-term liabilities, and unrestricted general fund reserves are notably high.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the 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
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1007934
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1007934
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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