Fitch Rates San Joaquin County Transport Auth, CA's $200MM Sales Tax Rfdg Revs 'AA'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings has assigned a 'AA' rating to the following San Joaquin County Transportation Authority, CA (SJCTA) bonds:

--Approximately $200 million measure K sales tax revenue refunding bonds, series 2016 (limited tax bonds).

In addition, Fitch has affirmed the authority's measure K sales tax revenue bonds, 2014 series A (limited tax bonds) at 'AA'.

The bonds are expected to price via negotiation around Dec 1. Proceeds will be used to refund the authority's 2011 series A bonds.

The Rating Outlook is Stable.

SECURITY
The sales tax revenue bonds are payable from the half-cent retail transactions and use tax (sales tax) authorized by the voters in 1991 and reauthorized in 2006 and known as Measure K, net of the state's Board of Equalization administrative fee. The tax is levied throughout San Joaquin County (the county) and expires on March 31, 2041.

KEY RATING DRIVERS

Economic Resource Base: SJCTA is coterminous with San Joaquin County and is governed by a Board of Directors comprised of mayors and council members from each of the county's seven cites and supervisors from the county. The county covers about 1,448 square miles about 60 miles east of the San Francisco Bay and about 50 miles south of Sacramento.

Sound Revenue Growth: Fitch views growth prospects for pledged revenues as solid due to consistent population and employment growth in San Joaquin County, mixed income ratios and improving, although elevated, unemployment rates. The regional economy's growth is driven by the relatively lower cost of living relative to the San Francisco Bay Area and Sacramento and abundant developable land.

Security Resilient to Declines: Pledged sales tax revenues are moderately resilient to both cyclical declines and the return of historic volatility. Unaudited fiscal 2016 revenues cover MADS for existing and planned debt by 2.0 times (x).

No IDR: The authority does not own or operate a public transit system. Given the entity's relatively narrow administrative role overseeing the implementation of transportation programs funded through the Measure K sales tax, Fitch does not believe the assignment of an Issuer Default Rating (IDR) is relevant to its analysis.

RATING SENSITIVITIES
Reduced Coverage: Sharp and sustained declines in pledged revenues or leveraging of pledged revenues beyond the authority's policy limitation could lead to a negative rating action.

CREDIT PROFILE

Pledged Revenue Overview

The sales tax revenue bonds are payable from the half-cent retail transactions and use tax (sales tax) authorized by the voter-approved Measure K ordinance and levied throughout San Joaquin County (the county), net of the state's Board of Equalization (BOE) administrative fee. The tax base is broad and diverse, and Fitch views growth prospects for San Joaquin County as solid due to the likelihood of continued population and employment growth and availability of more affordable housing than the nearby Bay Area or Sacramento.

The BOE distributes the sales tax revenues on a monthly basis according to a predetermined formula with quarterly true-ups. Residual sales tax revenues following debt service payments are released to the authority for other purposes, including distributions to local jurisdictions, investments in capital projects, and administrative costs.

Security Exhibits Resilience

Legal provisions provide satisfactory protections for bondholders. They include an additional bonds test (ABT) of 1.5x maximum annual debt service (MADS) for bonds outstanding plus bonds to be issued. In addition, bondholders benefit from the authority's policy of limiting leverage to 2.0x MADS. The authority may issue up to $75 million in new money to take out a line of credit when it expires in 2019, but does not have any plans to issue new money parity bonds.

Fitch evaluates the revenue stream's sensitivity to economic downturns by considering both the estimated reduction in sales tax revenues under a 1% contraction in national GDP and the largest consecutive decline in actual sales tax revenues over the past 15 years. Current MADS coverage of 2.43x is quite resilient and has provided a large cushion against even the largest consecutive historical decline, a significant 24.6% drop from 2006-2010 during the last recession.

Fitch focused its resilience analysis on the authority's policy to maintain MADS coverage at 2.0x and Measure K's requirement that only 35% of pledged revenues be used for capital and debt. The analysis also incorporates estimated debt service associated with the planned $75 million refunding. Under this scenario, pledged revenues could withstand a 50% decline, providing a cushion more than eight times the estimated 6.2% decline in revenues in a typical recession (estimated 1% GDP decline) and two times the 24.6% largest historical decline. Given the outsized impact of the housing market collapse on the San Joaquin County economy, the rating incorporates Fitch's expectation that such a drastic decline in pledged revenues would not recur in future economic downturns.

SJCTA does not have material operations. Therefore, Fitch does not believe the assignment of an IDR is relevant to its analysis.

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/site/re/879478

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Contacts

Fitch Ratings
Primary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Graham Schnaars
Analyst
+1-415-732-7578
or
Committee Chairperson
Steve Murray
Senior Director
+1-512-215-3729
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Karen Ribble
Senior Director
+1-415-732-5611
Fitch Ratings, Inc.
650 California Street, 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Graham Schnaars
Analyst
+1-415-732-7578
or
Committee Chairperson
Steve Murray
Senior Director
+1-512-215-3729
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908-0526
elizabeth.fogerty@fitchratings.com