Fitch Maintains San Rafael Redevelopment Agency, CA's TABs on Rating Watch Negative
Fitch Ratings maintains the Rating Watch Negative for the following San Rafael Redevelopment Agency (RDA), CA tax allocation bonds (TABs):
--$4.6 million TABs, series 1999, 'AA-'.
The bonds are secured by a first lien on gross tax increment on all taxable property within the agency's sole project area, less a 20% set-aside for low and moderate-income housing.
KEY RATING DRIVERS
AB 1484 DISPUTE CONTINUES: The City of San Rafael (the city) has been recognized as the successor agency (SA) to the RDA. The bonds remain on Rating Watch Negative pending resolution of the on-going dispute between the SA and the state's Department of Finance (DOF) regarding the repayment by the SA of property tax distributions from December 2011 and January 2012 that the state believes should have been directed to other taxing entities. The SA disputes the amount due ($1.7 million) and has instead made a payment of about $148,000.
POTENTIAL RESOLUTION: DOF has stated that they currently do not intend to enforce non-payment penalties while the matter is in dispute. DOF further stated it is working on a process for handling the disputes on a case by case basis with more details expected to be released in the near term. Fitch views this as a potentially positive development, depending on the process' details, but notes that until the dispute is resolved, risks to bondholders are elevated.
DECEMBER 2012 DEBT SERVICE PAYMENT MADE: The SA made the full December 1, 2012 debt service payment from available funds. Funding for the payment was approved under the July 1, 2012 to Dec. 31, 2012 recognized obligation payment schedules (ROPS). Funding for the next two debt service payments, due June 1, 2013 and Dec. 1, 2013 were approved under the Jan. 1, 2013 to June 30, 2013 ROPS. Unlike the June 1, 2012 debt service payment, which the County of Marin made directly to the bond trustee, the Dec. 1 debt service payment was made by the SA from funds received from the county approved under the ROPS.
WHAT COULD TRIGGER A DOWNGRADE?
A final resolution with DOF leaving the city without sufficient funds to continue to pay debt service could result in a downgrade, possibly to below investment grade.
SERVICE AREA CHARACTERISTICS REMAIN STRONG
The City of San Rafael is located in the San Francisco Bay Area and is both the county seat and largest city within the County of Marin. It benefits from its participation in the diverse regional economy of the San Francisco Bay Area and has traditionally featured strong employment, wealth, and income indicators. The city's redevelopment agency operates within a single project area located in the central San Rafael business core and east San Rafael.
Taxable assessed valuation (TAV) for the project area was $2.4 billion in 2012, nearly 15 times the base year value of $163 million. In 2012, TAV declined by 1.1%. This is still a relatively strong performance compared to most jurisdictions and reflects a second year of modest decline after many years of steady increases. Tax increment revenues still provided strong debt service coverage of about 5x in fiscal year 2012.
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 Fitch's 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, and 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
U.S. Local Government Tax-Supported Rating Criteria
Stephen Walsh, +1 415-732-7573
Fitch, Inc., 650 California Street
San Francisco, CA 94108
Maria Coritsidis, +1 212-908-0514
Amy Laskey, +1 212-908-0568
Elizabeth Fogerty, +1 212-908-0526 (New York)