Fitch Rates Tucson Rio Nuevo Dist., Arizona COPs 'A+'

AUSTIN, Texas--(Business Wire)--
Fitch Ratings has assigned its 'A+' rating to the Rio Nuevo Multipurpose
Facilities District (the district), AZ $11.8 million certificates of
participation (COPs) (City of Tucson Convention Center Expansion Project),
series 2009. The bonds are scheduled for a negotiated sale the week of Oct. 12.
Proceeds will be used to finance certain improvements to the Tucson (the city)
Convention Center, finance design and development costs of a convention center
hotel, and pay issuance costs. In addition, Fitch affirms the 'AA' rating on the
city's $254.1 million outstanding general obligation (GO) bonds and the 'AA-'
rating on the city's $202.4 million outstanding COPs. The Rating Outlook is
Negative.

The 'A+' rating reflects the general credit characteristics of the city and the
primary security for the bonds, which are payments from the city that are
subject to annual appropriation. The city's general credit profile reflects its
diverse and generally sound local economy, reliance on economically sensitive
revenues and moderate direct debt profile. The Negative Outlook reflects a
weakened financial profile, the result primarily of significant declines in
local sales tax and state shared income tax revenues that are expected to
continue into fiscal 2010. The city has taken a number of steps to reduce
spending and identify additional revenue sources in an effort to stabilize its
financial position. Fitch will monitor these efforts, and notes that any further
deterioration in the city's overall financial profile would not be consistent
with the current rating category and likely would result in a rating downgrade.

The certificates represent undivided proportionate interests in a lease
agreement between the district and trustee. The lease agreement provides that
lease payments are payable from funds the district receives from the city of
Tucson pursuant to a sublease agreement. There is no master lease associated
with these certificates and the city does not own the project at lease maturity.
The city's sublease payments are subject to annual general fund appropriation by
the mayor and city council. Principal payments on the certificates will begin in
2012 upon final maturity of approximately $10.1 million of outstanding series
2002 parity certificates.

The district was formed in 1999 by the Tucson and the city of South Tucson for
the purpose of developing and redeveloping downtown Tucson. The district's
master plan includes cultural, residential, commercial, office and mixed-use
developments. The district comprises 658 acres and stretches from downtown
Tucson along Broadway Boulevard, encompassing Park Place Mall and El Con Mall,
the 2nd and 3rd largest shopping malls in the city. The district is governed by
a four-member board, two members of which are selected by both Tucson and South
Tucson.

Tucson's reliance on state and local sales tax collections and state income tax
revenues to fund operations makes the city susceptible to changing economic
conditions, and the current recession is presenting a significant challenge to
elected officials and administrators. Both local sales tax and state shared
revenues have registered sizeable drops in recent months, and the city is
anticipating further weakness into fiscal 2010. The general fund reported a net
loss for fiscal 2008 of $23 million, and the unreserved fund balance dropped
roughly 40% from the prior year, reaching $31 million, or 6% of spending, from
$51 million (10%) the prior year. Liquidity also declined sharply in fiscal
2008, although this decline was driven largely by the transfer out of unspent
certificate proceeds for capital spending. The city is anticipating another draw
on operating reserves for fiscal 2009, with the unreserved general fund balance
expected to decline by roughly $13 million; at this level, the unreserved
balance would be less than 5% of spending, well below the city's 10% policy.

The city has responded on a variety of fronts to the revenue losses, including
continuation of a retirement incentive program that was instituted in 2006, a
freeze in all positions except public safety and mission critical areas, and a
reduction in operating subsidies/transfers. The fiscal 2010 budget continues
with these efforts, with reductions in all department budgets, the elimination
of 400 positions citywide, a reduction in paid holidays from 10 to 5, and a
decrease in city contributions for employee benefits.

Tucson is the second most populous city in Arizona, with an estimated population
of nearly 545,000, and was the 30th largest city in the nation according to the
2000 U.S. census. At more than 50% built-out, growth of the city's residential
base has slowed from its peak in 2001, when it recorded 3,800 single-family home
permits; only 638 new housing permits were issued in 2008. Although the Tucson
housing market experienced less rapid rates of price appreciation than other
Arizona municipalities, the median single-family home price in the city has
dropped measurably in recent months - roughly 25% since 2006. The most recent
residential delinquency and foreclosure rates, however, are below the national
averages.

Services, military, and government are the area's prominent employment sectors.
The military presence in the Tucson area is substantial with U.S. Army
Intelligence Center, Fort Huachuca, and Davis-Monthan Air Force Base employing
more than 14,000. Government employment totals more than 20,000, and public and
higher education, including the University of Arizona main campus, employs more
than 25,000. Retail trade, manufacturing, and tourism also are important
components of the local economy. Unemployment levels historically have been
below those of the state and nation. The July 2009 rate of 9.4% was up
significantly from the same period last year, and was consistent with the state
average but slightly below the national average for the month.

Total debt levels for the city are moderate and amortization of GO debt is well
above average at nearly 80% retired in 10 years. The city's $1 billion five-year
capital improvement plan is slightly less than the previous plan; the major
spending categories are transportation ($588 million) and water ($276 million).

Additional information is available at 'www.fitchratings.com'.

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Fitch Ratings, Austin
Steve Murray, 512-215-3729
Mark Campa, 512-215-3727
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com

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