TEXT-Fitch rates Indio PFA, Calif. lease revs 'BBB'

Oct 1 - Fitch Ratings has assigned the following rating to the Indio Public
Financing Authority (authority) lease revenue bonds:

--$23.4 million lease revenue refunding bonds, series 2012 (public capital
improvements) at 'BBB'.

In addition, Fitch assigns an 'A-' implied general obligation (GO) bond rating
to the city of Indio (city).

Proceeds will be used to refund a portion of the authority's 2007A bonds and all
of the authority's 2007B bonds. The bonds are expected to sell competitively on
Oct. 10.

The Rating Outlook is Stable.

SECURITY
The lease revenue bonds are limited obligations, secured by the city's covenant
to budget and appropriate annual lease rental payments for use and occupancy of
the essential and non-essential assets, subject to abatement. Additional
security is provided by a standard cash funded debt service reserve fund,
property insurance, and two years of rental interruption insurance. Leased
assets include the city's public works yard, a senior center, and three parks.

KEY RATING DRIVERS

IMPROVED FINANCIAL PERFORMANCE: The 'A-' GO rating reflects the city's improved
financial performance under a new management team, with positive financial
margins in fiscals 2011 (adjusted) and 2012 (unaudited) and the restoration of a
positive unrestricted general fund balance. The fiscal 2013 budget is balanced
without the use of reserves or other one-time revenues.

SECURITY FEATURES: The lease revenue bonds are rated two notches below the
city's GO rating, reflecting the non-essential nature of the majority of the
leased assets, abatement risk, and the city's weak though improved financial
position.

VULNERABLE FINANCIAL PROFILE: Notwithstanding recent improvements, the city's
overall financial profile remains vulnerable with low unrestricted general fund
reserves, negative fund balances in two internal service funds, liquidity
pressures, and future budgetary challenges stemming from increasing costs
associated with labor, benefits, and other city commitments.

HIGH DEBT RATIOS: Overall debt levels are high due to overlapping debt. The city
has no additional planned debt issuances. The amortization rate is slow with
only 39% of outstanding principal retired within 10 years.

LIMITED ECONOMY: The city's economic profile is characterized by a relatively
high unemployment, below average income levels, and a contracting property tax
base.

CREDIT PROFILE

IMPROVED FINANCIAL PERFORMANCE; LOW RESERVES

The city's financial performance improved significantly in fiscals 2011 and 2012
(unaudited) after several years of large operating deficits led to a negative $4
million (-7.2% of spending) unreserved general fund balance in fiscal 2010.
Under a new management team, the city aggressively reduced expenditures by
implementing furloughs equal to 10% of worker's salaries, reducing the city's
workforce, and re-organizing the city's management structure for significant
savings. In addition, the city benefited from revenue increases associated with
a voter-approved increase in the utility user tax and a rebound in sales and use
tax revenue.

Fiscal 2011 was the first year of balanced general fund performance since fiscal
2008. After adjusting for a one-time revenue increase from the sale of property
($1.6 million) and a one-time cost of recognizing a loss on property held for
resale ($3.5 million), the general fund recorded a small operating surplus of
approximately $46,000 (0.1% of spending). Financial results improved in fiscal
2012 (unaudited) with a net operating surplus of $1.5 million (3.3% of spending)
after adjusting for one-time revenue ($2 million) resulting from a restructured
lease agreement with the Indio Water Authority.

The city's unrestricted general fund balance (combined committed, assigned, and
unassigned fund balances under GASB 54) increased to an unaudited $1.9 million
(4.2% of spending) in fiscal 2012. While the ending balance is still low, it is
the city's first positive ending balance since fiscal 2009. The increased fund
balance and growing cash reserves have mitigated some of the city's liquidity
concerns. Management expects to utilize internal borrowing to meet cash-flow
needs in fiscal 2013 and does not plan to issue cash-flow notes.

BALANCED 2013 BUDGET; FUTURE BUDGETARY CHALLENGES

The city's fiscal 2013 budget is balanced without the use of reserves or other
one-time revenues. Fitch believes overall revenues are projected conservatively
with an estimated 6.3% decline compared to fiscal 2012 (unaudited) levels.
Expenditures are budgeted to decline by 3% after the city eliminated 13
positions, including 11 lay-offs. The city is ending furlough days to meet work
demands as building permit issuances and other city services are increasing.

The city faces continuing budgetary challenges from rising labor and pension
costs and other commitments that include debt service on the lease revenue bonds
and other loans. In addition, the city has negative balances, though declining,
in two internal service funds (Risk Management and Buildings) with a total
negative balance estimated at $1 million at the end of fiscal 2012. To address
these challenges, management has adopted more comprehensive and forward-looking
budgetary practices than used previously. Most significantly, these practices
include quarterly budget reporting with five year forecasts that explicitly
state and quantify upcoming obligations.

Management's ability thus far to correct structural deficits and cure the
negative unrestricted general fund balance offset some of Fitch's concerns
regarding the future budgetary challenges. However, a reversal of the positive
actions to date, including the use of reserves or other one-time measures to
balance financial operations would exert negative pressure on the rating.

HIGH DEBT BURDEN

The city's overall debt burden is high at $5,819 per capita and 7.7% of taxable
assessed value (AV). The high debt loads are generally due to overlapping debt
issued by the local school district and community college district, Riverside
County, and Indio's numerous special districts. Indio has no additional debt
issuance plans following the refunding as capital needs are reportedly minimal
after significant local investment prior to the recession. Outstanding debt
amortizes at a slow rate with approximately 38.5% of outstanding principal
retired within 10 years.
OTHER LONG-TERM LIABILITIES MODERATE

The city participates in a statewide pension program and makes its full annual
actuarial contribution. In fiscal 2011, the city reported that its total pension
contribution was $2.8 million or 6.1% of general fund spending. Management
estimates that this increased to $3.2 million (6.8% of fiscal 2011 spending) in
fiscal 2012. Future contribution increases are likely due to investment losses
and a recently lowered assumed rate of return. While the city did not have an
estimate of cost-savings associated with the pension reform recently signed by
the Governor, most of the changes are expected to provide medium and long-term
benefits.

The city funds other post-employment benefits (OPEB) on a pay-as-you-go policy.
In fiscal 2011, the city contributed $1.5 million or 3.1% of spending. The full
actuarially based annual required contribution was $3.2 million or 6.9% of
spending. The city does not plan on prepaying the plan's unfunded liability,
estimated at $36.5 million (0.6% of fiscal 2012 AV). Fitch expects future
increases in annual OPEB contributions to continue exerting budgetary pressure.

LIMITED ECONOMY

Indio is a general law city that covers approximately 33 square miles of the
Coachella Valley in Riverside County. The city experienced rapid population
growth over the past decade with a 4.3% compound annual growth rate and an
estimated population of 77,780 (2011). During the city's large annual festivals,
including the Coachella and Stagecoach music festivals, the city's population
nearly doubles generating additional revenues for the city from hotel and sales
taxes and providing additional employment opportunities. Music festival
promoters and the city are working on a long-term agreement to replace the
current contract set to expire in 2013 that would keep, and potentially expand,
the music festivals in the city.

The city's wealth indicators point to below-average wealth levels. In 2010, per
capita and median household incomes were 73% and 85%, respectively, of the state
average, although both measures were only modestly below the regional average.
In addition, the individual poverty rate was 19.7%, which is significantly
higher than that of the state (13.7%) and regional area (14.1%).

Indio has a rapidly growing labor force and a regional labor market that
includes most of Coachella Valley. However, the unemployment rate is a high
13.6% (June 2012) despite a 2.2% increase in year-over-year employment. Local
employers are non-concentrated and include different levels of government,
healthcare, retail, and construction. Additional growth in governmental jobs is
expected as the county undertakes a significant expansion of a jail and the
College of the Desert builds a new satellite campus in the downtown area.

The local property tax base contracted 20.4% from fiscal 2009 through fiscal
2012 due to foreclosures and significant declines in home values. However, the
rate of AV decline slowed to 1.5% for fiscal 2013 compared to 5.3% for fiscal
2012. The housing market is showing some signs of stability with relatively flat
home prices and limited residential construction.

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.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria