TEXT-Fitch keeps San Rafael Redevelopment Agency TABs on watch negative

Tue Dec 18, 2012 5:03pm EST

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Dec 18 - 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-'.

SECURITY

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
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