TEXT - Fitch rates California Ventura Cty Public Financing Auth

Mon Feb 4, 2013 4:37pm EST

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Feb 4 - Fitch Ratings has rated Ventura County Public Financing Authority,
California's (the authority) bonds as follows:

--$293.1 million lease revenue bonds (LRBs) series 2013A at 'AA';
--$10.9 million lease revenue refunding bonds series 2013B at 'AA'.

The bonds will sell via negotiated sale on or about February 27. Proceeds from 
the series 2013A bonds will be used to construct a replacement wing for the 
county's medical center, to pay down $20.7 million of the county's commercial 
paper program, and to make other improvements. The 2013B bonds will defease the 
county's outstanding 2003 certificates of participation for net present value 
savings.

In addition, Fitch assigns the following rating to Ventura County, California 
(the county):

--Implied general obligation bonds (GOs) at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The LRBs are secured by payments from the county to the authority for use of 
three essential assets, subject to abatement. Additional security includes a 
debt service reserve fund (DSRF) funded at 50% of maximum annual debt service 
(MADS).

SENSITIVITY/RATING DRIVERS

SOLID FINANCIAL OPERATIONS: The 'AA+' implied GO rating reflects the county's 
good financial operations, exhibited by a sound financial cushion, years of 
operational surpluses, prudent expenditure reductions and pension reform 
measures, and a significant degree of remaining expenditure flexibility.

SOLID LEGAL STRUCTURE: The LRB's one-notch distinction from the GOs reflects the
sound legal structure, including a covenant to budget and appropriate lease 
payments, essential leased assets, standard insurance provisions, and 24 months 
of rental interruption insurance. However, the DSRF is sized to just half of IRS
maximum levels.

ABOVE AVERAGE LOCAL ECONOMY: The moderately diverse local economy is strong, 
with high income levels, a fairly mature tax base, and adequate access to the 
large and diverse Los Angeles employment market. However, less mature portions 
of the county's housing market were significantly impacted by the recession, and
unemployment data is mixed.

SOUND DEBT PROFILE: The county's debt burden is low to moderate, capital needs 
after this issuance are limited, and the other-post employment benefits (OPEB) 
liability is minimal. However, debt amortization is slow and the sizable 
unfunded pension liability is projected to result in significant future 
contribution hikes.

GOOD MANAGEMENT PRACTICES: The county is working towards meeting its sound 
minimum fund balance policy, the budget must be structurally balanced by policy,
and labor relations are good. There also appears to be good alignment between 
management and policymakers with regard to implementation of conservative 
management practices.

CREDIT PROFILE

Ventura County serves a population of 832,000 residents, bordering Los Angeles 
County to the southeast and Santa Barbara to the northwest. The county benefits 
from adequate access to the large and diverse Los Angeles employment market, and
the local economy is reasonably well-diversified.

HISTORICALLY AGRICULTURAL ECONOMY NOW MODERATELY DIVERSIFIED

In recent decades the county has diversified away from its agricultural roots, 
with major employers in government, health care, technology and military. 
However, agriculture still plays a significant role in the economy, with 
residents supportive of policies meant to prevent conversion of farmland to 
other uses. The county's largest employer is the Naval Base Ventura County, with
17,000 employees. 

The local economy benefits from average to above-average income levels. Median 
household income equals 125% and 146% of state and national levels, 
respectively, though per capita levels are on par with the national average. 
Poverty levels of 9.9% of the population also compare well to the state and 
national rates of 14.4% and 14.3%, respectively.

Employment levels contracted significantly in 2009 and have not yet fully 
recovered. Nonetheless, employment has expanded over the past two years, and 
November 2012 unemployment registered at 8.6%, which compares favorably to the 
state's 9.6%, but is higher than the 7.4% national average.

DIVERSE, MODERATELY RESILIENT TAX BASE

The county's tax base is well-diversified, with the top 10 payers making up just
4.1% of AV. The tax base performed moderately well during the recession, with a 
one year 3.3% contraction in fiscal 2010 followed by very mild reductions in 
fiscal years 2011 and 2012. This performance was helped by the maturity of a 
significant portion of the county's housing stock, particularly in coastal 
regions. The county's December 2012 home values are a significant 29% lower than
at their 2006 peak.

AV in fiscal 2013 grew slightly by 0.6%, and Fitch believes the tax base is well
positioned for stronger growth in fiscal 2014 based on the county's solid home 
price appreciation over the past year. Zillow indicates the county's average 
home value increased 8.6% year-over-year through December to $427,700. If 
sustained, this increase could significantly increase AV for properties subject 
to Proposition 8 value reductions (approximately 30% of properties according to 
management), and likely will result in an inflationary adjustment to a 
significant portion of homes not subject to Proposition 8. The county is 
projecting a 2% AV gain in fiscal 2014, which Fitch believes is reasonable, if 
not somewhat conservative.

SOUND FINANCIAL PERFORMANCE, BUT RISING PENSION COSTS

The county's financial performance has been very good, with four consecutive 
years of general fund operating surpluses and expectations of surplus in fiscal 
2013. General fund operations in fiscal 2012 resulted in an $18.9 million 
operating surplus (after transfers), raising the total and unrestricted fund 
balances to sound levels of $249.6 million (29.3% of expenditures and transfers 
out) and $161 million (18.9%), respectively.

The county's fiscal 2013 budget is structurally balanced, as required by county 
policy, but the county tends to budget expenditures conservatively, and is 
out-performing year-to-date. 

The county has implemented prudent and incremental expenditure reductions and 
significant pension reforms, but has not had to make severe cuts to programs and
staff. As a result, the county's expenditure flexibility remains high.

The county has been able to produce operating surpluses by freezing wages, 
eliminating positions through attrition, and implementing efficiencies. The 
county has also negotiated for both sworn and non-sworn staff to pay a portion 
of their pension costs in recent years, while modifying pension benefits to 
prevent pension spiking and establishing less generous benefit tiers. 

COUNTY MEDICAL CENTER ON SOUND FINANCIAL FOOTING

The county runs a medical center. Fitch does not view this as a material credit 
weakness because the center has been financially well-managed and the county's 
operating subsidy has held steady at $15.2 million annually for five years. 
County policy caps the subsidy at this dollar amount moving forward. Net of the 
subsidy, the hospital has increased its net assets in each of the past 
consecutive five years, and is projected to generate surpluses over the next 
five years. Management believes that recent years' federal health legislation 
will financially benefit the system.

COUNTY LIKELY TO FACE SIGNIFICANT PENSION COST ESCALATION 

The county offers Ventura County Employees' Retirement Association (VCERA), a 
defined benefit plan for most of its employees. The actuarially funded ratio for
fiscal 2011 was 80.6%, but drops to an adequate Fitch-adjusted 72.6% after the 
discount rate is lowered to 7% from 8%. The unfunded liability likely will 
narrow faster than many other pension systems' due to a rapid 15 year 
amortization period and no investment loss corridor.

However, pension cost hikes are projected to out-pace revenue growth over the 
next few years, resulting in four years of moderate projected operating deficits
ranging from $6.3 million to $14.3 million. Fitch expects that the county will 
continue to adhere to its policy of structurally balancing its budget.

SOUND DEBT PROFILE

The county's debt profile is good overall, but is weighed somewhat by slow debt 
amortization and the formerly mentioned pension cost concerns. Approximately 25%
of principal retires in 10 years. Repayment is slow because most of the county's
debt is new and not because debt is back-loaded. 

The county's net debt burden is a moderate $2,563 per capita, or a low to 
moderate 2% of AV, including the series 2013 bonds. The county has no exposure 
to variable rate debt, and its capital needs are small after this issuance. The 
county's OPEB obligation is minimal, consisting largely of an implicit subsidy.

Carrying costs (debt, pension, and OPEB costs including the new debt as a 
percentage of operating expenditures) are low to moderate at 14.9%, but likely 
to rise moving forward as pension costs escalate. 

GOOD LRB LEGAL PROVISIONS

The LRBs include a standard lease-leaseback arrangement, a covenant to budget 
and appropriate lease payments, and three essential leased assets. The assets 
include the portion of the Ventura County Medical Center that will not be under 
construction, a jail, and a juvenile justice center. These assets 
over-collateralize the bonds, and will be substituted for the entire medical 
center (including the wing being funded by this issuance) upon construction 
completion. 

Insurance provisions are standard, including requirements for general liability,
casualty, and title insurance. The structure also includes 24 months of rental 
interruption insurance. The debt service reserve fund is cash funded and sized 
at just 50% of MADS, as opposed to the IRS maximum of 100%. However, Fitch views
the legal structure as sufficiently strong that a related notching distinction 
is not warranted.
FILED UNDER:
A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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