TEXT - Fitch affirms California's San Rafael Redevelopment Agency TABs
Feb 26 - Fitch Ratings has affirmed the ratings on San Rafael Redevelopment Agency (RDA), CA's tax allocation bonds (TABs) as follows: --$4.6 million TABs, series 1999 at 'AA-'. Fitch has removed the bonds from Rating Watch Negative. The Rating Outlook is Negative. 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 Negative Outlook reflects the on-going dispute between the city of San Rafael (the city) as successor agency (SA) to the RDA and the state's Department of Finance (DOF). The dispute relates to $1.7 million in property tax distributions from December 2011 and January 2012 that the state believes should have been directed to other taxing entities. POTENTIAL RESOLUTION: DOF has stated that they currently do not intend to enforce non-payment penalties while the matter is in dispute. DOF is working on a process for handling the disputes on a case by case basis, and has recently resolved similar payment disputes with other redevelopment agencies. Fitch views this as a positive development, but notes that until the dispute with the SA is resolved, potential risks to bondholders exist. PENDING DUE DILIGENCE REVIEW: The SA is currently working through a due diligence review of its non-housing funds, which is required under AB 1484 for all successor agencies. The results of this review must be submitted to DOF, which is expected to finalize its findings in the next three months. The SA has indicated that resolution of the AB 1484 payment dispute would follow final DOF findings on the review, potentially over a three month period. DECEMBER 2012 DEBT SERVICE PAYMENT MADE: The SA made the full Dec. 1, 2012 debt service payment from available funds. Funding for the calendar 2013 debt service payments were approved under the Jan. 1, 2013 to June 30, 2013 recognized obligation payment schedules (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. STRONG SERVICE AREA CHARACTERISTICS: The RDA benefits from its location within the large, diverse regional economy of the San Francisco Bay area. The project area's taxable assessed value (TAV), despite modest declines in recent years, provides for strong tax increment coverage of debt service. RATING SENSITIVITIES INSUFFICIENT FUNDS FOR DEBT SERVICE: 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. TAV for the project area was $2.4 billion in 2013, nearly 14.5x the base year value of $163 million. In 2013, TAV declined by 1.5%. This reflects a third year of modest decline after many years of steady increases. Fiscal year 2013 tax increment revenues still provide strong maximum annual debt service coverage of about 5x.
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