Fitch Rates Santa Monica Public Financing Authority, California $38.6MM Bonds 'AA+'

Business Wire, Nov 23, 2004

SAN FRANCISCO -- Santa Monica Public Financing Authority, California's $38,575,000 lease revenue refunding bonds, series 2004 (Civic Center Parking Project) are rated 'AA ' by Fitch Ratings. The issue will sell competitively on Nov. 30. The financial advisor is Public Resources Advisory Group. Fitch also affirms the 'AAA' rating on Santa Monica's $25 million in general obligation bonds.

The rating reflects Santa Monica's very high credit quality and this issue's strong lease features including a needed asset and the city's equity contribution to the project. The city's economy, characterized by a tourism base with stable underpinnings and growing entertainment, high technology, and multimedia employment, is recovering well from a recession and tourism-related downturn. Economically sensitive taxes have returned to growth, benefiting the city's already healthy finances. Strong management is highlighted by long-term planning, sizable financial reserves, and substantial cash contributions to capital projects. The city's debt burden is low.

The bonds are secured by lease payments mad by the city to the authority for a new parking structure in the civic center area with proximity to downtown. Parking is in high demand in both areas. The project's funding includes an equity contribution from the city equaling 10% of construction costs. The city covenants to budget and appropriate for the lease payment, which, once appropriated, is a general fund obligation. However, the city expects these payments to come from tax increment revenue from its redevelopment agency's earthquake recovery project area. This revenue claim is subordinate to debt service on the agency's own bonds and the housing set aside, and the tax increment revenue is not pledged to the 2004 bonds. The available tax increment revenue provides strong coverage of debt service on the new issue.

Tourism remains key to Santa Monica's economy, although diversity exists as well in entertainment, high technology, multi-media, and health care companies. The tourism base has strong underpinnings, including beachfront, high quality hotels, recreation, and entertainment. Recently, tourist activity is recovering from the nation recession and traveler reluctance. Sales and hotel tax revenue increased in fiscal 2004 for the second year and each is expected exceed the fiscal 2001 peak by at least 6%. Assessed value continued to rise, averaging 8.4% annually since fiscal 2000 but slowing to a still high 5.3% for fiscal 2005. Income levels are above the county and on par with the state, while unemployment is below the other entities' levels.

Financial operations benefit from the city's underlying economic strength and sound fiscal policies, with very high fund balances and prudent reserves. Recent budgets have shown spending restraint in order to match weaker performance by economically sensitive taxes. However, this volatility partially has been offset somewhat by the more stable property and utility taxes. The city's general fund ran operating surpluses in three of the last fiscal years, with one of the deficit years expected for fiscal 2004 based on unaudited results. However, much of the losses reflect planned spending for capital projects. The fiscal 2004 total fund balance remains very high at $175 million or 86.4% of spending. Sound management practices include by five-year forecasting, financial monitoring, and recognition and response to revenue shortfalls. Fund balance levels are very high, with prudent reserves held for numerous one-time uses.