Fitch Rates Scottsdale, Arizona $65MM GO Refunding Bonds 'AAA'

Business Wire, Feb 8, 2005

AUSTIN, Texas -- Fitch assigns an 'AAA' rating to the Scottsdale, Arizona (the city) $65 milllion general obligation (GO) refunding bonds, series 2005. In addition, Fitch affirms the city's 'AAA' rating on $394.8 million of outstanding GO bonds. The series 2005 bonds are scheduled to sell on Feb. 8 via negotiation to a syndicate managed by Banc of America Securities LLC. Fitch withdraws the 'AAA' on the city's $47.7 million GO refunding bonds, series 2004; the series 2004 bonds were not sold due to unfavorable market conditions. The Rating Outlook is Stable.

The bonds are secured by a continuing direct unlimited ad valorem tax levied against all taxable property within the city. Proceeds of the bonds will be used to refund certain GO bonds outstanding for interest cost savings and to pay issuance costs.

The 'AAA' rating reflects the city's historically vibrant and diversified economy, exemplary fiscal management, strong financial performance, and high wealth indicators. Growth in the city has slowed to a more manageable level, the result of both the national recession and a reduction in land available for development. While the slowdown did negatively affect various revenue sources, the impact was largely muted due to spending reductions in various city departments. This prompt response is typical and demonstrates the strength of Scottsdale's comprehensive planning and forecasting practices. Fitch believes these fiscal policies and substantial reserves mitigate concerns about the city's reliance on the economically sensitive sales tax as an operating revenue source.

For the past decade, increasing valuation levels and sales tax revenues produced by the expanding local economy enabled city administrators to successfully address numerous growth-related demands on city resources and services. Evidence was provided by declining property tax rates, solid operating results, and substantial reserves, and the city has continued this string of strong performances despite the economic slowdown.

Since fiscal 1998 the combined property tax rate has declined from $1.57 per $100 valuation to $1.07 currently. The city's unreserved general fund balance at the end of fiscal 2004 was a healthy $62 million (26% of expenditures, transfers out, and other uses) despite declining more than $11 million from fiscal 2003 levels, largely as a result of defeasing outstanding debt. Budgeted 2005 expenditures indicate a modest $4 million drawdown of the general fund balance from fiscal 2004 budget numbers, but overall designations for general fund purposes is expected to see a slight increase with the city continuing its practice of maintaining at least 10% in emergency reserves.

Debt levels are moderate and a significant portion of the outstanding debt is supported by non-property tax revenues, thereby lessening the burden on property owners. Direct debt is less than 2% of full cash value and $2,500 per capita; overall debt levels are just under 3% of full cash value and $4,400 per capita. Debt retirement is slightly above average.

Scottsdale is located adjacent to Phoenix in Maricopa County, the largest population center in the state. Population in the city has increased 70% since the 1990 census, accompanied by significant gains in residential and commercial development. Secondary assessed value, from which debt service tax revenues are generated, increased by more than 9% for fiscal 2005 to $4.3 billion. This rate of increase is down slightly from the prior year, but consistent overall with the healthy gains experienced the previous five fiscal years. Construction spending levels remain down, although this trend is a function largely of the city's maturation and a reduction in land available for development.

Major employment sectors in Scottsdale include high technology, health care, tourism, and corporate/regional headquarters. Unemployment rates, which climbed during the economic slowdown, are trending downward and are significantly below state and national levels. Retail trade also is a significant component of the local economy, as evidenced by retail sales per capita levels that are roughly double those of the state and nation. Retail sales grew almost 9% in fiscal 2004 after two consecutive modest declines from the weakened economy. With improving conditions, budget estimates project a modest 3% growth for fiscal 2005.