Fitch Rates Tucson, Arizona's $6MM Street & Highway User Revs 'AA-'

Business Wire, June 2, 2005

AUSTIN, Texas -- Fitch Ratings assigns an initial 'AA-' rating to Tucson, Arizona's (the city) $6 million senior lien street and highway user revenue bonds, series 2000-D (2005). The bonds are scheduled to price June 16 via competitive bid. Fitch also assigns an 'AA-' rating to the city's $53.8 million of outstanding senior lien street and highway user bonds. The Rating Outlook is Stable.

Repayment will be solely from a senior lien on revenues derived by the city from the highway user taxes and all other taxes, fees, and charges collected by the state and returned to the city for street and highway purposes as prescribed by law. Proceeds will be used to fund street projects.

The 'AA-' rating reflects solid debt service coverage, sufficient liquidity, and limited plans for future borrowing from this source. Also considered in the rating is the population and point of origin consumption-driven distribution formula for highway user tax revenues. Tucson continues to experience less rapid population growth as compared to other Arizona cities, which has resulted in decreasing point of origin sales, contributing to a slowing, though still positive, rate of growth of highway user tax revenue collections for the city.

Highway user tax revenues consist of motor vehicle fuel taxes, motor vehicle registration fees, motor vehicle licenses taxes, motor carrier fees, motor vehicle operator's license fees, and other miscellaneous fees and revenues. Highway user tax revenues are collected by the state and deposited into the state highway user fund until distributed. Arizona cities and towns receive 27.5% of highway user tax distributions. One-half is distributed to cities and towns on the basis of population in proportion to all cities and towns in the state. The remaining one-half is distributed, first, on the basis of county origin of sales of motor vehicle fuels within the state, and second, to cities and counties on the basis of population in proportion to all cities and towns in the county.

Utilizing actual fiscal 2004 revenues of $46.2 million results in debt service coverage of 5.2 times (x) for maximum annual debt service (MADS) on senior lien bonds, and 2.7x on MADS for all highway user bonds, including the $146 million junior lien bonds outstanding. There is no remaining street and highway user revenue bonding authority and the city has no immediate plans to seek additional voter authorization. All street and highway user revenue bonds outstanding, including this issue, will mature by 2018.

The liquidity position of the city's highway user revenue fund was strong with cash and investments representing more than 5 months of operations at the end of fiscal 2004. This level represented nearly 60% of expenditures and transfers out. Operational activities are recorded in this fund, which is the allowable use of surplus revenues. Although cash reserves were sound at the end of this period, it is uncertain what the impact of the next mid-decade census will be on revenues the city receives and, in turn, on operations, as well as capital funding.

Legal provisions provide adequate bondholder protections. They include an additional bonds test of 2x MADS for senior lien bonds outstanding and to be issued, as well as 1.5x of MADS for senior lien and junior lien bonds outstanding and bonds to be issued.