Fitch Affirms San Rafael Redevelopment Agency, CA's TABs at 'AA-'; Outlook Negative

Fitch Ratings has affirmed the ratings on San Rafael Redevelopment Agency (RDA), CA's tax allocation bonds (TABs) as follows:

--$7.8 million tax allocation bonds (TABs), series 1999 at 'AA-'.

The Rating Outlook remains 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

RESOLUTION OF PAYMENT CALCULATION ISSUE ALMOST FINAL: A disagreement between the city of San Rafael (the city) as successor agency (SA) to the RDA and the state's Department of Finance (DOF) related to property tax distributions the state believed should have been directed to other taxing entities is expected to be resolved over the next three months in the SA's favor. Fitch views the potential resolution positively; however, until the issue is resolved, potential risks to bondholders remain.

STRONG DEBT SERVICE COVERAGE: Coverage of maximum annual debt service (MADS) remains strong. Even after recent year tax base declines, MADS coverage by 2014 revenues is about 5x.

STRONG TAX BASE AND ECONOMY: 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. Project area TAV returned to growth in 2014, with additional growth projected in the near term.

RATING SENSITIVITIES

RESOLUTION OF THE PAYMENT CALCULATION ISSUE: The anticipated final resolution of the payment issue eliminating the SA's payment obligation would result in a revision of the Outlook to Stable.

CREDIT SUMMARY

The city of San Rafael (Fitch implied general obligation rating of 'AA' with a Stable Outlook) is located in the San Francisco Bay Area and is both the county seat and largest city within the wealthy county of Marin. The city's redevelopment agency operates within a single project area located in the central San Rafael business district and east San Rafael.

SERVICE AREA CHARACTERISTICS REMAIN STRONG

San Rafael 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 unemployment rate, 5.5% in November 2013, remains below state (8.3%) and national (6.6%) averages. Personal income and wealth indicators are well above average.

TAV for the project area was $2.4 billion in 2014, nearly 14.9x the base year value of $163 million. TAV saw modest annual declines in fiscal years 2011 through 2013, after many years of steady increases. TAV returned to growth in 2014 (3.1%), with additional growth projected in the near term.

STRONG DEBT SERVICE COVERAGE

Coverage of MADS remains strong despite prior year tax base contraction; fiscal year 2014 revenues (less the 20% housing set aside) covers MADS about 5x. Coverage stands up well to various Fitch-designed stress scenarios, including the loss of the top 10 taxpayers. A TAV decline of over 70% would be required to reduce debt service coverage to 1.0x MADS.

The SA made full June and December 2013 debt service payments from available funds. Funding for the upcoming June 2014 debt service payment has been approved under the July to December 2013 recognized obligation payment schedules (ROPS).

The SA retains access to housing set-aside revenues no longer restricted to this purpose following the dissolution of redevelopment. Fitch's methodology conservatively excludes such revenues from coverage calculations, as they are not pledged to debt service payment on non-housing TABS, but they appear to be available to the SA should it require them for such purposes.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates,S&P/ Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=818153
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