(Continued from this City of Redding press release…)
SAN FRANCISCO — As part of its continuous surveillance effort, Fitch Ratings has affirmed the rating on Redding Redevelopment Agency, CA’s bonds:
–$14 million outstanding SHASTEC Redevelopment Project tax allocation bonds series 2006 at ‘A-‘. The Rating Outlook is Stable.
KEY RATING DRIVERS:
Large Project Area Tax Base: Comprising nearly 5,000 acres, the SHASTEC project area is large with significant developable land. Despite recent modest assessed valuation (AV) declines in fiscal 2011, the tax base remains stable at $351.9 million with a good 174% incremental value (IV) to base year AV ratio.
Moderate Concentration: SHASTEC’s tax base is a mix of commercial, retail and aircraft properties with moderately high top 10 taxpayer concentration.
Adequate Debt Service Coverage: Annual senior bond debt service coverage has exceeded 1.6 times (x) the past three years. For fiscal 2011, the agency conservatively estimates coverage at an adequate 1.4x as a result of AV declines. Any further decline in coverage will put downward pressure on the rating. Coverage performs adequately under various Fitch stress tests.
Good Annual Tax Increment Collections: Tax increment collections remain strong despite some weakening. Since the agency does not participate in the Shasta County Teeter Plan, the SHASTEC project area receives all penalty payments on delinquent tax increment collections.
Adequate Legal Provisions: Additional parity debt issuances are required to meet a 1.25x maximum annual debt service (MADS) test from senior revenues.
Limited Additional Debt Issuance Expected: The agency has contracted with the city to fund capital projects from surplus revenue and, as a result, does not anticipate issuing additional parity debt.
Legislative Changes: Recently approved legislation requiring annual payments to the state to continue to operate redevelopment agencies was not a material factor for this rating as it appears debt service would continue to be paid from net incremental revenues. The matter is being litigated, and in August 2011, the California Supreme Court issued a stay on agency debt issuance and required payments to the state until a ruling is made, currently expected in January 2012. Fitch will continue to monitor the situation.
The bonds are secured by a senior lien on all tax increment revenues of the SHASTEC redevelopment project area net of any required set-aside and pass-through payments.
Project Area: The SHASTEC project area, formed in 1996 and amended in 2006, encompasses nearly 5,000 acres and is a joint project undertaken by the City of Redding, City of Anderson, Shasta County and their related redevelopment agencies. The project area has significant developable area and was created to promote new and support existing development around the City of Redding Municipal Airport. The project area includes Stillwater Business Park a 700 acre portion of the project area adjacent to the airport which is suitable for office and industrial development. Steady annual double-digit tax base growth over the past decade slowed in the past two years to 0.9% in 2010 and a 7% decline in 2011 but the tax base remains large at $352 million, compared to a base year value of $128 million. The top 10 taxpayers comprise a moderately high 20% of the project area’s total AV in 2011. Taxpayers are led by Sierra Pacific Industries’ whose aircraft are based at the Redding Municipal Airport and comprise 3.5% of the total. Pending valuation appeals are minimal following county-wide proposition 8 adjustments over the past two years.
Coverage Ratios: Following steady increases between fiscal years 2006 and 2010, annual pledged revenues (after set-asides and pass-throughs) have stabilized around an estimated $1.4 million in fiscal 2011 and continue to provide adequate coverage of senior MADS estimated at over 1.4x and 1.31x for total debt service, which includes a subordinate loan with the city. Further declines in coverage levels would place downward pressure on the rating. Fitch stress tests indicate MADS coverage in fiscal 2012 of a low 0.9x based on a 4% AV decline plus the loss of the top 10 taxpayers reflective of the project areas higher taxpayer concentration. An immediate AV decline of 20% would be required for senior MADS coverage to fall to 1.0x. Debt service coverage levels are expected to remain sound given the low likelihood of additional debt issuance. Annual senior debt service is level around $950,000 through final maturity in 2025. The SHASTEC project area fund balances were sound at $6.9 million estimated at fiscal year end 2011 following payments to fund state required educational revenue augmentation fund payments of over $850,000 for fiscal years 2010 and 2011 combined. Those payments were subordinate to senior debt service.
Economy: The City of Redding (population 91,561 in 2010) is located 160 miles north of Sacramento in Shasta County and serves as a regional commercial, retail and medical hub for the northern California counties of Shasta, Tehama and Trinity. Leading local employers include the city and county governments and several medical facilities. Significant tax base growth over the past decade slowed over the past three years and is expected to remain stable given the city’s full slate of services. City financial performance remains sound despite slowed revenues including property and sales taxes with an unreserved general fund balance of $4.5 million or 7% of expenditures for fiscal year 2011. The local rate of unemployment remains above state and national levels and most recently was 15% in June 2011. While the local cost of living is low, median household income indicators remain 17% and 37% below national and state levels.
-from press release
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