Fitch Rates Marin Emergency Radio Auth, CA's Special Parcel Tax Rev Bonds 'AA-'; Outlook Stable

Fitch Ratings has assigned an 'AA-' rating to the following bonds issued by the Marin Emergency Radio Authority, CA (MERA, or the authority):

--$33 million 2016 special parcel tax revenue bonds.

The bonds are expected to sell via competition on or around May 5. Proceeds will be used to finance the replacement of a multi-jurisdiction and county-wide public safety and emergency radio system (the system).

The Rating Outlook is Stable.

SECURITY

The bonds are payable solely from a first and prior lien on special parcel tax revenues levied and collected by the County of Marin on each taxable parcel of real property within the county. The authority will fund a debt service reserve sized to the standard three prong test.

KEY RATING DRIVERS

STABLE REVENUE SOURCE: The 'AA-' rating is based on the very stable pledged revenues provided by the Measure A (Marin County Emergency Communications and 911 Response Measure) special parcel tax levy. The levy is a fixed charge per parcel collected by the county, which guarantees the full levy amount under the Teeter Plan.

ADEQUATE DSC: The authority is able to leverage to 1.1x based on the additional bonds test. Debt service coverage (DSC) based on the assumption of leveraging to the additional bonds test of 1.1x stands up well to a stress scenario based upon the cumulative decline in the number of parcels over 11 years of 1.4%.

NON-CONCENTRATED TAX BASE: The tax base is primarily residential and there is no concentration among top taxpayers.

NO IDR: Given the authority's limited operations, Fitch has not assigned an Issuer Default Rating (IDR). MERA's operations are funded through payments from MERA members (the county and 24 cities and districts in the county) and contracted out to the county.

RATING SENSITIVITIES

Reduction in Parcels: The total number of parcels in the county has decreased 1.4% over the past decade. However, even in a severe scenario contemplating annual decline in revenues (not parcels) of 1.4%, DSC breaks even by maturity. The rating could be pressured should this trend accelerate.

CREDIT PROFILE

MERA is a joint powers authority (JPA) that includes the county, all 11 cities in the county and 13 special districts, was established in 1998 for the purpose of owning and operating a county-wide public safety, public service, and emergency radio system (the system). Its governing board, which is composed of a representative from each JPA member, has an appointed nine-member Executive Board responsible for administration and management. MERA has two contract employees, the executive officer and operations officer, and it contracts with the county for the operation and maintenance of the system.

STABLE PLEDGED REVENUES

The 'AA-' rating is based on the very stable pledged revenues provided by the Measure A (Marin County Emergency Communications and 911 Response Measure) special parcel tax levy. The levy is a fixed charge per parcel collected by the county, which guarantees the full levy amount under the Teeter Plan. The ABT of 1.1x is adequate relative to the limited historical and expected volatility.

Pledged revenues totaled $3.55 million in fiscal 2016, equal to 1.24x maximum annual debt service (MADS). Debt service payments are level through maturity in fiscal 2035, the same year as the parcel tax expiration. Fiscal 2016 is the first year of collection of the parcel tax levy. As such, Fitch's analysis of possible revenue volatility is based on a proxy using the historical number of parcels. During the period of 2006 through 2016, the number of parcels declined 1.4% overall and did not have a single year decline greater than 0.3%.

There is no concentration in the tax base with the top 10 parcel taxpayers representing just 2.3% of revenues and less than 1% of the total number of parcels. Approximately 90% of the total parcels are single family residential; this category generates about 66% of the total revenue.

ABT AND STRUCTURE

Measure A, approved by 67.14% of voters in November 2014, has a 20-year term through bond maturity in fiscal 2035. Parcel taxes are collected by the county on the property tax bill. Under a financing agreement between MERA and the county, the county is to transfer all special parcel tax revenues to the trustee on each December 15, April 15, June 15, and July 31 for debt service. Surplus funds are transferred to MERA and are restricted to future project capital spending. The trust indenture requires a debt service reserve funded based on the lesser of 100% of MADS, 10% of par, or 125% of AADS. The additional bonds test is 1.1x MADS on existing and new parity bonds based on revenues from the most recent audited fiscal year.

CAPITAL NEEDS LIMITED TO SYSTEM

The system is a county-wide wireless radio communication system which includes towers and site equipment, dispatch consoles, microwave equipment, and 2,900 vehicle-mounted and portable radios. In response to an FCC order requiring that MERA give back current UHF-T band frequencies, the system is being replaced. The $43 million new system, called Next Gen System, is intended to increase reliability and capacity and expand geographic coverage.

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

In addition to the U.S. Tax-Supported Rating Criteria, this action was informed by information from CreditScope.

Applicable Criteria

U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478

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