During the course of routine surveillance, Fitch Ratings has affirmed Lodi, California's (the city) approximately $23 million of outstanding certificates of participation ([COPs] 2002 Public Improvement Financing Project) at 'A+.' The Rating Outlook has been revised to Negative from Stable.
The 'A+' rating on the COPs reflects the city's improved liquidity and solid fund balance levels. The moderately low debt burden is expected to remain manageable given the city's limited capital needs and control of population growth. The rating also incorporates slowed economic expansion attributable to the significant weakness in the residential real estate sector. Wealth levels are below the national average but equal or exceed those of the region. Lease provisions are standard and payments equal to debt service are subject to appropriation. The Outlook revision to Negative reflects Fitch's concern that continued deterioration in the housing market could weaken the economy's momentum and pressure budgetary flexibility. Stress from the housing market downturn has resulted in reduced property tax collections. Reserve levels have shown volatility during this decade; continued reduction of financial flexibility and depletion of recently attained reserve levels might prompt negative credit movement.
Located in California's Central Valley, approximately 34 miles south of Sacramento and 90 miles east of San Francisco, Lodi's regional economy is heavily dependent on agriculture, primarily wine-grapes, nuts, fruit, and milk. As a result, the city economy includes a substantial food processing industry in addition to other basic local services. Population growth is considerably slower than the county and surrounding communities, given city growth control ordinances. Unemployment rates have declined from over 10% in the early 1990s to 7.7% in August 2008, well below the county's 10.2% but above state and national averages of 7.6% and 6.1% respectively. Wealth levels are below the national average.
The city's sound financial position represents a turn-around from the depleted reserve levels of a few years ago. The unreserved fund balance at the end of fiscal 2007 equaled 11.9% and preliminary estimates indicate a decline to 9.8% at the conclusion of fiscal 2008, a level still consistent with the rating category and well above the 0.4% of fiscal 2004. The enhanced liquidity has been attained in spite of reduced payments in lieu of taxes from the electric fund (rated 'BBB+' Positive Outlook by Fitch). Simultaneously, the city has improved reserve levels in its electric, water, and wastewater fund, and eliminated deficits in internal service funds. Nevertheless, the deteriorating housing market has already resulted in property tax collections below budget in fiscal 2008, and further decreases are projected for the current fiscal year. Assessed valuation (AV) grew a modest 1.7% in fiscal 2009, in contrast to the 9.4% average annual growth in the preceding six years, and AV is projected to remain flat or decline in fiscal 2010. City officials further project reduction in fiscal 2009 sales tax collections.
Overall debt levels remain moderately low at $1,525 per capita and 1.7% as a percent of market value, although amortization is below average at 27% within 10 years. Future capital needs are limited and the city does not anticipate issuing tax-supported debt in the near term. Certificates are secured via a standard lease-leaseback transaction between the city and the Lodi Public Improvement Corporation (the corporation). The leased assets securing the certificates are essential city facilities. The city has covenanted to budget and appropriate lease payments equal to debt service, subject to abatement.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework'.) At this time, Fitch is deferring its final determination on municipal recalibration. Fitch will continue to monitor market and credit conditions, and plans to revisit the recalibration in the first quarter of 2009.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Barbara Ruth Rosenberg, +1-212-908-0731
Cindy
Stoller, +1-212-908-0526 (Media Relations)
