Fitch Rates Duarte Redevelopment Agency, California's 2007 Refunding TABs 'A-'

The 'A-' rating reflects the good debt service coverage and revenue stability, the project area's diverse land use, and its location in the healthy Los Angeles area economy. Offsetting credit factors include moderate concentration of top taxpayers and several senior tax-sharing and debt service agreements. Prospects for continued growth in assessed valuation (AV) are very good and residential and commercial projects are in various phases of construction and development. Legal protections are satisfactory, based on the additional bonds tests of 1.25 times (x) maximum annual debt service (MADS).

Duarte (the city) is located about 22 miles northeast of downtown Los Angeles and about five miles east of Pasadena. As a largely built-out city, population has been stable, growing about 1% annually to 23,000 in 2006. The city's economy benefits from its participation in the greater Los Angeles economy and its location near the intersection of interstates 210 and 605. Wealth indicators are somewhat mixed; median household income for 2000 was below county and state levels but about equal to the national average.

The project area is small, encompassing about 684 acres but represents a significant 15% of total city acreage. The merged project area is the result of merging seven project areas with base years ranging between 1975 and 1988 and adding additional land in 1999. Current land use in the project area is diverse and AV is increasingly residential. The residential component of AV in fiscal 2007 totals about 66%, up from 58% in 1999. Commercial AV represents 24% and industrial 14%. Unsecured AV is moderate at 7%. Overall AV has experienced good growth in recent years; since fiscal 2003, AV has increased an average of 7% per year with incremental AV increasing by 8.8% per year. Current merged project area AV equals $824.2 million, about 10.6 times (x) the base year value of $65 million, resulting in good revenue stability under stress scenarios.

Parity debt service is substantially level, equaling about $3.3 million. Pledged tax increment revenue from the existing tax base, net of senior pass-through payments the housing set-aside and the senior debt service covers fiscal 2008 debt service on parity bonds a good 1.34x. Including expected new development, projected 2011 tax increment covers all debt service a strong 1.47x. The agency does not have current plans to issue additional debt but could do so only if it meets an additional bonds test of 1.25x MADS for all parity bonds, and only if certain tax increment limits are increased. Under Fitch designed stress scenarios, coverage of MADS remains adequate. Eliminating the top ten taxpayers, and assuming no new development and the historic level of appeals, debt service coverage is 1.04x.

The agency may reach its tax increment revenue limit prior to the maturity of the bonds. The agency covenants to calculate annually the remaining amount of tax increment available under the limit and the remaining debt service requirements. If the remaining debt service requirements exceed the remaining allowable tax increment revenues, the agency shall take measures to insure that it retains its ability to make debt service obligations on the bonds and parity bonds.

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