OREANDA-NEWS. Fitch Ratings assigns a rating of 'AA' to the following Santa Clara County Financing Authority, California bonds:

--$152 million refunding lease revenue bonds (multiple facilities projects) 2016 series Q.

The bonds are scheduled to sell competitively during the week of May 23 and will refund outstanding debt for interest savings.

In addition, Fitch affirms the following ratings:

--Santa Clara County Issuer Default Rating (IDR) at 'AA+';
--Santa Clara County $480.1 million general obligation (GO) (election of 2008), 2013 series B bonds at 'AA+';
--Santa Clara County Financing Authority $102.4 million refunding lease revenue bonds (multiple facilities projects) 2015 series P at 'AA'.

The Rating Outlook is Stable.

SECURITY
The lease revenue bonds are supported by the county's covenant to budget and appropriate lease rental payments for the use of essential facilities. The GOs are backed by an unlimited ad valorem tax on all property subject to taxation in the county.

KEY RATING DRIVERS

The 'AA+' IDR reflects the county's strong operating performance, moderate liabilities, and robust economic base.

Economic Resource Base: The county benefits from a vibrant economic base with substantial employment growth and investment in the high technology industry. Taxable assessed values (TAV) continue to experience steady growth and wealth and income levels are well above national averages.

Revenue Framework: 'a' factor assessment
The county relies on intergovernmental revenues to support health and social service as an agent of the state, and funds public safety and other mandates primarily from local property taxes. California's Proposition 13 limits the county's legal ability to raise revenues but tax base growth and voter support have contributed to steady revenue gains.

Expenditure Framework: 'aa' factor assessment
Fitch expects spending growth to be in line with to marginally above revenue growth. Salary increases agreed to in multi-year labor contracts and service restorations will likely contribute to increased spending over the next several years, but the county retains significant flexibility to make cuts in the event of revenue shortfalls.

Long-Term Liability Burden: 'aaa' factor assessment
Overall liabilities are modest relative to the county's substantial and growing resource base.

Operating Performance: 'aaa' factor assessment
The county's reserve margins are strong relative to historical revenue volatility and provide a significant cushion against potential economic declines. Budget management in the wake of the last recession has focused on increasing financial flexibility and strengthening core services.

RATING SENSITIVITIES
MAINTAINED OPERATING BALANCE: The rating is sensitive to the continued strong operating performance of the county. Ongoing expenditure growth in excess of revenue gains, while not anticipated, would create downward rating pressure.

CREDIT PROFILE

The county, which includes the city of San Jose, is home to many of the nation's largest technology companies and its economy has benefited significantly from their presence, which has contributed to rapid increases in employment and a growing tax base. In addition, the county is a key component of the broad and diverse San Francisco Bay Area regional economy.

Revenue Framework
The county relies on intergovernmental revenues to support health and social service as an agent of the state, and funds public safety and other mandates primarily from local property taxes.

Recent revenue performance has been solid largely due to the county's booming real estate market and tax base. Over the longer term Fitch expects growth to remain fairly stable, consistent with historical revenue performance.

The county has limited legal ability to raise revenues due to California's Proposition 13, but this constraint is somewhat mitigated by a history of revenue growth.

The county benefits from several revenue sources not typically available to other California counties. A pre-Proposition 13 property tax override offsets more than half of the county's pension contributions and a voter-approved sales tax levy supplements general fund spending. In addition, recent tax base growth in excess of the state's school funding obligations has resulted in substantial one-time revenue for the county over the past several years.

Expenditure Framework
The county provides a broad range of municipal functions in addition to health and social service roles as an agent of the state.

Spending growth appears likely to be in line with to marginally above revenue growth. Expenditure growth in recent budgets has been spurred by multi-year labor agreements as well as service restorations and augmentations.

Management retains full flexibility to adjust employee headcount despite recent multi-year contracts. In the last recession the county negotiated substantial labor concessions and management expects this strategy would be available if needed in the event of future revenue shortfalls. Carrying costs for debt service and retiree benefits are manageable at 19% of governmental expenditures. The county's recent funding of other post-employment benefit (OPEB) costs in excess of pay-go requirements provides an additional source of potential expenditure flexibility.

Long-Term Liability Burden
Long-term liabilities are modest relative to the county's substantial tax base and are equivalent to a low 9.3% of personal income. The county participates in two state-sponsored pension plans and pension and OPEB liabilities are manageable.

More than half of the county's outstanding direct debt is related to its public hospital enterprise, and is supported by a voter-approved tax levy unavailable for other purposes. Fitch estimates that the county's pensions are 73% funded assuming a 7% investment return. The county's OPEB plan is funded at approximately 29% of liabilities.

Operating Performance
Unrestricted reserves are substantial relative to historical revenue volatility. The county has recorded significant operating surpluses for the past several years, which in combination with healthy reserves contributes to superior financial resilience in the event of a moderate economic decline.

The county budgets conservatively and has typically outperformed projections. Recent revenue growth has allowed the county to cash-fund a variety of capital projects and to invest in core services, including administration and information technology. The county's proposed budget for fiscal 2017 also calls for a $41 million contribution to fully fund the actuarial liability in its workers compensation fund.