OREANDA-NEWS. Fitch Ratings has affirmed the ratings on the following Tacoma, Washington (the city) bonds:

--\$20.0 million unlimited tax general obligation (ULTGO) bonds at 'A+';
--\$139.2 million limited tax general obligation (LTGO) bonds at 'A';
--\$26.6 million convention center and parking revenue bonds at A+.

The Rating Outlook is revised to Positive from Stable.

SECURITY
The ULTGO bonds are supported by an unlimited pledge of ad valorem taxes and the full faith, credit, and resources of the city. The LTGO bonds are a general obligation for which the city covenants to levy an ad valorem property tax within limits permitted to cities without a vote, along with other legally available money. The revenue bonds are secured by a senior lien on a public facilities district (PFD) contribution and net revenues of the city's parking enterprise. PFD revenues consist of a 0.033% sales and use tax collected within PFD boundaries, as well as an admissions and parking tax on PFD-owned, operated, or financed facilities. PFD revenues are remitted to Tacoma via an interlocal agreement that cannot be rescinded until all bonds are repaid.

KEY RATING DRIVERS

BALANCED OPERATIONS, HEALTHY RESERVES: The city has maintained balanced general fund operations in recent years and unrestricted fund balances have increased materially.

MANAGEMENT IMPROVEMENTS CONTINUE: Management has prioritized long-term planning and institutionalized processes to monitor budget performance and address out-year gaps. If sustained, Fitch expects such efforts to reduce potential volatility in future financial results.

ECONOMIC RECOVERY: The city's economy remains somewhat weak relative to the state and nation, but has improved markedly over the last several years.

IMPROVED REVENUE BOND COVERAGE: Debt service for the revenue bonds is supported by a dedicated sales tax and parking revenues that are subject to economic and competitive pressures. Recent increases to parking capacity and rates have strengthened coverage of debt service, which remains healthy under Fitch-designed stress scenarios.

MODERATE DEBT; BORROWING CONSTRAINED: Overall debt levels are moderate and amortization of direct debt is average, but the city's borrowing capacity remains constrained due to assessed value declines in prior years.

RATING SENSITIVITIES

SUSTAINED FINANCIAL IMPROVEMENTS: The city's ability to sustain recent fiscal improvements would likely result in a rating upgrade.

CREDIT PROFILE

Tacoma is located on Puget Sound, about 35 miles south of Seattle, and has a population of 205,000. The city's economy was historically concentrated in heavy industry but has diversified substantially over the last several decades.

BALANCED OPERATIONS, HEALTHY RESERVES

Tacoma's general fund operations remain balanced and reserves have risen notably over the last several years. The city ended 2014 with a small surplus following large gains in 2012 and 2013, and has budgeted for balanced operations in the 2015-2016 biennium. Unrestricted general fund balance has nearly tripled over this period. At the end of 2014 unrestricted general fund balance totaled \$50.3 million, equivalent to a healthy 23% of general fund spending.

A statewide 1% limit on property tax levy growth (excluding the value of new construction) presents an ongoing challenge to budgetary balance. The city has addressed past fiscal difficulties through a variety of measures addressing both expenditures and revenues and will likely need to continue such efforts to maintain its improved financial position.

MANAGEMENT IMPROVEMENTS CONTINUE

The city's recent strong results follow a period of challenged finances in 2008 through 2011. The economic cycle accounts for a portion of the change in the city's financial position, but management efforts have also been key. Under the leadership of a new city manager appointed in 2012, the city has implemented a variety of policy measures and planning processes targeting long-term fiscal stability.

New policies for minimum fund balance levels, use of one-time funds, budget monitoring, and multi-year financial planning now guide city actions, and have contributed to an improved financial outlook. If sustained, Fitch expects such efforts to reduce potential volatility in future financial results.

ECONOMIC RECOVERY

Tacoma's economy has improved notably over the past two years. Home values have risen steadily since 2013 and employment levels have increased on a year-over-year basis for 17 consecutive months through March 2015. The city's recovery was somewhat delayed relative to the national economy, but now appears on solid footing.

Wealth and income levels remain below state and national averages, while unemployment rates are higher, a pattern that predates the last recession. Population growth has been slow in recent years and employment levels are about 2% below their pre-recession peak despite recent increases.

The city's assessed value (AV) recorded strong gains in 2013 and 2014 but is still 17% below 2008 levels. Home values reported by Zillow.com rose by 4% year-over-year as of May 2015, but remain approximately 20% below peak levels.

IMPROVED REVENUE BOND COVERAGE

Tacoma's revenue bonds are supported by a combination of PFD revenues (primarily sales tax) and parking-related revenues. The PFD includes three cities in addition to Tacoma, as well as unincorporated portions of Pierce County, for a total population more than three times that of Tacoma alone. Parking revenues derive primarily from Tacoma's seven parking garages, which account for approximately one-third of off-street parking in the city's downtown business district, as well as on-street parking enforcement revenues.

Maximum annual debt service (MADS) coverage has improved materially over the last several years as a result of parking rate increases and enhanced enforcement efforts. MADS coverage is a healthy 2.6x in Fitch's base case, which assumes modest annual revenue increases through maturity. Coverage is resistant to Fitch-designed stress scenarios that consider unprecedented revenue declines. The bonds could withstand a 60% reduction in pledged revenues before reaching 1.0x MADS coverage.

A portion of debt service on the bonds is not payable from PFD revenues given restrictions on the use of such funds for tourism-related projects. Pledged parking revenues in 2015 are estimated at \$5.0 million, which covers maximum annual debt service not payable from the PFD (approximately \$355,000) by 14.1x. Such strong coverage offsets concerns about the susceptibility of parking revenues to changes in economic and competitive factors.

SOLID DEBT PROFILE; CONSTRAINED BORROWING
Overlapping debt levels are moderate at 3.7% of assessed value and amortization of direct debt is average with 53% of principal repaid in 10 years. Prior year assessed value declines have left the city near its tax rate limit for issuance of non-voted LTGO debt, constraining its ability to borrow. Management reports that the city has no plans for new general fund-supported debt, and intends to meet its capital requirements through pay-go financing.

The city's pension plans are well-funded and annually required contributions are consistently funded. Other post-employment benefits (OPEBs) are funded on a pay-as-you-go basis, resulting in a growing liability for such expenses. The unfunded OPEB liability for 2013 was equivalent to a high 1.5% of market value, primarily due to liabilities for a legacy plan for law enforcement officers. Carrying costs for debt service, pensions, and OPEB were affordable at 15% of governmental expenditures in 2013.