OREANDA-NEWS. Fitch Ratings assigns an 'A' rating to the following Tacoma, Washington (the city) new debt issuances:

--$12.4 million limited tax general obligation (LTGO) refunding bonds 2015A;
--$20.3 million LTGO refunding bonds 2015B (taxable).

The bonds, which are scheduled to sell on Dec. 1 through negotiation, will refund outstanding debt for interest savings.

The Rating Outlook is Positive.

On Sept. 10, 2015, Fitch published an exposure draft of revised state and local government tax-supported criteria. Fitch expects that final criteria will be approved and published by Jan. 20, 2016, at which time Fitch will assign Issuer Default Ratings (IDRs) to all state and local government tax-supported issuers. The IDR will equal the current unlimited tax general obligation (ULTGO) debt rating. With the assignment of IDRs, Fitch will no longer make a rating distinction between unlimited tax and limited tax general obligation pledges. For the small number of issuers with a current rating distinction between the liens, including Tacoma, the LTGO rating will rise to the ULTGO level. Tacoma's ULTGO rating is 'A+' with a Positive Outlook.

SECURITY

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.

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.

MODERATE DEBT; BORROWING CONSTRAINED: Overall debt levels are moderate and amortization of direct debt is average, but the city's borrowing capacity remains somewhat constrained due to assessed value (AV) 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 is on track to sustain 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 $51.3 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 23 consecutive months through September 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 is still below pre-recession levels despite recent gains.

The city's AV recorded strong gains in 2013, 2014, and 2015 but is still 13% below 2008 levels. Home values reported by Zillow.com rose by 5.9% year-over-year as of October 2015, but remain approximately 16% below peak levels.

SOLID DEBT PROFILE; CONSTRAINED BORROWING
Overlapping debt levels are moderate at 3.9% of AV and amortization of direct debt is average with 53% of principal repaid in 10 years. Prior year AV declines have left the city with about $55 million of non-voted LTGO debt capacity in 2016, somewhat constraining its ability to borrow. Management reports that the city has no plans for new general fund-supported debt, and has funded recent 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 2014 was equivalent to a high 1.3% 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 16.8% of governmental expenditures in 2014.