OREANDA-NEWS. Fitch Ratings has affirmed the rating on San Rafael Redevelopment Agency (RDA), CA's tax allocation bonds (TABs) as follows:

--$7.8 million tax allocation bonds (TABs) series 1999 at 'AA-'.

The Rating Outlook is revised to Stable from Negative.

SECURITY

The bonds are secured by a first lien on gross tax increment on all taxable property within the agency's sole project area, less a 20% set-aside for low- and moderate-income housing. The bonds are additionally payable from the housing set-aside increment revenues.

KEY RATING DRIVERS

RESOLUTION OF PAYMENT CALCULATION ISSUE: The Outlook revision to Stable reflects resolution of a prior disagreement between the city of San Rafael (the city) as successor agency (SA) to the RDA and the state's Department of Finance (DOF) related to tax increment distributions the state believed should have been directed to other taxing entities. The resolution, in the SA's favor, eliminated potential risks to bondholders from a diversion of tax increment revenues.

STRONG DEBT SERVICE COVERAGE (DSC): Coverage of maximum annual debt service (MADS) remains strong at almost 7x in fiscal 2016. DSC reflects Fitch's refined analysis of surplus housing revenues, which Fitch now considers to be available to pay non-housing TAB debt service. MADS DSC should remain strong as successor agencies (SAs) are not permitted to issue new money TABs. Taxable assessed valuation (TAV) would need to decline by about 80% to result in 1x DSC.

STRONG, DIVERSE PROJECT AREA TAX BASE: The project area's TAV saw modest annual declines in recent years, but returned to annual growth for 2014 through 2016, with additional growth projected in the near term. Top ten project area taxpayers make up a moderate 19% of incremental value (IV).

STRONG REGIONAL ECONOMY: The RDA benefits from its location within the large, diverse regional economy of the San Francisco Bay area and within the wealthy county of Marin.

RATING SENSITIVITIES

CHANGES IN REVENUE AVAILABLE FOR DEBT SERVICE: The rating is sensitive to material TAV base changes. Tax base declines that materially decrease pledged revenues could have a negative effect on the rating. Given recent AV stability and growth trends, Fitch believes such shifts are not likely in the near term. Tax base growth that materially increases pledged revenues could have a positive effect on the rating.

CREDIT SUMMARY

The city (Fitch implied general obligation rating of 'AA' with a Stable Outlook) is located in the San Francisco Bay Area and is both the county seat and largest city within the wealthy county of Marin. The RDA's single project area is located in the central San Rafael business district and east San Rafael.

SERVICE AREA CHARACTERISTICS REMAIN STRONG

San Rafael benefits from its participation in the diverse regional economy of the San Francisco Bay Area and has traditionally featured strong employment, wealth, and income indicators. The city's unemployment rate, 3.5% in October 2015, remains below comparable state (5.7%) and national (4.8%) averages. Personal income and wealth indicators are well above average.

TAV for the project area was $2.6 billion in 2016, about 16x the base year value of $163 million. TAV saw modest annual declines in fiscal years 2011 through 2013, after many years of steady increases. TAV returned to growth for 2014 through 2016 (about 4% average annual growth). Additional growth is expected in the near term due to ongoing development, including expansion of Bio Marin Pharmaceutical facilities. The project area tax base is diverse, with top ten taxpayers making up a moderate 19% of incremental value (IV).

STRONG DEBT SERVICE COVERAGE

In May 2014 Fitch refined its California Redevelopment Agency analysis pertaining to the beneficial impact of dissolution legislation (AB 1X 26). Fitch now considers TAB liens to be closed and surplus housing set-aside revenues to be available for non-housing TAB debt service. Although uncertainties remain, Fitch views the continued presence of closed TAB liens and surplus housing revenue availability as more likely than not to remain a feature of California TABs.

Coverage of MADS, including housing set-aside revenues, remains strong. Fiscal year 2016 revenues cover MADS almost 7x. Coverage stands up well to various Fitch-designed stress scenarios, including the loss of the top 10 taxpayers. A TAV decline of about 80% would be required to reduce debt service coverage to 1.0x MADS.

The SA made full June and December 2015 debt service payments from available funding. Funding for the upcoming June 2016 debt service payment has been approved under the January to June 2016 recognized obligation payment schedules (ROPS).