OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to the following Finance Authority of Long Beach, CA's lease revenue bonds:

-$12.5 million lease revenue bonds series 2016A (courthouse demolition project).

The bonds are expected to be sold via negotiation during the week of January 4. Proceeds will finance the costs of hazardous materials abatement and demolition of a former courthouse, the relocation of a storm drain, and preliminary costs related to the city's civic center project.

In addition, Fitch affirms the 'AA-' rating on the following bonds:

--$54.6 million Long Beach Bond Finance Authority (LBBFA) lease revenue refunding bonds series 2012A;
--$8.1 million LBBFA taxable lease revenue refunding bonds series 2012B;
--$40.3 million Southeast Resource Recovery Facility Authority series 2003A and B.

Fitch has also affirmed the following rating for the city of Long Beach, CA:
--Implied general obligation rating at 'AA'.

The Rating Outlook is Stable.

SECURITY

The lease revenue bonds are supported by lease payments from the city to the Finance Authority of Long Beach, Long Beach Bond Finance Authority and Southeast Resource Recovery Facility Authority, subject to annual appropriation and abatement. The payments are secured by various essential assets and parking facilities.

KEY RATING DRIVERS

SOLID FINANCIAL PROFILE: The city's strong financial performance, despite revenue constraints, is supported by conservative budgeting, sound reserve levels, a diverse revenue base, and prudent financial policies and practices including a commitment to cash-funding capital. These strengths partially balance Fitch's concerns regarding projected out-year deficits and substantial negative fund balances in the city's internal service funds.

MODERATE DEBT BURDEN: The city's debt burden is currently moderate but is likely to increase following the issuance of additional lease revenue bonds in fiscal 2016 for a civic center project. Rising pension expenses are expected to pressure general fund balance over the next several years.

DIVERSE ECONOMY; LAGGING EMPLOYMENT: The city's economy is diverse and supported by the large port, local airport, and participation in the broad Los Angeles regional economy. Recent employment gains have lagged behind the state and nation and reflect substantial job losses at Boeing, a significant regional employer.

IMPROVING TAX BASE: Taxable assessed values (AV) have grown steadily over the past four years and are 10% above their pre-recession peak.

RATING SENSITIVITIES

SIGNIFICANT REDUCTION IN FINANCIAL FLEXIBILITY: Fitch views continued conservative budgeting and the maintenance of ample unrestricted reserves as key offsets to the city's limited revenue raising flexibility. Continued demonstration of structurally balanced budgets will be key to maintaining the current rating and Outlook.

CREDIT PROFILE

The city is the seventh largest in California, with a relatively stable population of approximately 473,000. The city is largely built out and covers 52 square miles along the coast in south Los Angeles County.

SOLID FINANCIAL PROFILE

The city has strengthened its balance sheet following revenue shortfalls in the last recession, and general fund cash levels and reserves are currently solid. Unrestricted fund balance was a healthy 25% ($114 million) of general fund spending at the end of fiscal 2014. Management projects, on a preliminary basis, a small decline in fund balance ($3.9 million) for fiscal 2015, but the city appears likely to remain above its policy target of 16.7% of spending. A shortfall in oil revenues appears to have been a key factor in 2015 results.

The fiscal 2016 budget is balanced and commits approximately $15.2 million in one-time revenues to capital projects and other one-time uses. These one-time resources derive, primarily, from unanticipated 2015 revenues of approximately $14 million, as well as $1 million in expenditure savings.

LONGER-TERM CHALLENGES

The city has traditionally funded capital needs and some operating expenses from oil and gas revenues that have been hit hard by recent declines in prices and production levels. Management has identified alternate funding to address anticipated declines in fiscal 2016, but is currently projecting deficits of $5.1 million and $5.2 million (approximately 1.3% of general fund expenditures) for fiscals 2017 and 2018 if energy prices remain depressed.

Rising pension expenses also contribute to the city's deficit projections, and result from planned contribution increases for CalPERS. In addition, the city maintains a substantial deficit balance (approximately $154 million at the end of fiscal 2014) in its internal service funds, reflecting long-term liabilities for self-insurance and employee benefits that are currently funded on a pay-as-you-go basis.

The Stable Outlook and strong 'AA' rating reflect Fitch's expectation that the city will continue to maintain balanced operations and solid reserves despite ongoing financial challenges. Management has demonstrated exceptional discipline in recent years in expenditure control, particularly for public safety costs, and Fitch expects the city's finances to remain healthy.

MODERATE DEBT PROFILE

The city's debt profile, largely driven by overlapping issuances, is moderate at $3,322 per capita and 3.2% of fiscal 2015 AV. Direct debt levels are a small portion of this total at $358 per capita and 0.3% of fiscal 2015 AV.

In addition to the current transaction, the city is planning a lease revenue bond issuance in fiscal 2016 to support its civic center revitalization project. Management expects that net costs to the general fund will increase by approximately $3 million per year following project completion. Outstanding direct debt amortizes at an above-average pace with approximately 62% of principal retired within 10 years, but is likely to slow following the city's planned 2016 issuances.

Carrying costs for debt service and retiree benefits were moderate at 16% of governmental fund expenditures in fiscal 2014. Most of this expense is due to pension costs, which are expected to rise in line with planned CalPERS contribution increases over the next several years to address unfunded liabilities and changes in actuarial assumptions. The city has prudently established a CalPERS stabilization fund to mitigate the impact of higher pension expenses, and had accumulated approximately $24 million in assigned fund balance for this purpose at the end of fiscal 2014.

DIVERSE ECONOMY; LAGGING EMPLOYMENT

The city's economy is diverse and supported by the Port of Long Beach, the Long Beach Airport, and its participation in the broad Los Angeles regional economy. Employment levels have risen steadily over the past several years but growth has lagged behind the region and state. The city's unemployment rate has also remained relatively high at 6.5% as of October 2015, as compared to 5.5% for the Los Angeles-Long Beach-Anaheim metropolitan statistical area, and 5.7% and 5.0%, respectively, for the state and nation.

Ongoing job losses at a Boeing manufacturing plant have likely contributed to the city's relatively slow employment recovery. The plant supported 5,000 workers at its peak but now employs less than half this number, with further reductions anticipated over the next several years.

The city's AV has continued to record gains in the wake of the recession and has grown by a cumulative 17% over the past four years. Home values reported by Zillow.com for September 2015 were 3.5% higher than prior year levels, but remained well below pre-recession peaks. The city's tax base is diverse with the top 10 taxpayers comprising 3.1% of fiscal 2016 AV.