SAN FRANCISCO, CA (December 30, 2010) — Fitch Ratings upgrades the following South Lake Tahoe Recreation Facilities Joint Powers Authority Community Facilities District No. 2000-1, CA (the district) debt as part of its continuous surveillance effort:
–$4.5 million of property assessment-parcel tax bonds upgraded to ‘AA-‘ from ‘A+’.
The Rating Outlook is Stable.
–The upgrade reflects the strong debt service coverage provided by pledged parcel tax revenues and the exceptional stability of the parcel tax revenues despite the deep downturn in the U.S. housing market.
–The joint powers authority has built up significant reserve funds in excess of its expenditure needs.
–The amount of debt outstanding is very low relative to the value of property in the district, and the authority has pledged not to issue more debt supported by the special tax levy.
–The local economy is dominated by tourism, particularly large ski resorts, but the tourism industry has strong underpinnings due to the region’s natural beauty and relative proximity to several large metropolitan areas.
–The rating is limited by the concentration in the local economy, the authority’s plans to spend down some of its significant reserves, and the likely lack of further growth in the tax base.
KEY RATING DRIVERS:
–Continued stability in tax levy supporting bond issue.
–Maintenance of healthy reserve fund levels.
The bonds are secured by a first lien on a voter-approved special parcel tax on all property in the district revenues net of administrative fees.
The upgrade reflects South Lake Tahoe’s well-developed tourism economy and stable financial performance over the past decade. The South Lake Tahoe Joint Powers Authority (JPA) was formed in 2000 by the city of South Lake Tahoe, CA, El Dorado County and the Tahoe Paradise Resort Improvement District to finance construction of an ice rink, athletic fields and other recreational facilities that serve both the community and its key tourism industry. The JPA is located about 200 miles northeast of San Francisco on the south shore of Lake Tahoe.
The region’s economy and tax base are dominated by the tourism industry, which has strong underpinnings. The Lake Tahoe Basin is a popular tourist destination, particularly for skiing and gaming, located in adjacent Nevada. The region is a popular second-home choice for wealthy residents of Sacramento and the San Francisco Bay Area. El Dorado County’s unemployment rate was above the national average but below state levels at 11.7% in October 2010. South Lake Tahoe’s housing market has been hurt by the national downturn, but much less than the hardest-hit areas of California. Development is strictly regulated in the Lake Tahoe Basin to protect the lake’s clarity, and the region escaped the recent housing construction boom and bust as a result. Foreclosures and mortgage delinquencies have risen, but remain below state and national averages. Assessed values continued to rise through fiscal 2010 before falling 7.3% in fiscal 2011.
Declines in assessed values suggest stress in the housing market but have no bearing on the special tax levy supporting the bonds. The special tax is a fixed parcel tax, and collections have grown slowly and steadily over the past decade. The average annual increase was 0.6%, and the largest decrease was just 0.8%. Fitch views the stability of tax collections as a significant credit strength.
The parcel tax is very small on a per capita basis at about $16 a year. The tax is based on the type of property assessed, with single-family homes assessed $18 a year and large ski resorts assessed $4,500 a year. The district has a very high value-to-lien ratio of more than 1,300-to-1. Most of the top 10 taxpayers are time-share resorts and together represent 10.8% of tax collections. The district participates in El Dorado County’s Teeter plan, which insulates it from delinquencies, which have risen in recent years. Under a Teeter plan, the county pays the district its full tax levy each year and keeps penalties and interest when they are collected. While the county could eliminate its Teeter plan, Fitch views that as unlikely, and delinquencies at the current rate would not materially impact debt service coverage.
Special tax revenues were $632,000 in fiscal 2010, a 1.4% increase from 2009. Revenues, net of the county’s 1% tax collection fee, were about 1.7 times (x) annual debt service. Coverage increased in recent years due to the gradual rise in revenues and declining debt service payments and is expected to remain in the current range or slightly higher for the life of the bonds. Coverage holds up well under a variety of stress tests. Even with the loss of the district’s Teeter protection, the loss of the district’s largest taxpayer, the loss of 10% of its residential housing units and an ongoing 10% delinquency rate, the district would maintain coverage of 1.4x or better. The district has built up substantial reserves that continue to grow.
The district faces little-to-no operational risk. It has no full-time employees. It contributes some of its excess funds after payment of debt service to maintenance of the bond-financed recreational facilities, but the facilities are maintained and operated by the JPA’s member agencies, not the JPA itself. It has built up a substantial financial cushion with an available fund balance that equals more than one year’s debt service budgeted for the end of the current fiscal year. While district officials anticipate seeking voter approval to spend some of the fund balance on other South Lake Tahoe-area recreational facilities, voters have thus far refused to expand the authority’s writ, and Fitch anticipates that the authority would maintain an adequate, albeit possibly smaller, financial cushion in any case.
Additional information is available at ‘www.fitchratings.com‘
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., IHS Global Insight, El Dorado County, Calif., the Lake Tahoe Unified School District, California Municipal Statistics and the issuer’s trustee (Union Bank).
Applicable Criteria and Related Research:
‘Tax-Supported Rating Criteria’, dated 16 Aug. 2010.
‘U.S. Local Government Tax-Supported Rating Criteria’, dated 21 Dec. 2009.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
Applicable Criteria and Related Research:
U.S. Local Government Tax-Supported Rating Criteria
Tax-Supported Rating Criteria
Andrew Ward, +1-415-732-5617
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Scott Monroe, +1-415-732-5618
Kathryn Masterson, +1-415-732-5622
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