2009-11-24 00:50:03 -

In the course of routine surveillance, Fitch Ratings affirms its 'A' rating on Tolleson, Arizona's (the city) approximately $31 million in outstanding general obligation bonds, series 1998, 2003, 2004, and 2006.

The bonds are direct obligations of the city, payable as to both principal and interest from ad valorem taxes levied against all taxable property within the city without limit as to rate or amount. The Rating Outlook is Stable.

The 'A' rating reflects the city's history of solid financial reserves, small but steadily growing tax base, large local employment base, and strategic location along major transportation corridors. Offsetting credit factors include significant, though reduced, tax base concentration, a moderately high debt burden, and dependence on the economically volatile sales tax

for operations. The city has a small residential component, and Fitch expects debt per capita levels to remain well above average due to the commercial and industrial zoning of the majority of the city's remaining developable land. Sales tax collections have flattened due to the ongoing recession, although reserve levels remain solid. While some drawdown is projected for the close of fiscal 2009 and budgeted for fiscal 2010, expenditure control measures are anticipated to result in still favorable general fund balances. Maintenance of satisfactory reserve levels remains a key rating consideration.

The city is located 10 miles west of downtown Phoenix along Interstate 10 in southwestern Maricopa County. The local economy has been transformed from an historically agricultural base to a manufacturing, warehouse and distribution center; the city's central location in the Phoenix MSA and ready access to major interstate highway and rail corridors has made it an attractive location for transportation intensive enterprises. Tolleson's population, which remained flat during the 1980s, grew moderately by 12% from 1990-2000 and has jumped another 41% to the current estimate of 7,100. The city's population at build-out is not expected to exceed 15,000, given the planned use of remaining undeveloped land for commercial and industrial purposes.

Fitch believes the fact that sales tax revenues are the largest source of operating revenues introduces a degree of volatility to the general fund revenue stream. Fiscal 2008 sales taxes represented about 56% of total general fund revenues and transfers in, up slightly from 54% in fiscal 2005. Strong historical double-digit gains contributed to the city's healthy general fund balances, with reserves ranging from roughly 20% to 50% of spending over the past 10 fiscal years.

The effects of the ongoing recession, however, have resulted in a modest decline in sales taxes for fiscal 2008 and essentially flat collections for fiscal 2009 and 2010. For the close of fiscal 2008, the city recorded a modest operating deficit of about $350,000, bringing the general fund balance to $4.9 million, or 39% of expenditures and transfers out; the vast majority of the fund balance is undesignated.

General fund sales taxes declined by 1.5% from the prior year. For the close of fiscal 2009, the city anticipates a $1.6 million drawdown, with a more moderate drawdown of $640,000 budgeted for fiscal 2010. The 2010 budget raised property taxes (the second largest source of operating support) and included a number of expenditure reductions and savings, including cutting overtime; transferring $400,000 in public safety expenses to be funded from the public safety sales tax; and no cost-of-living adjustment. No layoffs were included in the budget.

Tax base growth has been healthy, with the estimated full cash value averaging over 17% annual gains since fiscal 2005. The secondary assessed valuation for 2009, while relatively small at $228.8 million, represents a 25% increase from the prior year. While the county assessor projects significant declines in residential values throughout Maricopa County for the coming fiscal year, the city anticipates that steady commercial development will more than offset residential declines.

Residential values represent only about 12% of the city's tax base.

Concentration remains among the city's largest taxpayers, with the top 10 taxpayers accounting for nearly 30% of taxable values. While high, taxpayer concentration is reduced from 50% in 2003.

Debt ratios are relatively high, particularly debt per capita given the city's small residential base. Payout, however, is rapid, with nearly 90% of principal repaid within the next 10 years. The city maintains approximately $74 million in authorized but unissued bonds. Given current economic and financial pressures, the city does not anticipate issuing more debt for the next several years.

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Fitch Ratings, New YorkMark Campa, +1-512-215-3730 (Austin)Steve
Murray, +1-512-215-3729 (Austin)Media Relations:Cindy
Stoller, +1-212-908-0526 cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com