Fitch Rates Seattle's, Washington's $145MM GOs (Limited Tax Rfdg & Improvements) 'AA+'

2008-06-06 23:50:28 -

- Fitch rates the City of Seattle, Washington's (the city) $144,985,000 limited tax general obligation (GO) improvements and refunding bonds, 2008, 'AA+'. Fitch also affirms the 'AA+' rating on the city's $590 million outstanding limited tax GO bonds and affirms the 'AAA' rating on the $160 million in outstanding unlimited tax GO bonds. The Rating Outlook is Stable. The bonds will be sold competitively on June 18th.

The AA+ rating reflects the city's consistently strong financial position, its role as a regional economic and commercial center, strong management practices, low debt burden as well as its cyclical economy and limited property tax levy. The 'AAA' rating on the unlimited tax GO bonds reflects the additional strength provided by the unlimited levy. Credit drivers include the city's ability to maintain strong fund balances during the economic downturns inherent in its economy and to constrain spending to offset the impact of the tax levy limit.

The economic expansion in Seattle and throughout the Puget Sound area showed strength through 2007, with city revenues benefiting commensurately. The Seattle area has more than regained the jobs lost in 2001-2003, its most severe downturn in over 20 years. Job gains were led by construction, manufacturing, tourism, and professional and business services. While employment by The Boeing Company, by far the region's dominant employer, has risen significantly in the recent years, it remains well below the 2000 peak and is not expected to return to its prior high. Employment at the area's other major employer, Microsoft Corporation, is showing good growth as well. Unlike most areas in the west, Seattle's job growth and declining unemployment rate continued into 2008 with unemployment at 2.9% in April and job growth of 1.7% year over year. This low unemployment rate compares to a peak of 6.6% in 2003. The city's property tax base is diverse (top ten taxpayers are 2.8%) and growth remains solid (14.5% in 2008). All wealth indicators are above average.

Financial management is strong and staff demonstrated its ability to constrain spending and use targeted reserves during times of economic weakness. During the 2001-2003 period of 2%-3% revenue growth, the city's spending gain slowed and year-end financial cushion remained sound. Management's response to mid-year revenue shortfalls has been prudent and budget projects realistic, with actions such as program reductions and hiring freezes enacted. The recent performance proves the effectiveness of the city's prudent and numerous fiscal policies and guidelines as well as the importance of these elements to an economy that is inherently cyclical. Fitch believes the city is well-positioned to manage the levy limit and the impact of changes to the business and occupation tax that became effective in January 2008.

The city's financial position is strong with the general fund running operating surpluses for four consecutive years, including unaudited results for 2007. As of the end of 2007, unaudited actuals show an $86 million operating surplus resulting in a $327 million fund balance equal to 37% of spending. The unreserved portion ($198 million), totals 22%. General fund revenues are diverse, with property taxes making up 21%, sales 18% and business 24%. This diversity tends to soften the financial impact of economic-related declines and partially mitigates the property tax levy growth limit. Also notable is the restriction of the real estate excise tax for capital uses.

Seattle's debt burden is low, largely the result of a significant pay-as-you-go capital program funded by the real-estate excise tax and voter-approved levies. Debt service on unlimited tax debt is exempt from the levy growth limit. Proceeds from this sale will fund various capital projects and refund existing debt.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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Karen Ribble, 415-732-1756
Amy S. Doppelt, 415-732-5612
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