Fitch Affirms San Bernardino County Transportation Authority, CA's Sales Tax Revs at 'AA+'

Fitch Ratings has affirmed San Bernardino County Transportation Authority (authority), California's sales tax revenue bonds at 'AA+' as listed below:

--$91.9 million series 2012A.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by a first lien pledge of the authority's sales tax revenues, net of collection charges. The sales tax revenues derive solely from the voter-approved one-half cent Measure I sales tax to be collected through 2040.

KEY RATING DRIVERS

SOLID DEBT SERVICE COVERAGE: The 'AA+' rating reflects the authority's minimal exposure to operational risks, the bonds' currently very strong debt service coverage levels, and a sound additional bonds test (ABT) of 2.0x maximum annual debt service (MADS). Planned issuances are projected to lower coverage to still sound levels.

BELOW AVERAGE ECONOMIC INDICATORS: The economy exhibits low income and high unemployment, and was severely affected by the housing-led recession. Nonetheless, the tax base is well diversified, the housing market is showing signs of stabilization, and sales tax revenues have grown significantly over the past few years.

BROAD BASED SALES TAX. The county's sales tax revenues derive from a large, diverse economic base with low concentration levels among the top payers. Although sales tax revenues were heavily affected during the downturn, they have grown significantly for three consecutive years and the economy's continuing economic recovery suggests revenues are likely to continue growing in the near future.

MANAGEABLE DEBT PROFILE. The authority has a large but flexible long-range capital plan, with related debt issuances that the authority projects will result in debt service coverage consistently above 3.0x.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including strong debt service coverage and a somewhat weak economy. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The authority provides funding for public transit systems, and oversees the construction, maintenance, improvement and operation of roads and highways. The authority does not own or maintain facilities. Given the entity's narrow funding role, Fitch believes the authority has limited exposure to operating risks from related transit agencies or the authority itself.

SOUND DEBT SERVICE COVERAGE, LEGALS

The bonds benefit from a sound legal structure overall and high debt service coverage. Sales tax revenues are transmitted directly from the Board of Equalization to the trustee, with excess revenues flowing to the authority. The ABT is a sound 2.0x MADS and, despite substantial capital needs, management projects that future years' debt service coverage will remain above 3.0x in spite of plans to issue substantial amounts of debt. Fitch estimates annual debt service coverage for fiscal 2013 was an extremely high 13.7x, which is expected to decline to still high levels given anticipated leveraging.

ECONOMY RECOVERING FROM SEVERE RECESSIONARY CONDITIONS

San Bernardino's economy is somewhat weak overall but recovering, with good long-term fundamental drivers of growth. October unemployment is a high 9.4%, but down significantly from 11.4% the year prior. Although employment grew 0.9%, a significant factor in the improved unemployment rate was the decline in the labor participation rate, with the labor force contracting 1.3% over the same period. Per capita income levels trail the state and nation at 74% and 79%, respectively. Household income levels are somewhat higher, reflective of large family sizes.

The regional economy is well diversified overall despite pockets of concentration in the transportation and warehousing and construction sectors. Continued construction concentration is somewhat surprising given the economy's severe recessionary contraction resulting in the loss of 55,000 construction jobs, or about half of the sector's workforce from 2007 to 2011. Recently the construction sector has added some jobs and year-over-year November home values are up a substantial 26.8%, according to Zillow.

Although the local economy performed poorly during the recession, it retains fundamental long-term advantages, including good economic diversity, housing affordability, availability of vacant land, its location along an important distribution route, and its proximity to the large and diverse Southern Californian employment markets. Further, the economy has been recovering from the recession at a moderate pace.

DIVERSIFIED SALES TAX BASE RECOVERING AT A SOUND PACE

County sales taxes derive from a well-diversified tax base, with the top 25 payers making up 22.4% of total sales tax revenues. Sales taxes performed poorly in the recession, with a peak-to-trough contraction of 28% from 2006 - 2010. Sales taxes have since grown, with revenues up a cumulative 30.5% through 2013, but still nearly $10 million below their $148 million peak in 2006. The authority conservatively budgeted for a modest 0.7% increase in 2014, but actual receipts are up 3.7% year to date. The authority is forecasting low single digit growth through 2016, which does not seem unreasonable given the region's continuing economic recovery.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope and Zillow.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=815169

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Fitch Ratings
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