Fitch Ratings has affirmed the following ratings of the Arizona Fire & Medical Authority (AFMA).

Issuer Default Rating (IDR) at 'AA';

Outstanding certificates of participation (COPS), taxable series 2021 at 'AA-'.

The Rating Outlook is Stable. The ratings have been removed from Under Criteria Observation.

RATING ACTIONS

Entity / Debt

Rating

Prior

Arizona Fire and Medical Authority (AZ)

LT IDR

AA

Affirmed

AA

Arizona Fire and Medical Authority (AZ) /Issuer Default Rating - General Government/1 LT

LT

AA

Affirmed

AA

Arizona Fire and Medical Authority (AZ) /Lease Obligations - Standard/1 LT

LT

AA-

Affirmed

AA-

Page

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VIEW ADDITIONAL RATING DETAILS

The 'AA' IDR reflects the authority's financial resilience assessment of 'aa' based on a 'Low Midrange' level of budgetary flexibility and maintenance of unrestricted general fund reserves of at least 15% of spending. The rating also incorporates the authority's strong population trend and 'Midrange' demographic and economic level metrics.

The long-term liability burden is also assessed as 'Midrange', inclusive of the debt of the Buckeye Valley Fire District. The assessment also considers a potential bond proposition by one of the member districts in November 2025 for up to $70 million, which Fitch does not believe will materially affect the long-term liability assessment. Fitch's analysis also considers the recent settlement of litigation regarding the method used by Maricopa County to value certain residential properties. The associated liability to the authority totals about $6 million, but Maricopa County is expected to aid in funding the liability on the authority's behalf.

The 'AA-' rating on the COPs reflects a higher degree of optionality associated with the appropriation of lease payments.

Rating Sensitivities

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

For the IDR:

A sustained decline in available general fund reserve levels below 15% of spending, which would reduce Fitch's assessment of financial resilience to 'a';

----Weakened underlying economic and demographic performance including but not limited a weakened population trend, rising unemployment and lower resident income;

A sustained 20% increase in the long-term liability burden, absent changes in resident income or governmental expenditures and revenues.

For the COPs:

A downgrade of the authority's IDR.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

For the IDR:

A sustained increase of available general fund reserve levels above 20% of spending;

An approximately 40% decrease in the authority's's liabilities metrics assuming current levels of revenues, expenditures and/or resident personal income.

For the COPs:

An upgrade of the authority's IDR.

SECURITY

The tax-exempt and taxable series 2021 COPs are supported by lease payments received by the trustee from AFMA, subject to annual appropriation. The payments are secured by various real property assets.

Fitch's Local Government Rating Model

The Local Government Rating Model generates Model Implied Ratings which communicate the issuer's credit quality relative to Fitch's local government rating portfolio (the Model Implied Rating will be the IDR except in certain circumstances explained in the applicable criteria). The Model Implied Rating is expressed via a numerical value calibrated to Fitch's long-term rating scale that ranges from 10.0 or higher ('AAA'), 9.0 ('AA+'), 8.0 ('AA'), and so forth down to 1.0 ('BBB-' and below).

Model Implied Ratings reflect the combination of issuer-specific metrics and assessments to generate a Metric Profile and a structured framework to account for Additional Analytical Factors not captured in the Metric Profile that can either mitigate or exacerbate credit risks. Additional Analytical Factors are reflected in notching from the Metric Profile and are capped at +/-3 notches.

Ratings Headroom & Positioning

Arizona Fire and Medical Authority Model Implied Rating: 'AA' (Numerical Value: 8.19)

Metric Profile: 'AA' (Numerical Value: 8.19)

Net Additional Analytical Factor Notching: 0.0

Arizona Fire and Medical Authority's Model Implied Rating is 'AA'. The associated numerical value of 8.19 is at the lower end of the 8.0 to 9.0 range for its current 'AA' rating.

Key Rating Drivers

Financial Profile

Financial Resilience - 'aa'

Arizona Fire and Medical Authority's financial resilience is driven by the combination of its 'Low' revenue control assessment and 'High' expenditure control assessment, culminating in a 'Low Midrange' budgetary flexibility assessment.

Revenue control assessment: Low

Expenditure control assessment: High

Budgetary flexibility assessment: Low Midrange

Minimum fund balance for current financial resilience assessment: >=15.0%

Current year fund balance to expenditure ratio: 54.2% (2023)

Five-year low fund balance to expenditure ratio: 15.7% (2023)

Revenue Volatility - 'Weakest'

Arizona Fire and Medical Authority's weakest historic three-year revenue performance has a negative impact on the Model Implied Rating.

The revenue volatility metric is an estimate of potential revenue volatility based on the issuer's historical experience relative to the median for the Fitch-rated local government portfolio. The metric helps to differentiate issuers by the scale of revenue loss that would have to be addressed through revenue raising, cost controls or utilization of reserves through economic cycles.

Lowest three-year revenue performance (based on revenues dating back to 2005): 33.3% decrease for the three-year period ending fiscal 2012

Median issuer decline: -4.5% (2023)

Demographic and Economic Strength

Population Trend - 'Strongest'

Based on the median of 10-year annual percentage change in population, Arizona Fire and Medical Authority's population trend is assessed as 'Strongest'.

Population trend: 1.8% 2022 median of 10-year annual percentage change in population (81st percentile)

Unemployment, Educational Attainment and MHI Level - 'Midrange'

The overall strength of Arizona Fire and Medical Authority's demographic and economic level indicators (unemployment rate, educational attainment, median household income [MHI]) in 2023 are assessed as 'Midrange' on a composite basis, performing at the 57th percentile of Fitch's local government rating portfolio. This is due to relatively high education attainment levels, midrange median-issuer indexed adjusted MHI and unemployment rate.

Unemployment rate as percentage of national rate: 94.4% 2023 (55th percentile), relative to the national rate of 3.6%

Percent of population with a bachelor's degree or higher: 35.0% (2022) (64th percentile)

MHI as a percent of the portfolio median: 102.5% (2022) (53rd percentile)

Economic Concentration and Population Size - 'Strongest'

Arizona Fire and Medical Authority's population in 2022 was of sufficient size and the economy was sufficiently diversified to qualify for Fitch's highest overall size/diversification category.

The composite metric acts asymmetrically, with most issuers (above the 15th percentile for each metric) sufficiently diversified to minimize risks associated with small population and economic concentration. Downward effects of the metric on the Metric Profile are most pronounced for the least economically diverse issuers (in the 5th percentile for the metric or lower). The economic concentration percentage shown below is defined as the sum of the absolute deviation of the percentage of personal income by major economic sectors relative to the U.S. distribution.

Population size: 4,555,833 (2022) (above the 15th percentile)

Economic concentration: 18.1% (2023) (above the 15th percentile)

Long Term Liability Burden

Long-Term Liability Burden - 'Midrange'

Arizona Fire and Medical Authority's liabilities to governmental revenue has improved while carrying costs to governmental expenditures remain midrange and liabilities to personal income remain moderately weak. The long-term liability composite metric in 2023 is at the 43rd percentile, roughly in line with Fitch local government rating portfolio.

Liabilities to personal income: 7.8% Analyst Input (31st percentile) (vs. 0.0% 2023 Actual)

Liabilities to governmental revenue: 203.0% Analyst Input (38th percentile) (vs. 207.4% 2023 Actual)

Carrying costs to governmental expenditures: 14.1% (2023) (55th percentile)

Analyst inputs for the long-term liability metrics reflect adjustments to account for scheduled amortization of outstanding principal in FY24 and the use of market value in place of personal income.

PROFILE

AFMA is a joint powers authority that was created in 2017 via an intergovernmental agreement between the North County and South County Fire & Medical districts. In December 2022 the authority entered into an agreement with Buckeye Valley Fire District, AZ, to become a member district of the authority, which will be fully integrated into the financials of the authority in FY24.

The authority provides fire and emergency medical services to residents throughout Maricopa County (IDR AAA). AFMA was established to generate efficiencies, both operational and financial, for the taxpayers of the three fire districts. North County, South County, and Buckeye Valley Fire districts maintain taxing powers and pay membership fees to the authority for their services. At the inception of the authority, all equipment and facilities of the two districts were transferred to the authority and all personnel are employees of the authority. The same will hold true with the addition of Buckeye Valley Fire District. The authority operates 12 fire stations full-time.

The board of the three fire districts will remain in place, adopting budgets and setting tax rates. The three fire district boards also appoint the seven members of the authority's board. The authority has no taxing power, relying on membership fee funding from the three fire districts. Fire district revenues are generated by property tax levies.

Although AFMA's service area largely represents certain outlying communities in Maricopa County, it benefits from its location as part of the larger Phoenix MSA, which is the fifth largest city in the U.S. Recent population gains have placed the metro area among the fastest growing in the U.S, and attracted significant residential development that has contributed to solid AV gains post Great Recession.

The broad and diverse regional economy is anchored by professional and business services, retail and wholesale trade, education and health services, and government. Economic diversification has been a major emphasis of local leaders, and the success of those efforts is evidenced by notable growth in technology, healthcare and bio/life sciences, advanced business services and manufacturing.

Fitch expects AFMA's service area will continue to realize further growth in population and LPV based on additional residential and population growth anticipated, especially with acquiring the rapidly growing Buckeye Valley Fire District.

Sources of Information

In addition to sources of information identified in Fitch's applicable criteria specified below, this action was informed by data from DRIVER by Solve.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.

Additional information is available on www.fitchratings.com

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