Fitch Ratings said it downgraded Tucson, Ariz.'s $214.8 million general obligation bonds outstanding (pre-refunding) to AA-minus from AA.
Fitch also lowered the city's $259.2 million certificates of participation outstanding (pre-refunding) to A-plus from AA-minus and $11 million Rio Nuevo Multipurpose Facilities District COPs (city of Tucson Convention Center Expansion Project), series 2009 to A from A-plus.
Fitch rated AA-minus the city's $20 million GO bonds, series 2012-C (2015) and $36.6 million Go refunding bonds, series 2015; and assigned an A-plus rating to its $20.7 million COPs, refunding series 2015.
The GO bonds and COPs are scheduled for negotiated sales on or around June 3. GO proceeds will finance street improvements in the city and refund a portion of the city's outstanding GOs for interest savings. COP proceeds will be used to refund outstanding certificates for annual interest savings.
The rating outlook is negative.
The GO bonds are payable from an unlimited ad valorem tax levied against all taxable property in the city. The COPs are payable from lease payments from the city to the trustee, subject to annual appropriation by the city. The Rio Nuevo MFD COPs are payable from lease payments from the city, subject to annual appropriation. The leased property consists of the recently renovated Tucson Convention Center.
The downgrade is due to a persistent structural budgetary imbalance, driven primarily by increasing outlays for employee benefits and economically sensitive revenue gains that will not keep pace. Preliminary fiscal 2015 operating results indicate a use of reserves to close a spending gap, a trend expected to continue into fiscal 2016.
Debt levels remain affordable and the pace of GO and COP debt repayment is well above average. All three pension plans for Tucson employees are underfunded, and contributions for the state-sponsored police and fire plans are very high and increasing.
Recovery from the severe recession continues at a moderate pace, as evidenced by a number of economically sensitive indicators. The regional economy remains diverse and relatively stable, with a good mix of higher education, military and government employment.
