Standard & Poor's Ratings Services said it lowered its rating on Eureka Public Financing Authority, Calif.'s series 2010A and B taxable lease revenue bonds to A-minus from A.

The outlook is stable.

"The lower rating reflects the city's lack of liquidity in the general fund as well as available balances that include due from other funds with deficit balances," said Standard & Poor's credit analyst Sussan Corson.

Our rating on the lease revenues reflects: the long-term creditworthiness of the city of Eureka; and a covenant by the city to budget and appropriate base rental payments in its general fund.

Eureka's long-term creditworthiness also reflects the city's: only adequate incomes and high unemployment; history of little to no general fund cash and the city's practice of pooling cash with all of its funds, including its enterprise funds; and high annual pension costs as a percent of governmental expenditures.

Factors that mitigate these weaknessess include the city's: status as a regional service center and tourist destination, with adequate incomes; recent passage of a sales tax measure which increased revenue to the general fund for a period of five years; and low overall net debt burden.

Base rental payments paid to the Authority by the city's general fund under a facilities lease for use of the leased assets secure the lease revenue bonds.

Eureka, the county seat of Humboldt County on the Pacific coast, serves about 27,000 residents in northern California, 287 miles north of San Francisco.

"The stable outlook reflects a recently approved sales tax measure that has boosted general fund revenues and transfers to exceed expenditures in fiscal 2012 and projected fiscal 2013 after years of general fund operating deficits," added Ms. Corson. The outlook also reflects strong overall governmental cash levels, including enterprise cash, that have historically provided liquidity to the general fund.

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