Standard & Poor’s upgraded its issuer credit rating for San Diego County to AAA from AA-plus ahead of a $221 million revenue bond issue.

The agency also raised the county’s revenue bonds, certificates of participation, and pension debt to AA-plus from AA.

“The raised ratings reflect the county’s very strong financial management practices and policies, its continued strong reserve position, and demonstrated track record of meeting or exceeding forecasts,” analyst Paul Dyson said in a report.

The upgrade comes amidst a sharp decline in the local housing market, which was one of the frothiest in the nation during the housing boom. Home prices have fallen 31% over the past three years according to the Standard & Poor’s/Case-Shiller Home Price Index.

“We believe the county’s credit quality and rating are resilient to the recent trend of softer revenue performance related to the current and acute downturn in the regional residential real estate market,” Dyson said. “County management’s willingness to reduce service levels when they are unfunded, consistent maintenance of strong reserves, and active budget monitoring contribute to our belief that the county will successfully navigate this episode of economic difficulty.”

Standard & Poor’s said the county’s reserves are “very strong” at 73% of discretionary revenues and 24% of general fund spending. It called the county’s debt burden “low-to-moderate and manageable” at 2.4% of assessed value, including overlapping jurisdictions.

The rating report also said the county has been paying down its unfunded pension liability, cutting it to $832 million as of June 30, 2007, from $1.23 billion a year earlier. It has also accelerated payments on its outstanding pension bonds, and its unfunded retiree health care liability is a relatively low $217 million.

San Diego County’s economy has traditionally outperformed the rest of the state. Its unemployment rate was 4.6% last year versus 5.4% for California as a whole. Median household income levels were 15% higher than the national average.

The county’s implied general obligation bond rating is AA-plus from Fitch Ratings. Moody’s Investors Service rates the county’s general obligation pension bonds Aa3.

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