Strong economy, reserves part of San Jose's AA-plus affirmation by Fitch
San Jose, California's rating was affirmed by Fitch Ratings.
Affirmed at AA-plus were $342.8 million in outstanding general obligation bonds and San Jose's Issuer Default Rating at AA-plus.
In last week's action, Fitch also affirmed its AA rating of $486.2 million in lease revenue bonds though the San Jose Financing Authority and $85 million in lease commercial paper notes.
The AA-plus ratings “rating reflect the city's strong economy and concomitant revenue growth, adequate expenditure flexibility, moderate liability burden and consistently strong reserves relative to its revenue volatility and budget flexibility,” said Fitch's report.
The San Francisco Bay Area city with a population of 1 million – the third largest in the state – benefits from its location in the Silicon Valley and a large workforce in the high-tech industry, the report said. Per capita personal incomes and education levels are above state and national averages while the unemployment rate – 2.3% as of May – has been well below the national rate for the past five years, Fitch’s analysts said.
“Fitch expects revenue growth to remain strong in light of the growing economy and continued development and redevelopment of the downtown and other areas in the city,” the report said.
Debt and unfunded pension liabilities are moderate relative to the city’s growing base, analysts said. The city, which has its own pension system, should be able to reduce its retirement costs over the long term due to the creation of a tiered system approved by voters in 2012 that lowered benefits for new employees, the report said.
Fitch also credited the city for strong budget management and building a robust reserve.
The city is continuing to see increased commercial and residential development most notably a transit village being developed by Google’s parent company Alphabet in the city’s downtown that will include 6 million to 8 million square feet of office, residential, retail, restaurants and other amenities near light-rail stations.
Like all California cities, San Jose cannot increase revenues without a vote of the electorate but voters have supported a quarter-cent sales tax hike and an increase in the business tax in 2016.
San Jose will be going to the voters again this fall with two bond measures totaling $1.1 billion that will fund affordable housing, transportation and public safety projects.