| Global Credit Research |
| New Issue |
| 7 JUL 2003 |
|
|
|
|
New Issue:
Oakland (City of) CA
|
|
MOODY'S AFFIRMS A1 RATING ON OAKLAND G.O. BONDS WITH CITY'S ANTICIPATED ISSUANCE OF 2003A SERIES |
|
|
|
|
|
Approximately $210 Million of Debt Affected, Including the Current IssueMunicipality
NEW YORK, Jul 7, 2003 -- Moody's has assigned an A1 rating to the City of Oakland's General Obligation Bonds (Series 2003A, Measure DD) and affirmed the A1 rating on the city's outstanding parity debt. The rating primarily reflects the city's continued property tax base growth, an above average debt burden, and the relative diversity and strength of the Oakland-area economy compared to the rest of the Bay Area. The rating also reflects the city's maintenance of its modest reserve fund target with the implementation of timely mid-year budget adjustments. Proceeds of the current offering will primarily be used to fund construction and improvements to recreational facilities and amenities around a city lake. These voter approved bonds are a general obligation of the city secured by its unlimited property tax pledge. RESIDENTIAL PROPERTY MARKET CONTINUES TO BOLSTER THE CITY'S FINANCES The city's assessed valuation grew 8.0% in fiscal 2003, capping a five-year run that averaged 7.2% annual growth. For at least the second year in a row, property tax receipts and real estate transfer taxes have considerably exceeded budgeted levels and offset other areas of revenue weakness and expenditure growth. The fiscal 2003 estimated-actual real estate transfer taxes were particularly strong relative to budget (up $38 million). Areas of revenue weakness were economically sensitive revenues (e.g. sales taxes, business license taxes) that reflect the general slowdown in the Oakland area economy. While the Oakland area economy has generally slowed, we note that the city came somewhat late to the economic expansion, local developments in the pipeline are still moving forward, and the Oakland metro area is the healthiest of the three in the Bay Area. Housing and retail development are two areas of likely continued long-term growth. The latter we expect to benefit the city in terms of sales tax revenue growth. RESERVE FUND TARGET MAINTAINED The city projects ending fiscal 2003 with its 7.5% general fund reserve target intact. While considerably less than a typical California city's reserve level, this reserve is notably better than the city's reserve position in the early 1990s, and Oakland expects to maintain this reserve even in the currently slower economy. The 7.5% reserve was incorporated into the city's adopted two-year (FYs 2003-05) budget. The fiscal 2004 budget appears reasonably conservative, though it does assume a moderate economic recovery. Third-party economic forecasts support this assumption, though not with a great deal of certainty. The city has proven over the past two years that it can and will make timely mid-year budget adjustments, which is positively factored into our analysis. This is particularly important as the city continues to be challenged by maintaining police overtime expenditures at budgeted levels, and other labor costs, particularly pension benefits, will increase inexorably in the next few years. Relatively long, multi-year labor contracts are in place for the city's major, full-time employee unions, and pension fund market losses will add to the cost of recently increased benefit levels. DEBT BURDEN REMAINS WELL ABOVE AVERAGE, BUT SEVERAL FACTORS MITIGATE THE ASSOCIATED LONG-TERM RISKS Even with recent strong assessed valuation growth, the city's overall debt burden (8.5% as of May 1, 2003) remains quite high, in part due to the overlapping school district's continued substantial issuance. The city's direct debt burden is also well above average at 5.5%. The city's rate of direct debt retirement is favorable, however, and a substantial portion of the city's direct debt is self-supporting. Also notably, more than half of the city's net direct debt is accounted for by voter-approved, property-tax supported pension obligation bonds. Oakland's property tax delinquency rate remains modest, averaging between five and six percent annually on a current collection basis. KEY STATISTICS 2003 population: 412,200 Fiscal 2002: Unreserved general fund balance as % of revenue: 6.1% [1] Net direct debt as % of A.V.: 3.3% Average annual assessed valuation growth, FYs 1997-2002: 6.5% Assessed value per capita, FY 2002: $57,561 2000 Census, Median family income: $44,384 (83.7% of the state) Per capita income: $21,936 (96.6% of the state) City unemployment rate, March 2003: 10.4% [1] Audit basis. City's reserve target of 7.5% includes up front cash not yet recognized as earned by the city's auditor. AnalystsEric Hoffmann
Kenneth Kurtz Contacts Journalists: (212) 553-0376 |
|||||||||||||
|
|
|
|
|
© Copyright 2003, Moody’s Investors Service, Inc. and/or its licensors including Moody’s Assurance Company, Inc. (together, MOODY’S). All rights reserved. |
|
|
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided "as is" without warranty of any kind and MOODY’S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. Pursuant to Section 17(b) of the Securities Act of 1933, MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from $1,500 to $1,500,000. | |