Fitch Affirms Yountville Finance Authority, CA's LRBs at 'A+'; Outlook Stable
Fitch Ratings has affirmed Yountville Finance Authority, California's (the authority) bonds as follows:
--$3.4 million lease revenue bonds (LRBs) series 2013 at 'A+'.
In addition, Fitch affirms the Long-Term Issuer Default Rating (IDR) for the town of Yountville (the town) at 'AA-'.
The Rating Outlook is Stable.
SECURITY
The bonds are supported by the town's covenant to budget and appropriate lease payments for use of the town hall and town center, subject to abatement. There is no debt service reserve fund.
KEY RATING DRIVERS
The 'AA-' IDR reflects the town's strong operating performance, supported by steady revenue growth and manageable expenditures and long-term liabilities. The town's economy and finances are notably dependent on a small number of luxury lodging and restaurant properties. Such activity has served the town well historically but a downturn in this sector would present a substantial challenge to future operating performance.
Economic Resource Base
Yountville serves approximately 3,000 residents in Napa County, about 60 miles north of San Francisco. The town is centrally located in Napa Valley's internationally recognized wine country and attracts an outsized share of wealthy visitors drawn to its upscale hotels and restaurants.
Revenue Framework: 'aa' factor assessment
Revenues have outpaced inflation and U. S. national economic performance by large margins over the decade ending fiscal 2014 due largely to the strong performance of the town's lodging taxes. Fitch expects robust revenue growth to continue. The town's legal ability to raise revenues is constrained by Proposition 13, which requires voter approval for tax increases.
Expenditure Framework: 'aa' factor assessment
The town, with a moderate fixed cost burden, has demonstrated a solid ability to manage spending at times of economic decline. On average, growth in spending is likely to be below revenue growth over time.
Long-Term Liability Burden: 'aa' factor assessment
The town participates in an adequately funded state pension plan and funds the bulk of its capital needs from current resources, resulting in a long-term liability total that is moderate relative to its resource base.
Operating Performance: 'aaa' factor assessment
Reserve levels are very strong and would allow the town to readily withstand a moderate recession scenario. Management has made consistent efforts to support financial flexibility in the wake of the recession.
RATING SENSITIVITIES
High Economic Concentration: The rating is sensitive to fundamental changes in the tourism activity that anchors the town's economy. A non-cyclical decline in activity could have significant negative impacts on city finances and lead to downward rating action.
CREDIT PROFILE
Yountville is predominantly built out with a stable population and limited new construction. Tourism is the mainstay of the economy and has contributed to the town's strong operating performance over time.
Revenue Framework
Lodging taxes comprise the majority of the town's revenues, and are supplemented by sales and property taxes. Each of these revenue streams relies on a small number of hotel and restaurant properties, linking the town's finances to the performance of the local tourism sector, which has experienced sustained growth over the last decade.
Overall general fund revenue growth has exceeded inflation and U. S. economic performance historically and prospects for further growth appear solid.
State law requires voter approval of tax increases, limiting the ability of the town to control revenues. Property tax growth is constrained by an annual limit on assessed value increases on taxable property absent a change in ownership.
The town's reliance on tax revenue, specifically transient occupancy tax, places it in a unique position of potentially exceeding the Base Appropriations Limit established by California's Proposition 13, commonly known as the 'Gann Limit'. The Gann Limit places monetary limits on the amount of general tax revenues which may be spent in any given year. Revenues in excess of the limit might otherwise have to be refunded to taxpayers or used to reduce other related fees. This limit can be overridden by a vote, and Yountville's citizens have approved the override nine times, most recently in 2014 when a $1.5 million override was authorized. The override was approved by 84% of voters and extends through fiscal year 2019.
Expenditure Framework
The town provides a broad range of municipal functions with contracted public safety services accounting for the majority of general fund expenditures.
Based on the town's current spending profile, such costs are likely to be below expected revenue growth.
The town's ability to reduce expenditures is constrained by a high share of costs for public safety and minimal staffing levels. Fixed costs for debt service and retiree benefits are moderate, providing some offsetting flexibility to reduce costs if required.
Long-Term Liability Burden
Long-term liabilities are moderate relative to total personal income and management has no plans for issuance of tax-supported debt. Employees participate in a state-sponsored pension plan and funding levels are adequate. The town has also established an irrevocable trust for other post-employment benefits with assets equal to 35% of liabilities as of the most recent actuarial valuation in 2012.
Operating Performance
Unrestricted general fund reserves of $5.6 million at the end of fiscal year 2015 (equivalent to 60% of general fund spending) were very high relative to expected revenue declines in a moderate recession scenario. Fitch expects that the town would demonstrate superior financial resilience in such circumstances.
The town budgets conservatively and funds most capital needs from current resources, with no material deferral of required spending.
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