OREANDA-NEWS. Fitch Ratings has affirmed the following City of Glendale Financing Authority, California ratings:

--$35.6 million certificates of participation (COPs) at 'AA'.

In addition, Fitch affirms Glendale, California's Issuer Default Rating (IDR) at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The certificates are payable from city lease payments in amounts sufficient to meet debt service. The city covenants to budget and appropriate annually for the lease payments, subject to the availability and use of the facility; the leased facility is a police building.

KEY RATING DRIVERS

The 'AA+' IDR reflects the city's solid economic resource base, low long-term liability, historical solid expenditure control, sizeable reserves and gap closing capacity. The city has a strong overall financial profile. Revenue performance has trended positively, but the city's limited legal ability to raise revenues presents an ongoing challenge.

Economic Resource Base

Glendale, the fourth largest city in Los Angeles County, covers approximately 30.6 square miles and is located between Pasadena and Burbank. The city's population is marginally above 200,000. The local economy is diverse, benefiting from a range of employment sectors and its participation in the broad labor market of the greater Los Angeles area. The unemployment rate has improved since the last recession - now nearly at par with the county and state averages. The city's tax base is projected to continue the steady increases experienced in fiscals 2013, 2014, 2015 through fiscal 2016 and 2017. Significant additional commercial and residential development along with a recovering housing market is expected to support assessed value (AV) levels over the near - to medium-term.

Revenue Framework: 'aa' factor assessment

The city's revenue growth outperformed U. S. GDP and inflation. Fitch expects growth prospects will continue to improve based on the continuation of recent trends. The city's legal ability to raise revenues remains constrained by Proposition 13, which requires voter approval for tax increases, but capacity to raise locally-controlled fees and charges provides substantial revenue-raising flexibility.

Expenditure Framework: 'aa' factor assessment

The city's natural pace of spending growth is likely to be in line with revenue trends over time. The unblending of medical insurance premium rates between active and retired employees recently reduced the city's OPEB liability steeply; however, some upward expenditure pressure from increasing pension contributions is expected to offset this gain in the long term. Additionally, the outcome of pending litigation threatens to constrain the city's ability to manage spending.

Long-Term Liability Burden: 'aaa' factor assessment

The city's long-term liability burden is low and projected to stay at those levels with no additional debt planned in the medium term.

Operating Performance: 'aaa' factor assessment

Management has made consistent efforts to maintain financial flexibility in the wake of the most recent recession. Fitch expects the city to utilize its strong reserves and expenditure flexibility, including its demonstrated ability to negotiate labor concessions, to address periods of revenue uncertainty.

RATING SENSITIVITIES

EXPENDITURE FRAMEWORK: The 'AA+' IDR could come under downward pressure if the city's outstanding litigation causes materially negative changes to the expenditure framework.

FINANCIAL FLEXIBILITY: The rating is sensitive to a drop in current reserve levels and a contraction in gap-closing capacity.

CREDIT PROFILE

The city's revenue sources include property taxes (31%), sales taxes (21%), and fees or other (25%). The economy comprises industry clusters in retail trade, healthcare, business services, animation, entertainment, manufacturing, wholesale trade, financial services, technology and new media. Expansion of its economic resource base includes the construction of 2,500 residential units, several hotels and active negotiations with other hospitality groups.

Revenue Framework

Total general fund revenue has had strong growth in the last decade, surpassing the pace of GDP and inflation by over 4%. Fitch expects these growth trends to continue, supported by solid gains in property and sales taxes.

State law requires voter approval of tax increases, limiting the ability of the city to control revenues. Absent a change in ownership, property tax growth is also constrained by an annual limit on AV increases on taxable property. Despite these restrictions, the city has the ability to increase fees, charges and other locally controlled revenue sufficient to provide substantial flexibility to offset recessionary revenue stress.

Expenditure Framework

The city provides a broad range of municipal services with public safety (police, fire and paramedics) accounting for the majority of general fund expenditures.

The rate of spending growth is expected to be in line with to marginally above expected revenue growth in the absence of policy action, despite rising pension system (CalPERS) contributions.

Fitch expects the city to maintain solid expenditure flexibility given its moderate carrying costs for debt service, pension and other post-employment benefits and favorable workforce environment. Management has demonstrated a solid ability to employ cost reduction strategies during a revenue downturn.

Long-Term Liability Burden

The long-term liability burden is moderate relative to the city's economic resource base with unfunded pension liability, direct debt and overlapping debt totaling about 7.6% of personal income. The city's direct debt burden is relatively small and composed largely of $35.6 million in variable-rate certificates of participation (COPs). The city participates in CalPERS, an adequately funded state pension plan.

The city entered into a direct purchase agreement with Bank of America to refund the city's outstanding variable rate COPs debt. The new bonds accrue interest at the one-month LIBOR plus a spread determined by the bond rating. The agreement expires in 2019.

Operating Performance

The city has exceptionally strong gap-closing capacity with ample reserves relative to its low revenue volatility. The Fitch Analytical Sensitivity Tool suggests the city may experience very modest revenue losses in a moderate recession. Current reserves are sufficient to offset such a revenue loss even if policymakers took no action to raise revenues or adjust spending. The city is likely to maintain substantial reserves across business cycles. In a typical downturn, Fitch expects the city to enact necessary spending reductions and maintain reserves at or near policy levels. Fundamental financial flexibility and reserves are likely to remain well above the level that Fitch believes are healthy.

Budget management in times of recovery is very strong. The city makes consistent efforts to maintain structural budget balance by creating and adhering to conservative five-year financial forecasts. Ample reserves, maintained above the city's 30% reserve policy, coupled with inherent budget flexibility contribute to the city's expected strong financial resilience through an economic downturn.