OREANDA-NEWS. Fitch Ratings has upgraded the following ratings for Vista, CA:

--\$111 million certificates of participation (COPS) series 2007 to 'AA' from 'AA-';
--Implied unlimited tax general obligation (ULTGO) rating to 'AA+' from 'AA'.

The Rating Outlook is Stable.

SECURITY
The COPs are payable from lease payments made by the city for use and occupancy of several city facilities. Lease payments are subject to annual appropriation and full or partial abatement.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE AND RESERVES: The upgrade reflects the city's strong financial flexibility resulting from balanced operations, expenditure flexibility and very high reserves.

MANAGEABLE LONG-TERM LIABILITIES: Overall debt levels are moderate with an increasing debt service schedule expected to remain manageable given identified repayment source, limited future capital needs and no debt issuance plans. The city has no liability for other post-employment benefits (OPEB) and carrying costs for debt service and pensions are affordable.

STABLE TAX BASE: The city's tax base has experienced steady moderate growth after limited declines during the last recession. Assessed values (AV) reached record highs in fiscal 2015 and recent construction permit activity points to further likely gains in subsequent years.

MIXED ECONOMIC INDICATORS: Median household incomes remain below average but employment levels have expanded steadily over the last several years. Local unemployment rates are between the state and national averages.

LEASE APPROPRIATION RISK; ESSENTIAL ASSETS: The COPs rating reflects annual appropriation risk of lease payments balanced by the essential nature of the leased assets which include fire stations and city offices, and sound structural features including a cash-funded debt service reserve and rental interruption insurance.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit qualities including the city's strong finances and stable economy. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE
The city of Vista, with a population of over 97,000, is located in northern San Diego County (rated 'AAA' implied GO by Fitch), 40 miles north of the city of San Diego and 90 miles south of Los Angeles.

STRONG FINANCIAL PERFORMANCE AND RESERVES
The city continues to record strong operating results and has made regular additions to general fund reserves. Total fund balance rose to an exceptionally high 113% of general fund spending in fiscal 2014. Approximately \$8.5 million of the city's \$26.8 million general fund surplus in 2014 can be attributed to conservative budgeting and higher than anticipated revenues.

Extraordinary gains accounted for the remaining \$18.3 million in general fund surplus, and resulted from the reinstatement of loans between the city and its redevelopment successor agency, as well as the reversal of land sales between the two entities, all of which have been approved by the state Department of Finance. The city has treated such gains as restricted fund balance in its financial statements due to uncertainty regarding the timing for their repayment, leaving unrestricted fund balance at a still very healthy 79% of general fund spending as of fiscal 2014.

The city's strong financial position has enabled it to pursue a range of prudent actions including the prepayment of outstanding debt, regular pay-go funding of capital needs, and the recent elimination of a \$4.6 million side-fund liability for its CalPERS safety plan. Management also demonstrated its ability to control expenditures during the last recession through the use of furloughs and attrition, and has maintained total city employment at levels well below pre-recession peaks.

Approximately one-third of fiscal 2014 general fund revenues is derived from sales taxes. Fitch's concerns regarding the volatility of such revenues are offset by the city's strong fund balances and history of proactive management to address revenue shortfalls.

MODERATE OVERALL DEBT
Overall debt levels are moderate at \$3,554 per capita and 3.9% of AV. Amortization of direct debt is slow, with 27% of principal due for repayment within the next 10 years. Capital needs are limited, offsetting concerns about slow amortization, and the city funds most ongoing capital requirements from its operating budget.

The 2007 COPs account for the bulk of the city's outstanding debt and are supported on a budgetary basis by a 30-year, voter-approved half-cent sales tax (Measure L). Debt service requirements escalate at approximately 2% per year, and Measure L proceeds have been sufficient to fund all COPs payments to date. The city accumulated a substantial internal reserve from sales tax collections in the years immediately following the authorization of Measure L, and has been spending down this balance in recent years to fund public safety operations in addition to debt service. At the end of fiscal 2014 approximately \$5.8 million remained in the Measure L reserve (about 80% of 2015 debt service), which is accounted for as a committed reserve in the city's general fund. Rising debt service for the COPs may require additional general fund support in future years, but the city appears well-positioned to address this challenge.

The COPs are payable from lease payments made by the city in a typical lease transaction including a city covenant to annually budget and appropriate lease payments and a cash-funded debt service reserve. Projects funded with COP proceeds have been completed on time and within budget.

MANAGEABLE CARRYING COSTS
The city participates in CalPERS and contributes 100% of the required annual payment. Pension contribution rates are likely to increase over the next several years due to recent changes in actuarial assumptions and efforts to reduce unfunded liabilities. The city has no OPEB liability. Total carrying costs for debt and retiree benefits are manageable at 17% of governmental expenditures.

STABLE TAX BASE
The city's tax base has proven resilient, with a modest 5% decline during the recession followed by three years of accelerating growth, and 2015 AV levels that exceed pre-recession peaks. Home values reported by Zillow.com remain depressed relative to pre-recession levels but have risen sharply since 2012 and recorded 5.6% year-over-year gains as of December 2014. Recent building permit activity has also been robust, particularly for residential units, which should support ongoing AV growth.

MIXED ECONOMIC INDICATORS
Median household incomes remain below average at 77% and 89%, respectively, of state and national levels. Employment has expanded steadily since 2010 and increased by 3.5% year-over-year as of November 2014, well above state and national growth rates. The local unemployment rate of 6.5% as of November 2014 falls about midway between state and national rates, as it did both prior to and during the last recession.
The tax base is diverse with the top 10 taxpayers representing just 7% of AV comprising a mix of real estate holdings and small local manufacturers. The city is adjacent to the U.S. Marine Corps' Camp Pendleton, and its economy remains somewhat weaker than the broader San Diego region, as demonstrated by above-average unemployment rates and below-average income levels.