OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to the following West Sacramento Area Flood Control Agency (the agency), California bonds:

--\$27 million assessment revenue bonds, series 2015.

Fitch has also affirmed the following agency ratings:

--\$21.7 million assessment revenue bonds, series 2008 and 2011 at 'AA-'.

The series 2015 bonds will be solid via negotiation on March 17, 2015. They will refund certain series 2008 bond maturities for interest cost savings.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from annual assessments for capital facilities levied by the agency on all property parcels within the city of West Sacramento (the city), net of a 15.52% operations and maintenance set aside. The per parcel assessment is allowed to increase by up to 2% per year.

KEY RATING DRIVERS

SOLID DEBT SERVICE COVERAGE: The dedicated property assessment provides sound debt service coverage which could withstand significant stress.

REVENUE STABILITY; SOUND FINANCIAL CUSHION: Assessment collections have grown steadily over the past few years, bolstered by the agency's commitment to annual assessment escalations. The agency's finances also benefit from solid general fund reserves.

ALLOWANCES FOR ADDITIONAL DEBT: A relatively weak additional bonds test, underscored by slow amortization, permits significant future debt issuance.

EXPOSURE TO INTERGOVERNMENAL FUNDING: The federal and state governments are expected to contribute the majority of the flood protection program funding. In the event of intergovernmental funding shortfalls, agency responses could include phasing in component projects consistent with available funding or additional leveraging beyond current expectations.

GRADUAL ECONOMIC RECOVERY: Both the local economy and the diverse tax base are recovering, with good future growth prospects, despite a persistently above-average unemployment rate.

RATING SENSITIVITIES

SATISFACTORY DEBT SERVICE COVERAGE: The current rating assumes maintenance of debt service coverage well above the minimal ABT requirement, even after possible intermediate term debt issuances.

CREDIT PROFILE

The agency was created in 1994 as a joint powers authority comprising the 22-square mile city and two reclamation districts responsible for maintaining the city's 52 miles of levees. The boundaries of the agency and the city are congruent. West Sacramento, with a 2013 population of 49,891, occupies reclaimed land on the Sacramento River flood plain and is surrounded by water on three sides. The city has its own deep water port which provides direct shipping access to the San Francisco Bay and the Pacific Ocean. The city's flood protection program is intended to fund improvements to the levees surrounding the city to meet state-mandated 200 year flood protection goals by 2025. The annual assessment for capital facilities levied by the agency on the city's approximately 16,080 property parcels will fund approximately half of the 10% local share of the flood protection program costs; the remaining local share will come from bond proceeds, sales tax revenues, and developer fees.

SOLID DEBT SERVICE COVERAGE

Issuance of the assessment revenue bonds, series 2015 will lower debt service coverage to still solid levels. The agency projects that annual debt service coverage through fiscal 2046 will range between 1.37 times (x) and 2.40 x based on net assessment revenues from private parcels only (down from 1.53x and 2.69x at Fitch's previous review), assuming the agency's ongoing commitment to escalate assessment by 2% annually. Taking into account net assessment revenues from all private and public parcels, annual debt service coverage will range between 1.57x and 2.78x (down from 1.75x and 3.07x).

Net assessment revenues could deteriorate from privately-owned parcels by approximately 24% and from all parcels by approximately 35% and still achieve 1.00x maximum annual debt service (MADS) coverage. No acceleration of debt repayment is permitted.

REVENUE STABILITY

Prudently, the agency remains committed to implementing the maximum allowable 2% escalation of the assessment each year. Consequently, this revenue source continues to grow (by 4.2% in fiscal 2014 alone). A substantial majority of the levy is derived from private parcels (95.3% of the total parcels), thus providing ample revenue stability under the Teeter plan.

All parcels within the city are subject to the voter-approved assessment, based on a formula that assesses the total relative flood damage reduction benefit each parcel receives from levee improvements. Any change to the assessment formula or rate structure would require a vote of property owners. Assessed valuation is not a factor in the assessment formula, so the assessed amount is immune to tax base volatility. Assessment revenues are collected on the county's regular property tax bills. Nonpayment is subject to the same remedies as nonpayment of ad valorem property taxes, including foreclosure proceedings. Publicly-owned parcels (4.7% of total parcels) are not subject to lien upon non-payment of assessments, and are therefore excluded from the more conservative debt service coverage calculation.

SOUND FINANCIAL CUSHION

The agency has been using general fund reserves to help fund levee improvements, as demonstrated by general fund drawdowns in fiscal years 2012-2014. Nevertheless, the unrestricted general fund balance remained a solid 30.2% of general fund spending in fiscal 2014. The agency expects to add to its general fund balance in fiscal 2015, growing the unrestricted general fund balance potentially up to \$6 million. The projected increase is largely due to an 80% state reimbursement for an upcoming construction project. As a result, reserves should remain at levels Fitch considers sufficient to address any liquidity concerns.

Although not pledged, the voter-approved extension of a general half-cent sales tax through 2028 could provide additional revenue flexibility for debt service repayment and pay-as-you-go capital financing, to the extent it is not needed for general city operations.

ALLOWANCES FOR ADDITIONAL DEBT

The weak additional bonds test (ABT) requires net assessment revenues available for debt service equal or exceed only 1.10x MADS. However, Fitch considers that the ABT is somewhat conservatively calculated. First, the calculation must be based on the most recent audited fiscal year. Second, while assessments from both private and public parcels are pledged to bondholders, the ABT specifically excludes assessments generated by publicly-owned properties. The slow amortization rate, with only 19.1% of principal retired within 10 years, facilitates layering on additional debt under the ABT.

Bondholder protection is provided by a fully cash-funded parity debt service reserve fund, which is equal to the least of MADS, 1.25x average annual debt service, or 10% of par. The city's overall debt burden is high at \$8,900 per capita and 7.8% of market value. In contrast, agency direct debt is low at \$806 and 0.7% respectively.

RISKS FROM INTERGOVERNMENTAL FUNDING SOURCES

The total flood protection program cost is estimated at \$460 million, with the agency share of \$46 million to be comprised of debt issuances, dedicated assessment revenues, in-lieu developer fees, and sales tax revenues. Authorization of the roughly \$300 million in federal funds is expected to occur in 2016. State funds are expected to total \$115 million, of which \$36.9 million have already been provided.

Fitch views cautiously such a proportionately large reliance upon intergovernmental funding, although the agency's ability to reduce the flood protection program's parameters mitigates this risk to some extent, as does the receipt of partial state funding to date. In the event of less than anticipated intergovernmental funding, the agency could consider issuing more debt than originally planned, which likely would negatively affect coverage levels.

GRADUAL ECONOMIC AND TAX BASE RECOVERY

The region benefits from its role as California's state capital and the commercial center of a metropolitan area with more than 2.2 million residents. While the regional economy remains largely government-driven, the city has a diverse range of top employers and is seeing a number of new food processing and distribution businesses, as well as a major pharmaceuticals firm. The city continues to experience population growth. However, wealth levels and educational attainment are generally below state and national averages and the unemployment rate remained stubbornly high at 12.5% in November 2014. While this is well above the state's 7.1% and the nation's 5.5% unemployment rates, it is down from 14.3% a year prior.

The city grew rapidly during the housing boom of the last decade, and then experienced a moderate 8.7% AV decline during the recession. The city's tax base started to recover in fiscal 2013, and has posted a cumulative 7.7% rebound through fiscal 2015. This recovery is due to the reversal of Proposition 8 appeals, a significant amount of new construction, greater residential property turnover, and increasing housing prices. The top taxpayers are a diverse mix of office buildings, retail businesses, and industrial/commercial firms.