OREANDA-NEWS. Fitch Ratings has affirmed the following San Francisco County Transportation Authority (the authority) CA implied sales tax revenue bonds:

--Implied sales tax revenue bonds at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The bonds will be secured by a first lien on the authority's one-half-cent sales tax collected in the City and County of San Francisco. As an implied rating, it is based on assumptions regarding legal structure and leveraging stated by the authority. The implied rating assumes the authority issues no more than $200 million in bonds.

KEY RATING DRIVERS

STRONG COVERAGE: The 'AA+' rating reflects robust coverage on the proposed sales tax revenue bonds. Coverage remains strong under each of several Fitch-designed stress scenarios, which consider revenue declines, higher than anticipated financing costs, and increased borrowing needs.

MINIMAL OPERATING PRESSURES: Voter-approved sales tax revenues are dedicated to specific capital projects and programs, and face minimal pressure from transportation operations or other potential uses.

LARGE AND DIVERSE ECONOMY: Sales tax revenues are generated from a large and diverse city economy that has proven resilient in the wake of the economic downturn, with renewed growth in tax receipts.

RATING SENSITIVITIES

FINANCING ASSUMPTIONS: The implied rating is based on a hypothetical transaction with modest leveraging of pledged revenues and strong bondholder protections. An issuance inconsistent with such assumptions could result in a lower rating.

CREDIT PROFILE
The authority is a transportation planning and programming agency whose mission is to improve mobility throughout the City and County of San Francisco. The authority was established in 1989 with voter approval of a transportation expenditure plan and a city-wide one-half-cent sales tax. In 2003 the authority adopted a revised expenditure plan with new projects approved by voters under Proposition K, which also extended the tax through 2034.

The authority functions solely as a capital financing agency, with minimal operating responsibilities. Funding priorities include major capital projects, such as construction of San Francisco MUNI's central subway, as well as transit vehicle replacement, roadway improvements, and a variety of additional transportation-related projects.

STRONG COVERAGE

Pledged sales taxes supporting the planned issuance of long-term bonds are economically sensitive, but exhibit an overall positive trend. Tax receipts declined by 14.3% over a two-year period in the last recession, but increased by 37.8% over the following four years. The largest single-year decline was 16.8% in 2002. Since 1991 receipts have increased at a compounded annual growth rate of 3.6%.

The authority's funding requirements to date have been met with a combination of current tax receipts and short-term borrowing. Projected borrowing needs have been lower than 2003 estimates due to construction delays as well as the receipt of grant funds. As of November 2015 the authority maintained a cash balance of $96 million and retained $5 million in unutilized short-term borrowing capacity on a $140 million revolving credit line.

Long-term debt plans for the authority have evolved considerably since the adoption of Proposition K in 2003. While the authority previously anticipated issuance of $825 million of long-term sales tax revenue bonds, management now expects to issue no more than $200 million. Outstanding short-term debt (currently at $135 million) would be paid from cashflow under this scenario, with the full $200 million in long-term proceeds committed to capital projects. Debt issuance plans are under ongoing review and, given revised project schedules, the authority may elect to defer or forgo long-term borrowing and meet its obligations from current receipts instead.

Implied coverage on the proposed sales tax bonds is strong as a result of the authority's reduced borrowing needs. Fitch's coverage model assumes the authority will issue $200 million of long-term sales tax revenue bonds in 2016 with a total interest cost of 4.5%, level debt service, and a final maturity in 2034, when the current authorization of the sales tax expires. Under conservative assumptions of no further growth in pledged revenues, sales tax coverage is very strong at 5.9x maximum annual debt service. Coverage remains healthy under Fitch-designed stress scenarios that consider a substantial one-time sales tax shock, increased interest costs, and a par amount twice the authority's current assumptions.

MINIMAL OPERATING PRESSURES

The authority's funding commitments are restricted to amounts specified in Proposition K, and typically provide only a portion of project costs. This approach limits the authority's exposure to potential project cost overruns and offers the authority a stable source of matching funds for state and federal grants. In addition, Proposition K includes strong protections for tax revenues, limiting the authority's ability to redirect funding to other uses. These features protect the authority's sales tax revenues from excess commitments or diversion, helping to ensure their availability for funding voter-approved projects and future debt service.

ECONOMIC GROWTH OUTPACES STATE AND NATION

San Francisco's economy has outpaced the nation's since the downturn. Employment levels increased by 3.6% in 2014, as compared to 2.3% and 1.7%, respectively, for California and the nation. The city's unemployment rate of 3.2% as of September 2015 bettered state and national rates of 5.5% and 4.8% by a substantial margin.

Home values reported by Zillow.com surpassed pre-recession peaks in March 2013, and were up nearly 15% year-over-year as of October 2015. The city did not experience a decline in assessed value during the downturn and has experienced robust growth in subsequent years.