Tucson, Arizona, received a positive outlook from Fitch Ratings Monday as it prepares to issue $320 million of general obligation bonds and certificates of participation.
Fitch affirmed its rating on $148 million of outstanding Tucson GO bonds at AA-plus and $171.6 million of certificates at A-plus. The city’s issuer default rating was affirmed at AA-minus.
“Improved revenue growth prospects and strengthened financial resilience are the primary contributors to the outlook revision to positive from stable,” Fitch analyst Steve Murray said. “Healthy gains in economically sensitive revenues, as well as recent and proposed commercial developments and employment increases are evidence of Tucson's currently positive economic landscape.”
With more than 545,000 residents, Tucson, near the Mexican border, is Arizona’s second most populous city behind Phoenix. Including surrounding Pima County, the population exceeds 1 million. Services, military, higher education, the University of Arizona, and government are the area's prominent employment sectors.
Moody’s Investors Service rated Tucson’s GO credit Aa3 in 2018 with a stable outlook. S&P Global Ratings last rated the city’s GO credit AA-minus in 2017.
In November 2018 elections, Tucson voters approved $225 million of bonds for parks projects that are now underway.
The support for last year’s bond proposal followed 2012’s passage of Propositio 409, a bond for road repairs. In 2017, voters approved Proposition 101, a temporary sales-tax increase to pay for road repairs and public safety equipment and facilities.
Earlier this month, the Pima County Board of Supervisors approved a pay-as-you-go policy for $387 million of capital infrastructure projects, which will primarily be used to improve roads beyond Tucson’s city limits over the next decade.
The money comes from a percentage of the secondary property tax and a portion of the taxes no longer needed to pay off bonds.
Arizona cities and towns receive 27.5% of highway user tax distributions for road projects. Half is distributed to cities and towns on the basis of population. The remaining half is distributed, first, on the basis of county origin of sales of motor vehicle fuels within the state, and second, to cities and counties on the basis of population in proportion to all cities and towns in the county. Arizona cities such as Tucson with populations exceeding 300,000 also receive a 3% allocation for certain street and highway purposes.
Fitch’s rating of AA on the street and highway user revenue bonds “reflects solid growth rates in pledged revenues since the great recession and good prospects for future gains, and well as sound anticipated resilience of the revenue stream through a typical economic cycle,” Murray said.
Fitch see’s Tucson's economy as “firmly in growth mode.”
“Expansion is evidenced by recent steady gains in taxable values, including a solid 5% increase in fiscal 2020 to $3.58 billion,” Murray said. “Steady increases in employment and corresponding declines in the annual unemployment rate further support the expectation for additional economic expansion.”
