Amendment: Fitch Rates Riverside, California's $116.9MM COPs 'AA-'.

AUSTIN, Texas -- This is a amendment to a message issued on Dec. 13, 2006. It corrects the sale date in the first paragraph.

Fitch Ratings assigns an 'AA-' rating to $116.9 million City of Riverside, CA's (auction rate securities [ARS] mode) certificates of participation ([COPs] various capital improvement projects), series 2007A. The certificates will be sold via negotiation with Bank of America the week of Jan. 22, 2007. Fitch also affirms the following ratings:

--$20.0 million outstanding general obligations (GOs) 'AA';

--$29.3 million in outstanding taxable pension obligation bonds, series 2005A 'AA-';

--$30.0 million in outstanding taxable pension obligation bonds, series 2005B 'AA-';

--$51.3 million in outstanding COPs series 2003 'AA-';

--$20.8 million in outstanding COPs series 2006 'A+'.

The Rating Outlook is stable.

The ratings reflect Riverside's (the city) strong and growing economy, low direct debt burden, sound lease structure and healthy financial position. The substantial development and economic strength coupled with conservative management practices contributed to very strong financial reserves. The regional economy performed well over the past three years, including strong employment gains, unemployment rates below the county and state levels, and rapid assessed value growth. These factors are balanced by the city's moderately below average income levels, though partially offset by the affordable cost of living and the large student population.

The city's five-year capital improvement plan (CIP) is large at $800 million, comprised of $374 million in routine infrastructure improvements plus $426 million in quality of life projects designed to revitalize the downtown area. The current offering will fund a portion of these quality of life projects, including capitalized interest through 2009. Local redevelopment agencies will supplement funding of these projects with $115 million in debt financing in 2007. Utility revenue bonds make up the largest source of funding for the CIP; no additional COPs or tax-supported debt is planned for the remainder.

To achieve a synthetic fixed rate for its 2007A ARS COPs, the city entered into an interest rate swap agreement with Bank of America Securities LLC, increasing its variable rate debt to 32% of its total tax supported debt portfolio. Base rental payments on the 2007A COPs are expected to be fully supported by approved transfers from the electric fund plus increased park development fees.

The city continues to demonstrate strong economic performance with stable job growth, low unemployment rates, and strong tax base gains. The city's economic indicators show sustained momentum with sales tax revenue increases averaging over 10% since fiscal 2001. Assessed values have also experienced substantial increases due to both rising property value and new commercial and residential development, with assessed values posting a strong 17.0% increase for fiscal 2007. Wealth indicators meet the county level but are below the state and nation, due in part to the area's large college student population estimated at 40,000.

In addition to good economic performance, the city's finances benefit from conservative management practices, resulting in rising and good year-end balances. While the fiscal 2005 general fund balance increased to $154 million, the increase is due largely to the inclusion of bond proceeds issued in that year. Nonetheless, the unreserved general fund balance ended fiscal 2005 at a healthy $55.7 million or 24% of spending, an increase of $10.2 million from the prior year. Estimates for fiscal 2006 project a drawdown of the unreserved general fund balance down to $46.6 million or 20% of spending, mostly due to one-time capital expenditures. The fiscal 2007 budget is balanced and conservatively based on slower sales tax growth and building activity. Labor relations are reportedly good with most contracts in place for the next four years.

The city's liability for other post employment benefits (OPEB) is comprised of an implicit subsidy of medical insurance coverage for its retirees. While estimated to be currently manageable, the city's OPEB liabilities are likely to grow over time. An actuarial study will be completed soon which Fitch will review as part of its overall analysis of OPEB liabilities on all issuers of municipal debt.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.