Fitch Rates Jacksonville, FL's Excise Bonds Series 2005B-D 'AA'.

NEW YORK -- Fitch Ratings has assigned an underlying 'AA' rating to Jacksonville, Florida's (the city) approximately $40.5 million excise tax revenue refunding bonds. The bonds consist of:

--$7.1 million excise tax revenue refunding bonds, series 2005B;

--$9.3 million excise tax revenue refunding bonds, (AMT) series 2005C;

--$24.1 million taxable excise tax revenue bonds, series 2005D.

The bonds are scheduled to price on Jan. 11 through a negotiated sale with Citibank as the lead underwriter and will be insured by Financial Guaranty Insurance Corporation, whose insurer financial strength is rated 'AAA' by Fitch. In addition, Fitch affirms the underlying 'AA' rating on approximately $394 million in outstanding excise tax revenue bonds. The Rating Outlook is Stable.

The 'AA' rating on Jacksonville's excise tax revenue bonds is based on sound debt service coverage from pledged revenues, solid legal provisions, and the general credit characteristics of the city of Jacksonville, including a diverse and stable economy and historically sound financial position. Credit concerns include the lack of both a comprehensive capital improvement program and financial controls, as well as rising debt levels driven by the Better Jacksonville Plan. Further risks include a sizable unfunded pension fund liability, a recent increase in nonrecurring revenues, and a decline in general fund reserves.

In an effort to address ongoing concerns and improve the overall fiscal health of the city, a new and experienced management team was recently recruited. The Stable Rating Outlook reflects the fact that management has put forth and the city council has adopted several new fiscal policies and controls to help address these concerns and to stabilize the city's weakening financial position.

Legal provisions are strong. The series 2005 B-D bonds are secured by utilities services and occupational license taxes, as well as a portion of the communication services tax (CST). Unaudited fiscal 2005 pledged revenues cover maximum annual debt service (MADS) an ample 1.9 times (x). The additional bond test is strong, requiring 1.4x MADS coverage. Further, Fitch believes the underlying services subject to excise taxes are less volatile than some other sources of tax revenue. After a nominal 0.5% reduction in fiscal 2004, reportedly due to the effects of weather variability on utility consumption, pledged revenue rebounded with a 4.7% increase in 2005. Pledged revenue performance has been strong as evidenced by a 4.0% average annual growth rate over the last five years.

Slightly less than one-half of pledged revenues come from a 10% tax on commercial and residential electricity purchases from the quasi-independent JEA. JEA's relatively low-cost power production, a factor in its 'AA-' electric revenue bond rating, lessens the risk of future competition-induced declines in rates and tax revenues. JEA was downgraded from 'AA' in July 2005 due to the impact of sharply rising fuel prices on JEA's financial coverage and liquidity. While the increase in fuel prices remains a risk to JEA credit, pledged revenues supporting the series 2005 B-D bonds will likely benefit over the short term.

The issuance of the series 2005 B-D excise tax revenue bonds brings the a total amount issued under the $147 million bond resolution to $90 million. The city expects to issue additional parity debt over the next year, leveraging pledge revenues down closer to the 1.4x minimum coverage requirement. Series B and C bond proceeds will refund the city's sunshine state governmental financing commission tax-exempt revenue bonds, series 1995A and 1995B, for an estimated present value savings of 5.4% of the refunded par. The proceeds of series D (taxable) will fund city-wide capital improvements.

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