Fitch Rates Los Angeles County Capital Asset Leasing Corp, California $24.7MM Bonds 'A'.

SAN FRANCISCO -- Fitch Ratings assigns an 'A' rating to Los Angeles County Capital Asset Leasing Corp., California $24,670,000 lease revenue bonds, 2008 series A (LAC-CAL Equipment Program). The Rating Outlook is Stable. The bonds will be sold competitively on March 4. Also, Fitch affirms its 'A' rating, Stable Outlook on various issues secured by county lease rental payments, and 'A-' rating Stable Outlook on other lease-secured issues, as detailed below.

The county's ratings reflect a diverse and mature economy, improved financial operations marked by consistent general fund operating surpluses and high year-end reserves, strong management efforts to achieve fiscal balance, and low debt burden. These strengths are balanced by the considerable challenge presented by the Department of Health Services (DHS) ongoing financial imbalance. Currently, DHS's reliance on general fund support is affordable, but projections show sizable deficits ahead, which could be exacerbated by the outcome of negotiations and pending or possible changes in state and federal funding.

While acknowledging the county's considerable efforts and progress in achieving fiscal balance in its health delivery system, Fitch remains concerned about projected rising operating deficits. Near-term balance is achieved through a major delivery system restructuring, an effort that Fitch believes will be difficult to implement and could result in less than anticipated savings. Even with these changes, DHS's five-year forecast shows a sizable $1.47 billion cumulative deficit by fiscal 2012. Discretionary general fund resources used to subsidize health service delivery rose to $299.6 million budgeted for fiscal 2008, up from $43.2 million just two years ago. While the fiscal 2008 figure represents a small 2% of total budgeted general fund spending, the subsidy makes up an important 7% of the department's $4.49 billion budget. Also, with the five-year forecast including assumptions regarding state and federal funding that have a high degree of inherent uncertainty, the rising gap will need to be filled by general fund resources or savings through restructuring and efficiencies, with the savings efforts difficult to estimate by their nature.

Los Angeles County's general fund exhibits strong financial operations and stability despite the rising need for health subsidies. The general fund has run operating surpluses for each of the last several years, resulting in a sizable ending balance. The fiscal 2007 general fund balance totals $3.08 billion, a high 24.1% of the $12.8 billion in expenditures and transfers out. The unreserved amount also is high at $2.6 billion or 20.3% of total spending. These reserve levels leave the county well-positioned to handle a mild economic downturn, although a significant real estate correction that resulted in assessed value decline (as occurred in the mid-1990's) could weaken the county's strong financial position and ability to deal with upcoming challenges.

Along with the DHS imbalance described above, the county's other sizable financial challenge is its $20.3 billion liability for other-post employment benefits (OPEB), which the county has begun to address. The county is close to finalizing an agreement with its labor groups to fund an OPEB trust, with $417 million identified for deposit once final agreement is reached. Fitch acknowledges this effort as important in reducing the county's ongoing OPEB costs.

The bonds are secured by county lease payments made for use of numerous pieces of equipment by several departments. Lease features are sound and the county's equipment lease financing program has a strong history. The leased equipment is essential to service delivery and all equipment currently is in use. Lease features are strong and typical of California lease transactions.

Fitch affirms the following ratings at 'A':

--County of Los Angeles, certificates of participation series 1993 Disney Parking Project;

--Los Angeles County Capital Asset Leasing Corp., Edmund D. Edelman Children's Court lease revenue bonds series A and lease revenue bonds series 2004A and 2006A;

--Los Angeles County Public Works Financing Authority, lease revenue bonds series 2005 (Calabasas Landfill Project).

Fitch affirms the following ratings at 'A-':

--The City of Los Angeles, Calif.'s (Exposition Park West Asset Leasing Corporation) certificates of participation, series 1999A and 1999B(Department of Public Social Services Facility);

--Sonnenblick-Del Rio El Monte Asset Leasing Corporation, Calif.'s senior certificates of participation, series 1999 (Department of Public Social Services Facility);

--Sonnenblick-Del Rio El Monte Asset Leasing Corporation, Calif.'s senior certificates of participation, series 2001 (Department of Public Social Services Facility-Phase II);

--Sonnenblick-Del Rio West Los Angeles Leasing Corporation, Calif.'s senior certificates of participation, series 2000 (Department of Public Social Services Facility).

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.