Fitch Rates Pima County, AZ Street & Highway User Rev Bnds 'AA-'.

BARCELONA, Spain & MILAN & LONDON -- Fitch Ratings assigns an initial 'AA-' rating to the Pima County, Arizona (the county) $23.3 million street and highway revenue bonds, series 2009. Fitch also assigns an 'AA-' rating to the county's $128.9 million outstanding parity street and highway revenue bonds (post-refunding). The Rating Outlook is Stable.

The series 2009 and outstanding parity bonds are secured by a first lien on revenues derived by the county from highway user taxes and all other taxes, fees, and charges collected by the state and returned to the county for street and highway purposes as prescribed by law. Series 2009 proceeds will be used to finance various highway and street improvement projects and to refund a portion of the county's outstanding street and highway revenue bonds for near-term debt service savings.

The 'AA-' rating reflects solid debt service coverage and manageable near-term borrowing plans from this source. Coverage remains healthy despite declines in pledged revenues for the past two fiscal years and the projection of another drop in fiscal 2010, as weak economic conditions impact gasoline tax and motor vehicle registration and license fees.

Also considered in the rating is the lingering uncertainty surrounding the State of Arizona's fiscal 2010 budget and the possibility of budgetary measures taken later this fiscal year or in the coming fiscal years that would reduce the amount of highway user revenues that are distributed to municipalities, including Pima County. Fitch notes that the Arizona state legislature retains the authority to alter the type and/or rate of fees that are deposited into the state highway user fund, as well as the allocation of such monies between state purposes and the distribution to local governments. The legislature has made such alterations previously, and the current weak economic environment may spur legislators to consider additional changes.

Highway user tax revenues consist of motor vehicle fuel taxes, motor vehicle registration fees, motor vehicle licenses taxes, motor carrier fees, motor vehicle operator's license fees, and other miscellaneous fees and revenues. Highway user tax revenues are collected by the state and deposited into the state highway user fund until distributed. Arizona counties receive 19% of the monthly revenue distributions, and state Department of Transportation and cities and towns receive the remaining 81%. Of the money distributed to counties, 72% is distributed in proportion to the sale and consumption of fuel within each county, and the remainder is distributed on the basis of the proportionate population within the unincorporated areas of each county.

Projected fiscal 2009 pledged revenues total $53.9 million, which represents a nearly 7% decline from fiscal 2008 totals. The county is anticipating another 4% drop in pledged revenues for fiscal 2010. Despite the weaker revenue totals, projected maximum annual debt service (MADS) coverage remains sound. Using projected fiscal 2010 revenue totals, MADS coverage for all highway user revenue bonds, including the series 2009 bonds, is 3.1 times (x). Following this sale the county will have $107.8 million in highway user revenue bond authorization remaining, and current plans call for another $15 million borrowing in 2012. Fitch believes that the additional debt should not materially impact coverage, as the anticipated fiscal 2010 revenue drop - plus another 5% revenue decline in 2011 - would still generate coverage of more than 2.5x (with the 2012 borrowing included). All street and highway user revenue bonds currently outstanding mature by 2022, and the series 2009 bonds' final maturity is in 2024.

Legal provisions provide adequate bondholder protections. They include an additional bonds test per the bond resolution of 2.0x MADS (using an historical test) for bonds outstanding plus bonds to be issued. In addition to debt service payments, highway user tax revenues are used for capital projects and for staffing, maintenance and contractual expenses related to county streets and highways. Fitch notes that the county's transportation fund maintains healthy reserves, with unreserved balances ranging from 15% to nearly 25% of annual spending over the past five fiscal years. Intergovernmental (state) revenues typically comprise more than 95% of annual transportation fund revenues.

Additional information is available at 'www.fitchratings.com'.

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