Fitch Rates Tacoma, Washington's $33MM 2004 Revenue Bonds 'A+'.

SAN FRANCISCO -- Fitch rates the City of Tacoma, Washington's (the city) $32,975,000 convention center and parking revenue bonds, series 2004 'A+'. The Rating Outlook is Stable. The bonds will sell competitively July 27.

Bond proceeds will be used to refund a portion of the city's outstanding commercial paper that provided interim financing for construction of a two parking projects including a substantial facility for the city's new convention center. The rating reflects solid projected debt service coverage by a broad revenue pledge, sound legal provisions, the city's role as the dominant parking provider in the area, and Tacoma's well-planned financing for the convention center project. These strengths are offset somewhat by the economic sensitivity inherent to the pledged revenue sources, a competitive convention center market, and the potential for moderate to high general fund support for convention center operations, especially under scenarios assuming limited pledged revenue growth.

The parking revenue bonds are secured by a first lien on two sources, Public Facilities District (PFD) revenues and parking system revenues. PFD revenues consist of a 0.033% sales and use tax collected within PFD boundaries, as well as an admissions and parking tax on PFD owned, operated, or financed facilities. These revenue sources make up 45%-50% of the revenue pledge and can only be used for tourism related projects. The PFD encompasses the cities of Tacoma, Lakewood, Fife, and University Place, in addition to the unincorporated area of Pierce County. PFD revenues are remitted to Tacoma via an interlocal agreement, which cannot be rescinded until all bonds are repaid. Parking revenues consist of net operating revenues of the city's parking enterprise system and gross parking enforcement revenues. Tacoma's parking system is sizable, including four garages, one large lot and meters and makes up approximately 26% of all downtown parking spaces.

Under the base case scenario, projected pledged revenue covers maximum annual debt service 1.98 times (x) in 2005 rising to 3.9x by 2024. PFD revenue alone provides 1.05x coverage in 2005. This case assumes a boost in both sources once the convention center and new garage open. However, even assume no growth, pledged revenue covers debt service a good 1.78x and PFD revenue provides an adequate 1.02x coverage. Fitch notes that concern over the economic sensitivity of PFD revenue and parking revenues additional vulnerability to competition is offset primarily by the adequate coverage levels provided even under a no growth scenario.

These bonds are part of a well planned financing for the convention center and parking projects designed to boost tourism and development in Tacoma's downtown area. A companion bond issue, $51.9 million in limited tax general obligation (LTGO) debt, is being sold simultaneously and is rated 'AA-' by Fitch. (For more information, see 'Fitch Rts $51.9M City of Tacoma, WA LTGO Bonds, 2004 'AA-'', dated July 13, 2004 and available on the Fitch Ratings web site at 'www.fitchratings.com'). The financing plan intends to pay both bond issues from PFD and parking revenues as well as hotel/motel taxes, with little or no impact on the city's limited property tax levy or general fund. Fitch's rating also considers the city's $19.3 million operating reserve for the convention center that can be used to subsidize convention center operations.

Legal provisions are good. The city covenants to establish parking rates sufficient to produce net revenue at least equal to convention center debt service on these bonds less PFD contributions. Fitch notes that while the additional bonds test is weak enabling future issuance with only 1.0x coverage by PFD revenue, parity parking bonds can only be issued for projects begun by after Dec. 31, 2004. The city intends to issue about $10 million in additional parity bonds in 2008 to refund commercial paper used to complete the current projects. The city has told Fitch it does not expect to begin any other parking projects by year-end.

Tacoma is Washington's third largest city. Recently completed projects, coupled with a large military presence and the Port of Tacoma, have resulted in some economic stability during a period of regional economic distress. Fitch believes the city's recent focus on revitalizing downtown and other business-friendly initiatives could bode well for continued economic growth. Nevertheless, unemployment remains an above-average 6.6% as of May 2004 and wealth levels are below the state average.

The city's management team has responded well to financial stress resulting from the simultaneous impact of I-747, a reduction of the business and occupation tax, and end of the state-shared motor vehicle excise tax. The unaudited ending fund balance for 2003 was $43.6 million, or a very solid 27% of spending. The unreserved amount was also healthy at $35.2 million, or 22% of spending. However, city officials project a substantial structural imbalance for the 2004-2005 biennium due, in part, to I-747's constraints on revenue growth. This concern is mitigated somewhat by sound management actions restraining expenses, as well as the potential for revenue growth from other sources.