Fitch Rates Yuma, AZ Improv Distr No. 68 Bonds 'A'.

AUSTIN, Texas -- Fitch assigns an initial 'A' rating to $3.85 million City of Yuma, Arizona Improvement District No. 68 (the district) improvement bonds scheduled to sell competitively the week of May 22, 2006. In addition, Fitch affirms the 'A+' ratings on the city's outstanding $9.6 million unlimited tax general obligation bonds and $60.4 million municipal facility revenue bonds. The Rating Outlook is Stable.

The bonds will be issued by the city of Yuma and will be payable only out of a special fund to be held by the city, collected from special assessments imposed upon certain parcels of land within the district and assessed for the cost and expense of certain improvements to be constructed with proceeds from the sale of the bonds. The bonds also carry an unconditional pledge of the city to make a temporary loan to the special fund should there be a deficiency in the funds collected from the assessment to pay debt service when due.

The 'A' rating and Stable Outlook reflect the unconditional pledge of the city to meet any deficiencies in the event special assessments imposed within the district are insufficient to meet debt service requirements. The city's credit strengths include a strong financial position of the city, the expanding local economy and solid assessed valuation growth. The district tax base is concentrated, with reliance on a single developer to make full and timely payment of special assessments. However, legal provisions requiring the city to make loans to the district in order to make timely debt service payments if there should ever be a deficiency of assessments, as well as the city's large financial reserves, mitigate concentration risk.

The district consists of four parcels totaling approximately 4 million square feet and includes a shopping center currently under construction, to be known as the Las Palmillas Shopping Center, which is scheduled to open in November 2006. The shopping center will be anchored by Circuit City and Bed, Bath, and Beyond. It will also include other retailers such as Shoe Pavillion and Party City. The undeveloped area in the district is zoned for mixed-use development and may include an office park and some multi-family residential developments. The owner and developer of all the land within the district is WCC Properties, LLC. Pursuant to a development agreement, the developer approved the formation of the district and the levy of the assessments. The developer also agreed to provide insurance for the shopping center during construction.

The city has provided in the bond ordinance that in the event of a deficiency in funds collected from the assessment, the city will unconditionally agree to make a temporary loan to the special fund, which is set apart for the payment of principal and interest on the bonds. The temporary loan from the city will be made on or before Dec. 31 and June 30 in each of the years in which the principal and interest is due, on Jan. 1 and July 1, respectively. This provision has been upheld by the state supreme court in similar instances. In this way, the city is required to appropriate any amounts necessary for payment of principal and interest on the bonds.

In the event the city must make such a loan to the special fund, the city's financial operations are very healthy, characterized by good liquidity, positive net income and a solid undesignated/unreserved general fund balance that has exceeded 30% of spending in each of the last three fiscal years and reached nearly 39% in fiscal 2005. In the fiscal 2006 budget the city anticipated a moderate draw down to its large general fund balance to a still-healthy 27%; however, the city budgets conservatively and reports that actual results point to a positive net income in excess of $500,000. Sales taxes remain strong; budgeted to increase 6% in fiscal 2006, actual receipts through the month of April are 11.5% above fiscal 2005 results. The tax base is diverse and has grown at an average of 11% annually since fiscal 2000 including a nearly 30% increase in fiscal 2006 assessed valuation.

The area economy is anchored by agriculture, the military, light industry and tourism. Located at the confluence of the Gila and Colorado rivers, Yuma boasts an agricultural sector that generates an estimated $800 million annually. The U.S. Marine Corps Air Station and the U.S. Army Yuma Proving Ground employ more than 7,000 workers combined and contribute roughly $600 million to the local economy each year. Neither facility is slated for personnel reductions through the current Base Realignment and Closure process; in fact, city officials report that both bases are expanding. The favorable winter climate attracts significant numbers of seasonal tourists to the area. Wealth levels are below the state and national averages and unemployment rates exceed the levels of the state and nation.

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