Fitch U.S. Muni Surveillance: Chandler (AZ) Street & Highway User Revs Affirmed at 'AA-'.

NEW YORK -- In the course of routine surveillance, Fitch Ratings has affirmed the 'AA-' rating on the $34.7 million outstanding street and highway user revenue bonds of Chandler, Arizona (the city). The Rating Outlook is Stable.

The 'AA-' rating reflects solid debt service coverage, ample liquidity, and no planned near-term future borrowing from highway user tax revenues. Also considered in the rating is the population- and point of origin consumption-driven distribution formula for highway user tax revenues. Chandler experienced rapid population growth over the past two decades compared to many other Arizona cities, which resulted in increasing point of origin sales, both of which contributed to steady annual increases in highway user tax revenue collections for the city. As the city approaches residential build-out, the slowing population growth has produced a leveling off in highway user tax revenues. However, the strength of fiscal management and the city's financial flexibility (GO bonds rated 'AAA' by Fitch), as well as the anticipated diminished need for growth-related transportation capital improvements, suggest continued credit stability.

Chandler's population increased 95% from 1990-2000 and approximately 40% from its 2000 population of 176,581 to an estimated 250,000 in 2008. As such, highway user revenue receipts have realized steady gains over the past several years; the average annual rate of growth from fiscal 2004 to fiscal 2007 was 8%. Fiscal 2008 revenues dipped approximately 4% to roughly $15.9 million, the result of a slowing regional economy and maturation of the city. The fiscal 2008 revenues produce maximum annual debt service coverage of nearly 3.4 times (x) on all highway user bonds. Liquidity position is also strong and reserve levels remain substantial, with the fiscal 2008 highway user revenue fund balance representing nearly 125% of expenditures and transfers out.

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