--$132.4 million outstanding merged area tax allocation bonds (TABS);

--$38.8 million merged area tax allocation housing set aside bonds.

The Rating Outlook for all bonds is revised to Negative from Stable.

The 'BBB+' rating affirmation reflects the merged project area's sound legal provisions, adequate fund balances and strategic location of land available for development offset by taxpayer concentration, very slow debt amortization as well as somewhat reduced debt service coverage levels due to assessed value (AV) reduction and rising assessment appeals. The Outlook revision to Negative from Stable reflects the economic slowdown which now is stunting project area growth, as well as reductions in assessed valuation, tax increments and fund balances. Debt service coverage, while reduced, remains at acceptable levels. Additionally, rising tax base appeals and this fiscal year's large incremental tax revenue shift to the state have the potential to reduce balances below agency targets, and make rebuilding reserves more difficult. The agency conservatively reduced growth projections to better absorb the projected impact of the economic slowdown that may be more pronounced for this largely industrial and commercial project area.

The district is well located for economic activity and future development once recovery returns to this area. It comprises 54% of the City of Rialto in San Bernardino County about 15 miles from Ontario International Airport and 60 miles east of Los Angeles. The agency issues both housing and non housing bonds to finance improvements. The outstanding housing set aside bonds are payable from 20% of gross tax increments. The outstanding parity tax allocation bonds are payable from 80% remaining tax increments less tax sharing agreements excluding certain tax sharing agreements that are subordinated to debt service.

Tax base concentration is heavily concentrated in industry, warehousing, and distribution, now 44% of the tax base. The largest 10 taxpayers, represent 23% of AV and 30% of incremental value (IV), and include one residential housing developer. The major taxpayers are distribution centers for Target Corp. and Staples Office Superstore, as well as the owners of leased distribution and industrial facilities. Commercial property is 8% of AV with residential property comprising 19%, somewhat limiting concerns over the area's high mortgage delinquency and foreclosure rates and slow pace of construction and sales.