OREANDA-NEWS. Fitch Ratings has assigned an 'AA+' rating to the following revenue bonds of Palm Beach County, Florida (the county):

--\$66.52 million revenue refunding bonds, series 2015.

The public improvement bonds will be sold on a competitive basis on Feb. 10, 2015. Proceeds will be used to refund portions of outstanding public improvement revenue refunding bonds series 2008A and public improvement revenue bonds, series 2008-2 for debt service savings.

In addition, Fitch affirms the ratings on the following outstanding bonds:

--Approximately \$159.6 million general obligation (GO) bonds at 'AAA';
--Approximately \$511.3 million non-ad valorem revenue bonds at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The county's non-ad valorem revenue bonds are special obligations of the county, payable from its covenant to budget and appropriate (CB&A), by amendment if necessary, non-ad valorem (NAV) revenues. The availability of NAV revenues to pay debt service is subject to the funding of essential government services and obligations with a specific lien on NAV revenues. Such a covenant shall be cumulative to the extent not paid, and shall continue until all required amounts payable under the indenture have been paid.

GO bonds constitute general obligations of the county, for which its full faith, credit, and unlimited taxing power are irrevocably pledged for the payment of principal and interest.

KEY RATING DRIVERS

'AAA'-RATED CREDIT STRENGTH: The county's 'AAA' GO rating is supported by an extensive and robust economy, satisfactory financial condition and manageable debt and retirement liabilities.

CB&A DEBT ONE NOTCH OFF GO: CB&A debt is rated one notch below the county's GO bonds due to the absence of a specific pledge and the inability to compel the county to generate NAV revenues sufficient to pay debt service.

AMPLE NAV REVENUE BASE: NAV revenues represent a broad and diverse set of revenue streams which in aggregate provide adequate coverage of CB&A debt service requirements.

ADEQUATE BUT DIMINISHED FINANCES: Finances have declined in recent years with projected fiscal 2014 results bringing reserves down to just above the minimum balance of 15% of spending under the county's financial policies. Management expects to achieve balanced operations in either the current fiscal year or fiscal 2016.

SUSTAINED ECONOMIC RECOVERY: The area economy is experiencing a prolonged post-recession recovery which is now in its fourth year. Ongoing job growth and a rebounding housing market is expected to further boost tax base growth over the next two or three years.

MODERATE DEBT LEVELS: The county's debt burden is generally modest with direct debt rapidly amortized. Fitch expects debt levels to remain manageable given limited capital needs and bonding plans.

RATING SENSITIVITIES

STRUCTURALLY BALANCED OPERATIONS: Fitch views the county's return to structural balance in 2015 or 2016 to be important to rating stability.

CREDIT PROFILE

The county, located along the southeast coast of Florida, is the largest county in the state, encompassing 2,228 square miles. With a population of nearly 1.4 million, the county contains 38 municipalities including the cities of West Palm Beach and Boca Raton.

EXTENSIVE AND DIVERSE NAV BASE
The county's NAV revenues include a broad mix of special taxes, license and permit revenues, fee income, and service charge revenues. While most NAV tax revenues are levied at the maximum or set rate, the large component of service charges and fees afford the county some flexibility in the ability to raise additional revenues. Overall, NAV revenues have fluctuated over the past five years but were solidly up in fiscal 2014 and are projected to be static or slightly ahead in fiscal 2015.

Fiscal 2014 NAV revenues totaling \$395 million are sufficient to cover NAV-secured maximum annual debt service (MADS), even when essential services consisting of general government and public safety expenditures are taken into account. Coverage is expected to improve considerably as annual NAV debt service costs decline sharply after fiscal 2015.

DIVERSE ECONOMIC UNDERPINNINGS
The county's economy is supported by its traditional underpinnings of agriculture, tourism, government, healthcare, and aerospace supplemented by growing bioscience and higher education sectors. Leading employers include the Palm Beach County School Board, the county government, Tenet Healthcare Corporation, and Florida Power and Light. Florida Atlantic University (FAU) enrolls over 20,000 students on campuses within the county.

County employment fell by over 9% between 2007 and 2010 as a result of the recession but has consistently gained jobs since then. Employment growth in 2013 was over 3% and an additional 3.7% in 2014. November 2014 jobs were up 3.5% year over year, dipping the unemployment rate down to 5.2%, below the state unemployment rate and equal to the national rate.

The county is experiencing a wave of new development, including office buildings and mixed use projects in the downtown urban areas and large residential projects in the suburbs. Other indicators of economic growth include building permit values which increased by 30% in fiscal 2013. Permit valuations fell moderately in fiscal 2014 but were still higher than in any other post-recession year besides fiscal 2013. Tourism continues to expand with annual gains of tourist development tax collections up of 6% and 11% in fiscals 2013 and 2014, respectively.

EMERGING BIOSCIENCE CLUSTER
The formation of a bioscience cluster in the northern part of the county has also attracted smaller bio-science firms to the area. Scripps Research Institute, a biomedical research firm, and Max Planck Florida Institute, in connection with FAU, are driving such growth. Scripps is proposing to partner with nearby Tenet Healthcare to open a teaching hospital while Cancer Treatment Centers relocated to Boca Raton from Illinois in February 2014.

TAX BASE GROWTH ACCELERATES
An improved housing market has propped up the county's tax base. Following a 27% drop between fiscal years 2008 and 2012, taxable values stabilized in fiscal 2013. Valuations grew by 4% in fiscal 2014 and an additional 7% in fiscal 2015. Officials are projecting assessed values to expand by 6% in fiscal 2016.

REDUCED BUT SATISFACTORY FINANCIAL POSITION
Officials have been challenged since 2008 by sizable declines in taxable values which generate property taxes, the county's largest source of general fund revenues, and other economically sensitive revenues against its goal of maintaining government services. Management has responded by raising tax rates three times during this period, reducing the number of employees and other costs and tapping reserves.

Modest, planned general fund operating deficits have been reported in four of the past six fiscal years with an additional deficit projected for fiscal 2014. While reserve levels are diminished, they remain adequate and within the county's target range. Fitch believes that further deterioration of financial margins on a sustained basis would raise potential rating concerns.

FISCAL 2013 DEFICIT LOWER THAN FORECAST
The county reported a fiscal 2013 general fund net operating deficit of \$17.7 million. The results were better than the projected \$33 million drawdown at the time of Fitch's last review in September 2013 and the original budgeted use of reserves of \$43 million. County budgets historically have been very conservative. Higher than anticipated sheriff fees, stronger sales tax and other revenue receipts combined with below-budget spending were the major drivers for the improved performance. The drawdown reduced unrestricted fund balance to \$176 million or 17.2% of spending, within the county's targeted unassigned fund balance level range of 15% to 20% of general fund expenditures and transfers out.

MAINTENANCE OF RESERVES ABOVE 15% OF SPENDING MINIMUM
The fiscal 2014 budget projected a general fund drawdown of about \$36 million. An across the board salary increase of 3% for most employees, higher costs for public safety operations and rising pension contribution requirements raised overall cost levels which were only partially balanced by revenue growth.

Revenues did benefit from a 4% increase in taxable values, generating \$24 million in additional revenues, plus growth in sales tax, utility tax and other major revenue sources. Management is currently projecting a \$17 million drawdown of general fund reserves for fiscal 2014 bringing unassigned fund balance down to \$158 million or over 16% of spending. At Fitch's last review, the county was projecting a larger \$30 million general fund net deficit. Nevertheless, reserves are at the low end of the county's fund balance target.

For fiscal 2015 budget projected a small deficit which would have brought fund balance down to the 15% level. Preliminary indications are positive with sales and gas taxes coming in ahead of budget and below budget spending due to lower fuel prices. When combined with unbudgeted carryover funds of the Sheriff's Department, management expects general fund operations to finish fiscal 2015 at or close to fiscal balance. For fiscal 2016, the county intends to increase reserves by approximately \$5 million, taking advantage of a significant reduction in debt service costs.

MODEST DEBT LOAD
Debt levels are moderate with a debt burden of 2%, or \$2,485 on a per capita basis. Over three-quarters of the county's direct debt consist of bonds secured by the county's NAV revenues. Amortization is relatively rapid, with 63% of principal retired within the next 10 years. The county's five-year capital improvement plan for fiscal years 2015-2019 identifies a modest \$112 million of general government capital needs with most of those needs funded through bond issuances.

Debt levels are not expected to rise, as \$389 million of outstanding principal is scheduled to mature over the next five years. Debt plans for fiscal 2015 includes a \$65 million issuance for the convention center parking garage and renovations to a county building, secured by non-ad valorem revenues. In addition, the county and city of West Palm Beach (the city) are negotiating with the Washington Nationals and Houston Astros for a spring training facility in the city. If agreement is reached, the county has approved stadium funding up to \$130 million to be issued in late 2015 or early 2016, secured by tourist development tax revenues. Both the state and the teams would also contribute funds for the facility.

RETIREMENT OBLIGATIONS NOT A COST PRESSURE
The county participates in three pension plans. Most employees are members of the state-administered Florida Retirement System (FRS), which is relatively well-funded. The other two plans are small defined benefit and defined contribution plans: a plan covering firefighters from the Town of Lantana employed by the county (Lantana Plan) and the Palm Tran pension plan for members of the Amalgamated Transit Union (ATU) members. The Lantana Plan is adequately funded but the Palm Tran plan is underfunded at 65.8%, or an estimated 59.3% under Fitch's 7% return assumptions. The UAAL for the relatively small Palm Tran plan is \$24.2 million.

The county's contribution rates, established through negotiations with ATU, have not met actuarial funding requirements. A recent agreement between the county and the ATU requires the county to fund up the plan but reduces benefits for new employees and allows the county to determine benefits going forward. These changes are expected to provide future pension savings, according to officials and funding levels for the Palm Tran plan did experience moderate improvement according to a January 2014 valuation. Overall pension costs are not a cost pressure, accounting for less than 5% of general government spending.

Other post-employment benefits (OPEBs) are offered to retirees as an implicit subsidy with the exception of retirees from the Sheriff and Fire Rescue Union, who receive direct subsidies from the county. Consequently over 90% of the county's aggregate OPEB annually required contributions (ARC) derive from those two programs. Funding is on a pay-as-you-go basis and fiscal 2013 contributions constituted nearly one-third of the ARC requirements.

In addition, the county provides long-term disability benefits to retirees also funded on a pay-as-you-go basis. Combined unfunded actuarial accrued liability for the county's OPEB plans of \$398 million represents a modest 0.2% of fiscal 2014 market value. Carrying costs, including debt service, pension contributions, and the OPEB contribution are manageable at less than 14% of general government spending.