OREANDA-NEWS. Fitch Ratings has affirmed the following ratings of Winter Springs, FL (the city):

--\$7.5 million improvement revenue bonds, series 1999 at 'AA';
--Implied general obligation (GO) at 'AA'.

The Rating Outlook is Stable.

SECURITY
The revenue bonds are payable from and secured by a first lien upon and pledge of the franchise fees levied and collected by the city from Duke Energy Corporation (Duke Energy), the public service tax (PST) levied and collected by the city on purchases of electricity, metered or bottled gas, and water service within the corporate limits of the city, and the tax imposed by the city on communication services (CST). The current electric franchise agreement with Duke Energy extends to 2024, before final maturity of the bonds.

KEY RATING DRIVERS

IMPLIED GO AS RATING CAP: The rating on the improvement revenue bonds is capped at the implied GO rating.

STRONG PLEDGED REVENUE COVERAGE: Pledged revenues continue to provide strong maximum annual debt service (MADS) coverage for the revenue bonds at 4.6 times (x), offsetting the inherent volatility of the revenue stream. The city has no plans to leverage the revenue stream further as it relies on the surplus for operations.

INTEGRATED REGIONAL LABOR MARKET: The city serves as an affluent bedroom community for nearby Orlando, the economic anchor of central Florida. Economic indicators for Winter Springs compare favorably to state and national averages.

SOUND FINANCIAL PROFILE: Reserve levels remain robust as a and are expected to stay at this level given the city's commitment to maintain current fund balance levels, its proven ability to achieve structural balance, and its practice of conservative budgeting.

MODERATE CARRYING COST BURDEN: Overall debt levels are affordable and should remain so as capital needs are modest and the city has no future debt plans. Low pension funding levels remain a concern although the city has taken actions which should improve funding over the long term.

RATING SENSITIVITIES

NEGATIVE DEVELOPMENTS: Downward rating pressure could result from a decrease in financial reserves or failure to improve funding levels.

CREDIT PROFILE
The City of Winter Springs is a prosperous residential community located 15 miles north of downtown Orlando (Implied GO rated 'AAA', Stable).

VOLATILE REVENUE TRENDS; STRONG DEBT SERVICE COVERAGE

Pledged revenues have exhibited significant volatility, in part due to reliance upon electrical usage. Pledged public service tax revenues and franchise fess suffered three years of annual declines from fiscals 2011 to 2013 totaling 18.6%. The city attributes these declines to lower electric usage as a result of warmer than average winters during these years. Fiscal 2014 pledged revenues reversed the trend rising 7.1% year over year. The increase was partially due to the terms of the city's March 2014 franchise agreement with Duke Energy Corporation (IDR rated 'BBB+' with Stable Outlook) which enabled the city to collect additional franchise fee revenues. The franchise extends for 10 years until 2024, five years before final maturity of the bonds in 2029. Fitch believes that the franchise agreement will be renewed given the essential nature of electrical services and the city's strong demographic profile. Furthermore, coverage of MADS based on fiscal 2014 PST and CST collections without franchise fees remains ample at 2.7x.

Despite the prior string of losses, debt coverage remains robust with fiscal 2014 revenue coverage of MADS of 4.6x. Pledged revenues could decline by over 70% and still provide 1.0x coverage. Although the additional bonds test of 1.25x MADS is considered lenient, the city has no plans to leverage the revenue stream further. Additional issuance is further restricted by the city's use of surplus pledged revenues for operations.

LARGELY RESIDENTIAL COMMUNITY, PROXIMITY TO ORLANDO

The city, with a 2013 population of 33,871, serves as a bedroom community for nearby Orlando so the local economy is tied into the regional Orlando-Kissimmee-Sanford metropolitan Statistical Area (MSA). Seminole County School Board and the city serve as the largest employers, with 1,390 and 202 employees, respectively.

LOCAL ECONOMY HEATS UP

Orlando's local economy continues to expand and diversify with strong job growth and significant new residential and commercial development in the area. Tourism, a major industry, has thrived as demonstrated by fiscal 2014 county tourist development tax revenues up over 8% over the prior year. Fiscal 2014 hotel occupancy and room rates exceed prior year totals. Both Disney and Universal are planning or have implemented sizable capital investments in their Orlando theme parks. Significant growth in the education and health services sectors enhance overall economic diversity.

The city is experiencing a strengthening recovery after a severe contraction between 2007 and 2010 in which the city lost over 10% of its employment base. Jobs have increased over the past three years at an accelerating pace, offsetting nearly all of the recession-driven losses. September 2014 employment levels were up 5.3% over September 2013 employment. Employment growth reduced the unemployment rate to 4.5%, below the state and national averages. Home prices as of December 2014 have increased 9.3% year over year, according to Zillow.com, which also forecasts additional growth of 3.6% over the next 12 months.

Taxable assessed value (TAV) expanded by 4.4% in fiscal 2014, reversing a five year decline totaling 29%. The increase was attributable to new construction as well as rising values on existing properties. Valuations expanded by over 6% in fiscal 2015, with part of the growth stemming from city annexations. Extensive residential and commercial projects either planned or in development augur future economic expansion.

The city's population is affluent with per capita and median household income wealth indices handily exceeding both the state and national averages. The poverty rate is about 25% of the national rate and educational attainment levels are significantly above those of the nation, suggesting a highly educated and skilled workforce.

MAINTENANCE OF ROBUST RESERVE LEVELS

The city has maintained superior levels of reserves throughout the recession and subsequent recovery despite declining property tax and other economically sensitive revenues. General fund balances have exceeded 50% of spending since fiscal 2009. Management has achieved structural balance through conservative budgeting and tight cost control. General government spending, net of capital outlay and debt service costs, decreased by over 25% between fiscals 2007 and 2013. Cost cutting measures included hiring freezes, department mergers and consolidation of the city's fire services with those of Seminole County.

The city reported a \$343,000 general fund net deficit for fiscal 2013 representing about 2% of spending. The deficit reflects management's decision to over-fund of its pension plan in order to reduce its pension liabilities. The result varied positively with the city's final budget which projected a deficit of \$647,000. About \$380,000 of non-payroll cost savings contributed to the better results. Fiscal 2013 ending fund balance remained solid at \$8.5 million or 53.2% of general fund spending. Unrestricted fund balance of \$8.1 million represented a healthy 50% of spending. Liquidity is abundant as available cash and investments cover over six months of general fund operations.

For fiscal 2014, the city budgeted a \$581,000 general fund drawdown, but included about \$760,000 of non-recurring expenditures. Increased community development and information service costs were partially offset by higher property tax revenues generated from the rise in taxable values. Unaudited results show an \$8,000 net surplus. The positive variance was mostly due to below budget spending. City projections show expenditures at 97% of budget for a savings of \$570,000. Unrestricted reserves are forecast to remain at about 50% of spending, almost double the city's minimum target of 25%.

The fiscal 2015 budget incorporates a \$250,000 increase in property tax revenues and \$275,000 in higher electric utility taxes and franchise fees. Revenue growth is balanced by an approximate \$500,000 rise in general fund personnel costs, driven in part by a 2% mid-year wage increase. The budget proposes a \$433,000 or 2.5% utilization of reserves which would still leave unrestricted general fund balance well above the minimum target. After four months of actual results, revenues trends are favorable while overall spending remains in line with budget.

BELOW AVERAGE BUT IMPROVING PENSION FUNDING LEVELS

Funding of the city's defined benefit (DB) pension plan has improved but remains subpar. As of October 1, 2013, the plan was 65.1% funded (or an estimated 58.7% utilizing Fitch's 7% discount rate). This represents an improvement over the 53.3% funding rate estimated at the 7% discount rate in our last review. Fitch views positively the city's closing of the DB plan to employees hired after October 2011 as well as the requirement that plan members contribute 5% of their salary to the plan. Employees hired after October 2011 participate in a defined contribution plan. Fitch expects funding levels to continue to improve as previously noted changes take effect and recent positive investment returns are phased into the actuarial calculations.

The city also provides an implicit subsidy for other post-employment benefits (OPEB) as required by law, which it funds on a pay-go basis. The unfunded OPEB liability as of October 1, 2013 totaled \$1 million or a negligible level of market value.

MANAGEABLE DEBT BURDEN, CARRYING COSTS

Overall debt levels are low at \$839 per capita and 1.2% of market value (MV). Fitch expects the city's direct debt burden to remain affordable given the absence of additional debt plans and rapid amortization schedule. About 70% of outstanding principal is scheduled to mature within 10 years. Capital needs are modest with only \$13.5 million of non-utility capital projects identified in Fitch's city's fiscal 2015 - 2019 five year capital improvement plan.

The city's total carrying costs for debt service, pension contributions and OPEB pay-go are moderate at 18% of spending.