Fitch Rates Hillsborough County, FL's CST Revenue Bonds 'AA '; Outlook Stable
--\$66.5 million communications services tax (CST) revenue bonds (public safety facilities improvements project), series 2015.
The bonds are scheduled for sale on a negotiated basis on or about March 31. Proceeds will be used for public safety and parks and recreation projects.
In addition, Fitch affirms the following ratings:
--\$65.9 million in outstanding general obligation (GO) bonds at 'AAA';
--\$30 million non-ad valorem (NAV) revenue bonds at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The bonds are supported by the county's covenant to budget and appropriate (CB&A), by amendment if necessary, legally available NAV revenues to restore any deficiency in the debt service reserve fund (DSRF). 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 resolution have been paid. The DSRF is sized to maximum annual debt service (MADS) and will be funded with a surety.
The bonds are initially payable from CSTs levied on telecommunications services provided within the unincorporated areas of the county.
The GO bonds are supported by the full faith, credit and unlimited taxing power of the county.
KEY RATING DRIVERS
TOP-LINE CREDIT STRENGTH: The 'AAA' GO rating is based on the county's broad based and diverse economy, consistently healthy financial position and manageable debt levels.
NAV PLEDGE SUPPORTS STRONG SECURITY: The 'AA+' rating on the CST bonds and NAV bonds reflects a broad and diverse revenue base, relatively strong coverage of CB&A debt service, and substantial reserves available to cover any potential revenue shortfalls. The NAV bonds are rated one notch below the ULTGO rating due to the lack of a requirement to raise NAV revenues and the higher priority given to payment of specifically secured NAV debt and essential service expenditures.
VERY STRONG CST COVERAGE: Telecommunications tax collections provide solid debt service coverage of the CST bonds.
SOLID FINANCIAL MANAGEMENT: County officials have been able to restore fiscal balance through a concerted effort to reduce spending. Despite a modest projected general fund drawdown in fiscal 2014, reserve levels remain healthy.
ROBUST ECONOMIC RECOVERY: The area economy is experiencing solid growth, as evidenced by increasing employment, housing values and taxable sales. A plethora of development projects currently underway throughout the county signals continued economic expansion.
RATING SENSITIVITIES
DETERIORATION OF RESERVES: Ratings on the revenue bonds are capped by the GO rating. Significant operating deficits leading to declines in reserves could lead to downgrades in the GO as well as NAV bond ratings. Fitch believes this scenario is unlikely given the strong rating and Stable Outlook.
CREDIT PROFILE
Located midway down the western coast of Florida, Hillsborough County encompasses 1,266 square miles and features Tampa as the county seat and largest city. The 2013 county population estimate of 1.29 million represents a 5.1% increase from 2010 consistent with population trends during the 2000 to 2010 decade (when population growth averaged 2.1% annually).
CST PROVIDES STRONG DEBT SERVICE COVERAGE
The bonds are initially payable from the CST, which is levied at a 4% rate. The county board of commissioners has designated 37.5% of the levy to be used exclusively for fire rescue purposes, rendering it unavailable for debt service associated with non-firefighting purposes. This restriction of CST use will only become a credit concern if the county significantly leverages the CST. Fiscal 2014 MADS coverage from CST revenues is ample at 5.6x. The healthy coverage continues despite a declining trend of CST collections, which are down 9.4% from fiscal 2009 receipts. Reasons for the negative trajectory include the recession as well as changes in technology and marketing of telecommunications services.
DEFICIENCY COVENANT MECHANICS ENSURE TIMELY PAYMENT
According to the bond resolution and supplemental resolution, the county is obligated to notify the surety provider at least 35 days before any bond payment date if there will be insufficient funds to make the semi-annual debt payment. Upon notification, the surety provider must draw on the surety to cover the deficit at least 30 days before the bond payment date.
If the surety provider fails to pay, a DSRF deficiency will exist and the county will have close to 30 days to advance NAVfunds into the DSRF to make the upcoming debt service payments. Given the county's sizable unrestricted cash reserves, Fitch considers this timeframe adequate to allow for timely payment of debt service under the stress scenario outlined above.
NAV REVENUES AMPLY COVER DEBT SERVICE
Available NAV revenues encompass a wide variety of the county's non-property tax revenues, including sales taxes, impact fees and charges for numerous government services. NAV revenues fell by 1.5% in fiscal 2013 as increases in half-cent sales taxes, service charges, and state revenue sharing monies were offset by declines in interest income, fines and forfeits and miscellaneous revenues such as rental income and asset sales.
Despite the slight downturn in revenues, coverage of CB&A MADS from fiscal 2013 NAV revenues (net of current debt secured by specific NAV revenues and essential services) is sound at nearly 5.0x. In addition, substantial county reserves, including \$265 million of unrestricted general fund reserves, can also be used for CB&A debt service. An anti-dilution test requiring average NAV revenues for the two preceding years to cover MADS on all NAV-secured debt by at least 1.5x restricts additional issuance.
SOLID FINANCIAL PROFILE
County financial operations have been consistently sound, as evidenced by sizable reserves and strong liquidity. Management has been proactive in reducing spending in response to planned sizable declines in property taxes, the major source of general fund revenues. Property tax revenues declined at an average annual rate of 8% over the past five years due to falling valuations and the county's long-term policy of reducing tax rates every year.
Cost cutting measures included personnel reductions, operating efficiencies, lowered capital spending and programmatic changes. The county reduced its staff, eliminating about 1,500 or 15% of full-time positions between fiscals 2008 and 2012 (although staff levels increased in fiscal 2013).
Over the past two fiscal years, management has kept the general fund balance modestly above the county's informal target of 15% to 20% of expenditures. Liquidity is healthy and provides additional financial flexibility, with the ratio of available cash and investments to liabilities well over 2.0x.
The fiscal 2014 budget proposed a \$14 million general fund drawdown due to a number of capital or other one-time spending items. Officials now estimate a \$17.6 million general fund deficit, attributable to a one-time economic salary adjustment made in the form of a lump sum payment and projects for software and parks. Despite the contraction, unrestricted fund balance remains substantial at just under \$250 million.
Reserve levels relative to spending are actually understated, as transfers out include substantial transfers among different departments within the general fund. When these intra-fund transfers are netted out, unrestricted general fund balance for fiscal 2014 is projected to be about 30% of estimated net expenditures. For fiscal 2015, officials are projecting a modest general fund surplus based on actual results to date. Long-term forecasts by the county show successive small operating surpluses through fiscal 2019.
MODEST DEBT LOAD
Debt levels are manageable, as indicated by an overall debt burden of 2.5% of fiscal 2014 market value. More than half of the debt burden is attributable to the Hillsborough County School District and the city of Tampa. Principal amortization rates are relatively aggressive, with 70% of tax-supported principal retired within the next 10 years.
Officials plan on issuing \$12.5 million of bonds as reimbursement to the Tampa Lightning of the National Hockey League for 50% of the cost of improvements to Amalie Arena. Debt service is intended to be paid from the fifth cent tourist development tax. The county is also considering additional debt in 2016 to fund transportation improvements and park projects. Capital needs overall are moderate with \$380 million of non-utility capital projects planned over the next five fiscal years.
RETIREMENT COSTS DO NOT PRESSURE FINANCES
The county participates in the Florida Retirement System (FRS), a state-run multiple employer pension plan for virtually all of its employees. Pension costs have not been a burden for the county, totaling \$50 million or a manageable 3.7% of general government expenditures in fiscal 2013. Fiscal 2014 pension contributions increased by \$13.4 million or 27% but are expected to remain moderate relative to spending. The FRS is generally well-funded compared to most state pension systems. Retiree healthcare benefits are funded on a pay-go basis. The county sets aside funds for future other post-employment benefit (OPEB) costs in an internal service fund (currently about \$17.3 million), but has elected not to establish a dedicated trust in order to retain flexibility.
BROAD-BASED ECONOMY EXHIBITING A STRONG RECOVERY
The county serves as the economic center for Florida's Gulf Coast. Major sectors include business services, government, health care, education and tourism; MacDill Air Force Base and Port Tampa Bay are major economic engines.
Following a severe recession, the county has been experiencing a sustained and vigorous recovery. Employment growth has been robust and levels now exceed pre-recession highs. Since 2009, the county has gained over 70,000 jobs for a 13.4% gain, well ahead of state and national growth. The unemployment rate of 5.2% as of December 2014 represents a 10% drop from the year prior and is lower than both the state (5.4%) and national averages (5.4%).
The housing market is also on the upswing, with home prices as of Jan. 31, 2015 up 5.9% year over year (according to Zillow Group). Home sales for 2014 started slowly but picked up after the first quarter. Climbing sales and tourist taxes are also indicative of the county's economic recovery.
The gain in housing values has had a positive effect on the county's tax base. Taxable values grew by 5.4% in fiscal 2014, the first increase in six years. This gain was followed by an additional 5.6% increase in fiscal 2015. Officials expect further expansion of taxable assessed values at least through fiscal 2017. The tax base is not concentrated, with the top 10 taxpayers accounting for only 7% of total valuations.
Wealth levels hover around regional and national averages, with poverty rates slightly above those of the state and nation. In addition to the planned expansion of insurer USAA which is projected to add 1,200 new jobs, a large upgrade at Tampa International Airport, a new Amazon distribution facility in the county and a proposed large waterfront mixed use development project are expected to further bolster job growth. Fitch believes that underlying economic characteristics of the county point to favorable prospects for continued expansion.
Комментарии