OREANDA-NEWS. Fitch Ratings has assigned a rating of 'AA+' to the following general obligation (GO) bonds to be issued by the city of Sarasota, Florida (the city):

--\$31,740,000 GO refunding bonds, series 2015.

Bond proceeds will advance refund all or a portion of the city's outstanding GO bonds, series 2007 maturing on and after July 1, 2018. The transaction is expected to achieve an estimated net pre sent value saving of \$2.6 million or 7.6% of refunded par.

Fitch also affirms the following outstanding ratings on the city:

--\$34,590,000 GO bonds, series 2007 (pre-refunding) at 'AA+';
--\$7,370,000 sales tax payments revenue bonds (federally taxable - Build America Bonds - recovery zone economic development bonds - direct subsidy) at 'AA'.

The Rating Outlook is Stable.

SECURITY

The GO bonds constitute a full faith and credit obligation of the city, payable from the levy of ad valorem taxes, without limit as to rate or amount, on all property in the city. The sales tax payments revenue bonds are limited obligations of the city, payable by a first lien on certain sales tax revenues distributed to the city from the state of Florida general revenue fund in connection with the city's share of construction costs for a project certified as a 'retained spring training facility' and by direct federal subsidy payments. If pledged revenues are not sufficient to cover debt service the city has covenant to budget and appropriate, by amendment if necessary, sufficient non-ad valorem (NAV) revenue to make up any shortfall. 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 such revenue. The city's NAV covenant is cumulative and continues until the bonds have been fully paid.

KEY RATING DRIVERS

RATING REFLECTS DEFICIENCY COVENANT: The sales tax payments from the state of Florida do not sufficiently provide for the full payment of annual debt service through final scheduled maturity and direct federal subsidy payments have been discounted by Fitch. As such, the rating on the sales tax payments revenue bonds is based on the city's covenant to cure any debt service deficiency with available NAV revenue.

NAV NOTCHING: The NAV covenant represents a strong link to the city's general credit quality and GO rating. A one-notch distinction reflects the absence of a specific lien on revenue and bondholders' inability to compel the city to generate sufficient NAV revenue to pay debt service.

STRONG FINANCIAL POSITION: The city's balance sheet position is strong, marked by high reserves and liquidity that cushion against unforeseen budgetary demands and emergencies. Financial results have been somewhat volatile over time and the city is in the midst of four consecutive years of fund balance drawdowns. The city retains good revenue diversity and flexibility with a low general property tax rate.

HIGH FIXED COST BURDEN: Annual debt service and retirement benefit costs consume a very high one-third of annual spending. However, debt service costs are scheduled to decline while post-retirement benefit modifications recently enacted by the city are intended to chip away at pension and other post-employment benefits (OPEB) liabilities over the long term.

STRONG ECONOMIC RECOVERY: The area economy is in the fourth year of a strengthening recovery characterized by accelerating job and tax base growth and a housing market rebound. Wealth indicators are mixed, reflecting in part the presence of a sizable retiree population.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

Sarasota is located along the Gulf of Mexico on the southwest coast of Florida and is the largest city and county seat of Sarasota County (implied ULTGO rated 'AAA' with a Stable Outlook). Encompassing 24 square miles, the city's estimated 2013 population of 53,326 represents an increase of less than 1% over 2010 levels.

SOLID RESERVE POSITION
Finances have historically exhibited high levels of reserves and liquidity, maintaining unreserved/unrestricted general fund balances between 20% and 30% of spending dating back to fiscal 2000. At the close of fiscal 2014 the unrestricted fund balance totaled \$17.3 million or 29.3% of spending. General fund cash and investments totaled \$16.3 million, which was sufficient to cover 6.9x total liabilities or 3.4 months of operations. Cash and investments across all governmental funds were reported at a healthy \$86.9 million. Fitch views the city's reserve policy as strong - the unassigned balance in the general fund must equal two to three months of expenditures. There were no material fund deficits reported in fiscal 2014 across the city's governmental funds, internal service funds, or enterprise funds (Fitch rates the city's water and sewer system revenue bonds 'AA' with a Stable Outlook).

FINANCES DEPICT MODERATELY NEGATIVE TREND
The general fund has recorded increasing operating deficits after transfers in four consecutive fiscal years, from \$181,169 or -0.4% in fiscal 2011 to \$1.9 million or -3.3% in fiscal 2014. Fitch also notes that in several years actual results were unfavorable to budget. Management has utilized reserves in conjunction with spending controls to offset sizable declines in the city's tax base and property tax revenues. Fiscal 2014 results also reflect the payment of \$2.8 million to pre-fund the city's future OPEB liability, which Fitch does not consider an operating cost. As noted above, the city's reserve position remains quite strong despite the use of reserves. The adopted budget for fiscal 2015 includes a fairly modest \$250,000 one-time transfer from the solid waste fund (the solid waste fund generated \$1.5 million in cash from operations with cash and investments of \$7.6 million in fiscal 2014). The budget does not otherwise appropriate existing reserves or non-recurring revenue. The improved budgetary outlook reflects the second consecutive year of tax base growth (4.6% and 5.4% in fiscal 2014 and 2015, respectively) and a significant reduction in OPEB costs following recent health plan changes.

MANAGEMENT ACTIONS TEMPER HIGH RETIREE LIABILITIES
The city's recent financial results also reflect pressure from unusually high retirement costs which limit its ability to control spending. The city maintains three defined benefit plans for its general, police and fire employees. Fitch-calculated charges for debt service, pension and OPEB consume a large 29% of spending in fiscal 2014. Much of the high fixed cost burden is attributable to elevated pension costs. The city contributed \$16.4 million to its three pension plans in fiscal 2014, up from \$8.3 million in fiscal 2011. The increased cost reflects a revision to more conservative investment rate of return assumptions for each plan (to 7% for police and general employees and 7.25% for fire). Importantly, management has taken steps to limit its long term pension liability by lowering certain benefits in its defined benefit pension plan for general employees and closing the plan to new hires in fiscal 2011 (future hires are enrolled in a defined contribution plan). Funding levels have improved over the past two fiscal years to an adequate 73.1% in aggregate and the unfunded actuarial accrued liability (UAAL) is estimated at \$156 million or a manageable 1.5% of market value.

In October 2014, the city made significant changes to its retiree health plans. The modifications, which were unanimously approved by city council, lower the OPEB UAAL to \$34.4 million from \$81.4 million. The actuarial required contribution for OPEB was reduced to \$4.2 million from \$9.2 million. As a result, the city lowered the amount budgeted for OPEB for fiscal 2015 by \$3.8 million from the prior year but still contributed 100% of the ARC. The city established an OPEB trust fund with assets actuarially valued at \$33 million as of Oct. 1, 2013. The city had previously increased the OPEB discount rate to 7% from 5.25%, due to the level of pre-funding.

MODERATE DEBT PROFILE
Overall debt levels are low to moderate at 1.6% of market value or \$3,005 per capita. Approximately 53% of outstanding principal (roughly \$40 million) is repaid in 10 years, which Fitch considers average. Future capital needs appear manageable; the five-year capital plan includes \$65 million in general government projects (the equivalent of 0.6% of market value), the funding sources for which include a variety of special taxes and grants. There are no plans currently for additional new debt.

CB&A PROVIDES SUPPORT
NAV revenues constitute a broad and diverse revenue stream. The availability of NAV revenues to support the sales tax payment bonds is subject to the use of revenues for essential government services and the potential future securitization of specific NAV revenues. The city's NAV revenues have trended within a narrow range over the past several years, driven by changes in the receipt of intergovernmental revenues. Available revenues are also supplemented by the city's ample reserve levels.

Pledged sales tax revenues of \$500,000 annually paid by the Florida Department of Revenue to the city narrowly cover debt service requirements, net of the federal interest rate subsidy in every year except final maturity in 2037 (when net debt service rises to \$540,000). The NAV covenant will be utilized to cover the difference in state sales tax payments and maximum annual debt service (MADS) in 2037 or in any year in which scheduled federal subsidy payments are not fully received. Federal subsidy payments were reduced by 7.2% in fiscal 2014 and the city covered the deficit with funds on hand. Pledged sales tax and direct subsidy payments are deposited on or before the 21st day of each month and debt service is due Feb. 1 and Aug. 1 - the city has stated that 10 days allows more than sufficient time to appropriate NAV revenue to cover any shortfall in pledged sales tax revenues or federal interest rate subsidy.

ECONOMIC INDICATORS POINT TO SUSTAINED RECOVERY
The city is part of the county's service-oriented economy which includes health care, education, professional and business services, retail, and tourism sectors. The largest employers include the Sarasota County School Board (4,664), Sarasota Memorial Hospital (3,099), Sarasota County (2,052), and custom door and window manufacturer PGT Industries (1,440). The city employment base experienced sharp recessionary declines, leading unemployment to peak at a high 11.6% in 2010. Job growth resumed in 2011 and has since accelerated. Employment gains of 3.2% in 2012, 3.3% in 2013 and 4.4% in 2014 underscore the increased pace of growth. The city's January 2015 unemployment rate of 5.1% compares favorably to the national (6.1%) and Florida (5.8%) benchmarks. Tourism within the county reported a very strong fiscal 2014 with tourist development tax collections up 14% over the prior year.

Housing values declined by nearly 60% between 2006 and the end of 2011, according to Zillow.com. However, values have climbed steadily in recent months, up 18.3% to \$196,900 in February 2015 compared to the same period in 2014. Despite the gains, housing levels remain significantly below pre-recession highs. A number of substantial housing and commercial projects in development also attest to the positive housing climate. The county's mostly residential tax base mirrors the area housing collapse as well as its subsequent rise. Taxable valuations lost nearly \$3.5 billion or over 33% of value between fiscals 2008 and 2013. This pattern was reversed in fiscals 2014 and 2015 with annual increases of 4.6% and 5.4%, respectively.

Wealth indices are mixed. Median household income levels are low at 86% and 77% of the state and national averages, respectively, which is likely a reflection of the city's relatively older population and smaller household size. Poverty rates are elevated, with over one in five residents at or below the poverty line. Conversely, per capita income exceeds the state and national benchmarks with educational attainment levels above the national averages.