OREANDA-NEWS. Fitch Ratings has affirmed the ratings on the following Pasco County, Florida (the county) obligations:

--\$25.2 million guaranteed entitlement revenue bonds, series 2013 at 'AA';
--\$28.1 million half-cent sales tax improvement revenue bonds, series 2013A and 2013B at 'AA',
--Implied unlimited tax general obligation (UTLGO) at 'AA'.

The Rating outlook is Stable.

SECURITY

The sales tax bonds are payable from the proceeds of the local government half-cent sales tax collected within the county, and distributed among the county and its incorporated municipalities based on a population-driven formula.

The guaranteed entitlement bonds are payable from the county's share of a fixed payment from the guaranteed entitlement funds, from certain revenue sharing trust funds of the state of Florida pursuant to Chapter 218, Part II, Florida Statutes.

KEY RATING DRIVERS

FINANCIAL FLEXIBILITY: General fund reserves are strong and offer the county ample financial flexibility.

LIMITED LOCAL ECONOMY: The county is largely rural, with some tourism and a growing population. The county's taxable assessed value (TAV) fell significantly during the recession, but has shown increasing growth over the past two years.

DEBT AND FIXED COSTS CURRENTLY MANAGEABLE: The county's debt levels are low and carrying costs including pension and other post-employment benefits (OPEB) are manageable.

ROBUST SALES TAX COVERAGE: Fiscal 2013 sales tax revenues provide robust coverage of 8.8x on maximum annual debt service (MADS). Fitch expects coverage will remain solid, as surplus revenues are utilized to fund operations.

GUARANTEED ENTITLEMENT RATING APPROACH: The rating on the county's guaranteed entitlement revenue bonds reflects the county's implied ULTGO rating and the high quality of the payments from the general revenue fund of the state of Florida, whose GOs are rated 'AA+', with a Stable Outlook by Fitch. The pledged revenues reflect a fixed statutory payment from certain state revenue sharing trust funds.

RATING SENSITIVITIES

IMPLIED ULTGO CEILING: The implied ULTGO rating on the county provides the ceiling for the sales tax and guaranteed entitlement revenue bonds.

ECONOMIC DIVERSIFICATION: The limited economy hinders improvement in the implied ULTGO rating in the intermediate term; however, continued growth and diversification over time could warrant positive rating action.

CREDIT PROFILE

Pasco County is a 745 square mile area located on the west coast of the state approximately 30 miles northwest of Tampa. The county is home to approximately 475,500 residents and is a mix of suburban and rural communities.

AMPLE FINANCIAL FLEXIBILITY

Management has prudently maintained robust general fund reserves providing the county with a high level of financial flexibility. General fund revenues comprise a diverse mix of tax revenues including property, sales, and communications taxes. The fiscal 2015 property tax rate of 7.34 mills is comfortably below the statutory 10-mill cap.

Fiscal 2013 ended with a sizable general fund operating surplus of \$9.8 million (5.0% of spending), and the unrestricted general fund balance was strong at \$68.4 million or 35% of expenditures. The original budget appropriated \$18.7 million of general fund reserves to balance operations, but both revenues and expenditures were favorable to budget, enabling a surplus.

The fiscal 2014 budget included \$27 million use of general fund reserves for budget balance. Preliminary results indicate again that both revenues and expenditures are coming in favorable to budget. Current estimates for the Sept. 30, 2014 fiscal year end indicate a small use of total fund balance.

In fiscal 2015, moderate growth in the revenue base allows the county to begin restoring park and recreation service levels and to add positions for growing service demands. The millage rate was held constant. The 2015 budget also includes expenditure savings achieved through self-insurance. Budget to budget, general fund expenditures increase 4.2%. The fiscal 2015 budget again includes a \$27 million appropriation of reserves, although given the county's practice of conservative budgeting, Fitch expects better-than-budget results.

LIMITED LOCAL ECONOMY

The county has primarily a retirement and tourism-based economy, with some diversification within the financial and medical services sectors. The limitation of the county economic base was evident as unemployment spiked well above both the state and nation at the peak of the recession. Subsequent steady job growth has helped bring unemployment down to 6.4% as of December 2014, still above the state and national rates of 5.4%. The largest employers are the county-wide school district, Walmart supercenters and HCA Healthcare.

The county's TAV was affected by the housing crisis, declining a steep 42% between fiscal 2008 and 2013. The tax base is now showing improvement with 1.2% growth in fiscal 2014 and a stronger 4.8% in fiscal 2015. County officials expect strong growth in fiscal 2016 with taxable values projected to increase 5.3%. As approved by the voters, 20% of the county's share of the one-cent sales surtax revenue, or an estimated \$5.6 million per year, is dedicated to economic development in an effort to strengthen the county's economic position.

Population growth is a rapid 138% since 2000, with steady continuous growth over recent years. Wealth indicators are somewhat below average with median household income at 94% of the state and 83% of the national medians. The poverty rate is 13%, below the national rate of 15.4%.

LOW AND MANAGEABLE CARRYING COSTS

The county's overall debt levels are low at \$289 per capita and 2.76% of the taxable property value. Amortization is below average, with approximately 32% of principal retired within 10 years. Debt levels are expected to remain stable, as the county has limited additional long-term borrowing planned.

Capital needs focus on safety and operational improvements, including sidewalks, public safety equipment, and transportation projects. Funding is expected to be largely met through the voter-approved Penny for Pasco sales surtax that expires in 2024.

Pensions are provided through the state-run Florida Retirement System (FRS) and total annual pension contributions were a manageable 4.3% of expenditures in fiscal 2013. FRS is funded at 85% or an estimated 79% when adjusted by Fitch to assume a 7% rate of return.

OPEB is currently funded on a pay-go basis and the unfunded liability represents a low 2% of market value. Carrying costs including debt service, pension costs at 100% of the CSME ARC (the state plan did not have participants fund 100% of the ARC in 2013) and OPEB were a low 9.6% of total fiscal 2013 expenditures.

PLEDGED REVENUES PROVIDE SATISFACTORY COVERAGE

Over the past four years, sales tax revenues have shown steady annual growth and increased 9% overall after declining nearly 7% in 2009 alone. Fiscal 2013 revenues provided an ample 7.9x coverage of debt service. Coverage improves to 9.2x of MADS in fiscal 2014: unaudited fiscal 2014 revenues are up 4.5% and a 2013 refunding lowered debt service.

The guaranteed entitlement bonds are secured by the county's share of a fixed payment from the state and as such there has been no recent fluctuation in the payments received. Fiscal 2013 revenues provide 1.08x debt service coverage as is typical of debt secured by a fixed distribution. Coverage is expected to remain at this level for the life of the bonds. The state revenues are derived from a much larger pool.