OREANDA-NEWS. Fitch affirms the following Monroe County, FL (the county) bonds:

--\$9.93 million infrastructure sales tax revenue bonds series 2007 at 'AA';
--Implied general obligation (GO) bonds at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from the county's portion of one cent local government infrastructure sales surtax revenues (sales surtax). The debt service reserve requirement is fulfilled by a surety from MBIA.

KEY RATING DRIVERS

SOUND FINANCIAL FLEXIBILITY: The 'AA+' implied GO rating reflects the county's superior financial profile, including robust reserves and ample liquidity.

MANAGEABLE DEBT BURDEN: Debt levels have increased with additional loans to finance various projects but remain relatively low. Pension and OPEB costs are affordable.

LIMITED ECONOMIC PROFILE: The economy remains heavily concentrated in tourism and government. Nonetheless, economic indicators remain favorable compared to those of the state and nation.

STRONG SALES SURTAX COVERAGE: The 'AA' rating for the sales surtax revenue bonds reflects strong debt service coverage of senior bonds provided by pledged revenues Sales surtax revenues have experienced substantial growth over the past five years following a large one-year drop.

RATING SENSITIVITIES

MAINTENANCE OF STRONG RESERVES: Fitch considers high reserve levels critical to the ratings due to the county's reliance on economically sensitive revenues and inherent weather related risk associated with its location.

CREDIT PROFILE

Comprised primarily of the Florida Keys, Monroe County is the southernmost county in the U.S., with a 2013 population of 76,350.

TOURISM-DOMINATED ECONOMY, POSITIVE ECONOMIC INDICATORS

Tourism and government drive the local economy, as reflected in the high proportion of the county's top employers and taxpayers across those two sectors. The Naval Air Station at Key West is the largest employer, providing air to air combat training for all military services. Though the tourism industry softened briefly during the last national recession, tourist activity has fully recovered as demonstrated by brisk growth in local tourist development taxes, which have increased at an average annual rate of 10% since fiscal 2011. Hotel occupancy rates in Key West, the largest city, were a very high 84.7% as of December 2014.

Economic indicators compare favorably to state and national averages. The county's per capita income levels exceed those of the state and nation by over 25%. The local economy performed better than most other counties in Florida, experiencing only one year of job loss during the recession. The county's December 2014 unemployment rate of 3.3% was significantly lower than the state and national benchmarks, consistent with historical trends.

GROWTH OF RESERVE LEVELS DESPITE PRESSURED OPERATIONS

Finances are conservatively managed, characterized by sizable reserve balances and strong liquidity. Management restored reserves beginning in fiscal 2008 following substantial drawdowns related to damage from Hurricane Wilma. Between fiscals 2008 and 2012, the county reported five consecutive general fund operating surpluses, more than doubling fund balance. These positive results were achieved through regular property tax increases which mitigated tax base losses and tight controls on spending, including layoffs.

Fiscal 2013 general fund operations resulted in a \$1.8 million drawdown. Management, in an effort to reduce taxes, lowered the property tax rate by 3.6% which, combined with a 5% decline in taxable values, resulted in a significant drop in property tax revenues. The fiscal 2013 property tax rate of 3.99 mills remains comfortably under the 10 mill cap. Furthermore, staffing was increased for the second straight year. Actual results outperformed the budget, which had projected a \$5 million operating deficit. Despite the use of fund balance, unrestricted general fund reserves remain robust at 41.8% of spending. Reserve levels exceed the county's minimum fund balance policy of four months of operations (33%), including \$10 million for disasters/emergencies.

The fiscal 2014 budget projected a \$3.1 million general fund deficit, although budgets are conservative and actual results are typically better than budget. Included in the budget was an average 2% salary increase for employees and a modest increase in property taxes. The fiscal 2014 audit reported a negligible drawdown of \$120,000 reflecting higher than expected excess fees from the constitutional officers and below budget spending. Unrestricted general fund balance remained sizable at 40% of spending.

The fiscal 2015 budget proposes a \$3.9 million drawdown which balances higher property tax revenues against the costs of a 2% merit increase and higher pension contribution requirements. Year to date actual expenditures are tracking according to budget but revenues exceed budget by \$1 million due to the unbudgeted receipt of federal revenue sharing funds. The budgeted deficit would still leave reserves above the county's healthy minimum target.

RECOVERING HOUSING MARKET AND TAX BASE

The county's housing market began its gradual recovery at the end of 2011 after falling by nearly 50% from its 2005 peak. Housing values are up 12.7% over the past 12 months according to the Zillow Group. The median home price is over twice the state and national averages. Taxable value trends have mirrored those of the housing market, falling by 35% between fiscals 2008 and 2012. The downward trajectory of the tax base reversed in fiscal 2014 with a modest upturn of 1%. A more robust tax base rise of 8% in fiscal 2015 portends sustained growth in at least the near term.

HIGHER BUT MANAGEABLE DEBT BURDEN

Debt levels have increased recently but remain manageable. Debt burden is modest relative to market value at .81% but moderate at \$2,779 on a per capita basis. This disparity in relative debt burden between market-based and per-capita based is due the county's very high home values and the large number of visitors not captured in the population estimates. Recent additions to direct debt include a 2014 privately-placed \$32 million debt issue with over \$20 million to fund various capital projects and \$120 million of state revolving (SRF) fund loans for a wastewater treatment plant, from which the county has drawn over \$40 million.

The SRF loan is payable from a combination of sales surtax revenues (on a subordinate basis to the series 2007 and 2014 bonds) and special assessments. The county covenants to budget and appropriate non-ad valorem revenues should pledged revenues fall short. The sales surtax revenues would be designated to pay debt service on \$85 million of the loan while special assessments would cover the rest. Management is attempting to secure \$45 million of grants and additional funding to reduce the loan amount. Loan repayment is spread over 20 years and only begins six months after project completion, which is expected in either fiscal 2017 or fiscal 2018.

Amortization of existing debt is rapid although it will slow considerably once repayment of the SRF loan is set. The county recently drew on a \$16 million line of credit for various capital projects which it may convert to a term loan secured by sales surtax revenues on parity with the series 2007 and 2014 bonds. Capital needs are moderate with five year capital spending of \$76 million net of costs of the wastewater treatment plant.

RETIREMENT LIABILITIES ARE NOT A COST PRESSURE

Most county employees participate in the Florida Retirement System which administers defined benefit and defined contribution pension plans. The county also runs a very small defined benefit pension plan for volunteer firefighters and emergency medical services which was over 90% funded at the end of 2012, the latest available valuation date.

Other post-employment benefits (OPEB) offered to retirees include the opportunity to participate in the county's health care plan. The costs for retirees hired before 2001 with at least 10 years of service are subsidized by the county while retirees hired after 2001 are not subsidized but receive an indirect subsidy by paying the same rates as regular employees. The county funds the plan on a pay-go basis. The plan's actuarial accrued unfunded liability constituted less than 1% of the county's market value. Annual carrying costs related to debt service and retirement contributions totaled a low 8.2% of governmental spending in fiscal 2013, although this metric is expected to rise to a moderate 12% to 13% of spending assuming the maximum planned draw down of the additional debt.

STRONG COVERAGE FROM PLEDGED REVENUES

The sales surtax, previously scheduled to expire in December 2018, was extended by referendum through 2033. The tax is distributed among the county and its incorporated municipalities according to a population based formula. The county continues to receive roughly 60% of total revenues, with a floor of 40%. While no change is anticipated in the county's proportion of sales surtax received, a reduction to 40% of total revenues would result in coverage remaining sound at roughly 1.58x MADS based on fiscal 2014 results.

Sales tax collections have experienced annual gains since declining almost 10% in fiscal 2009, growing 36% in aggregate through fiscal 2014. Coverage of MADS of the series 2007 and series 2014 bonds is ample at 2.4x. When adding an estimated \$5.5 million of annual subordinate debt assuming \$85 million of the SRF loan to be paid from sales surtaxes, all-in coverage of MADS would remain adequate at 1.4x. Coverage levels will expand absent additional issuance after fiscal 2018 with final maturity of the series 2007 bonds.

Legal provisions are lenient requiring 1.3x coverage of MADS to issue additional senior lien bonds.