OREANDA-NEWS. Fitch Ratings has assigned an 'AA' rating to the following city of Pembroke Pines, FL (city) bonds:

--\$74 million unlimited tax general obligation (ULTGO) bonds, series 2015, 'AA'.

The Rating Outlook is stable.

SECURITY

The bonds are supported by the city's full faith and credit, payable from an unlimited ad valorem tax levied annually.

KEY RATING DRIVERS

STRONG FINANCIAL RESERVES: The city's conservative budgeting and active expenditure controls have resulted in high reserve and liquidity levels. Financial flexibility is ample and the city enjoys a relatively diverse mix of revenues.

MATURE, ABOVE AVERAGE ECONOMIC BASE: Long-term economic prospects for the mature city are solid with increased building permit activity in recent years. Employment and wealth metrics are favorable and residents benefit from the city's location in the large and diverse Miami/Fort Lauderdale metropolitan area.

ELEVATED LIABILITY BURDEN: Debt levels are moderate. However, even with below-average principal amortization. Total carrying costs, including debt service and retiree benefit contributions, constitute an elevated share of governmental fund expenditures.

CONTINGENT LIABILITY: The rating also considers the city's operation of charter schools and associated debt; although the schools have not been funded with city revenues and have exhibited a stable enrollment base, Fitch considers the general government exposed to some risk as the schools are vulnerable to state funding reductions.

RATING SENSITIVITIES

STRONG FINANCIAL PERFORMANCE: The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices and resultant ample reserve levels. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Pembroke Pines is the second largest city in Broward County and the 11th largest city in Florida. The 2013 population of 162,329 has grown by a moderate 18% since 2000. The city covers 34.25 square miles in the southwestern portion of the county, approximately 10 miles southwest of the Ft. Lauderdale/Hollywood International Airport and 22 miles north of Miami.

STRONG FINANCIAL PERFORMANCE
Financial operations are strong and the city enjoys a relatively diverse revenue environment. General fund property taxes account for about one-third of revenues while charges for services and special assessments account for an additional third.

The city has achieved operating surpluses (after transfers) for at least the last seven fiscal years due to conservative budgeting and active expenditure management. The city has continued to utilize departmental reorganizations and contracting for services to effect expenditure savings, and prudently implemented modest millage rate increases to augment strong reserve levels.

The city achieved a net operating surplus (after transfers) of \$2.1 million in fiscal 2014. The unrestricted general fund balance was \$29.6 million (18.8% of general fund expenditures) following the purchase of two parcels of property.

The larger parcel, purchased for approximately \$14 million, is a decommissioned women's prison which the city intends to sell for the development of an industrial park. The second property was purchased for approximately \$10 million, and is expected to be the site of a charter school and small residential development. The city intends to sell the properties for a combined profit. Fitch views land purchases for resale as a somewhat unusual risk for a local government to take.

The fiscal 2015 budget maintains property tax rates at prior year levels and is balanced without a material appropriation of reserves. The budget includes revenue growth of 4.4% due to rebounding assessed value (AV) and increasing utilities rates, while expenditures are budgeted to increase by a more modest 3.1%. The city is tracking favorably to budget in revenues for the first half of fiscal 2015 and currently expects to close the year holding fund balance flat, or with a modest surplus.

The city's operating tax rate of 5.6368 mills affords ample flexibility under the 10-mill statutory limit while various fees and charges diversify general fund revenues. The city's water and sewer operations remain balanced. However, the city faces additional capital improvement needs for utilities that are expected to be funded through rates.

ELEVATED DEBT BURDEN
Overall debt levels are moderate at \$3,667 per capita and 4.4% of 2014 market value (MV). Amortization is below average, with only 39% of principal retired in 10 years. A large portion of the city's outstanding debt is payable from specific non-ad valorem revenue streams. The 2015 bonds leverage the remaining \$10 million of the city's \$100 million GO authorization to partially fund the construction of a new city hall facility. The bonds will also refund nearly all outstanding GO debt to achieve projected present value savings of 6.7% of refunding par. Management indicates that the city has no additional near-term borrowing plans.

Approximately \$63 million or 18% of the city's outstanding direct debt was issued to fund the construction of city-operated charter schools. The debt is secured by a first lien on charter school rental payments to the city, and is further supported by the city's covenant to budget and appropriate in the event that rental payments are insufficient to cover debt service. Monthly rental payments were covered by charter school gross revenues a high 16.6x in fiscal 2014. Maximum annual debt service (MADS), scheduled to occur in 2038, was covered 8.2x. MADS for charter school debt equals a modest 2.5% of governmental fund spending, presenting a limited financial risk in the event of insufficient charter school revenue. Charter school operations have historically been breakeven, but deterioration could require city support for operations and debt service, potentially pressuring the city's finances.

SIZABLE POST-EMPLOYMENT BENEFIT LIABILITIES
Pension costs associated with the city's two single-employer defined benefit plans have increased over the last decade, consuming a significant share of governmental fund expenditures. Fitch estimates the city's police and fire pension plan, by far the larger of the two, to be weakly funded with a reported funded ratio of 69% in fiscal 2014, which Fitch estimates to be lower at 62%, based on the 7% investment rate of return used by Fitch. The general employees' pension plan is fully funded according to the Oct. 1, 2014 valuation, which Fitch estimates to be adequate at 92% using the same 7% return assumption.

In order to reach full funding of the general employees' plan the city historically makes payments to the plans in excess of the annual required contribution (ARC). The city's fiscal 2014 contribution of \$42.7 million, equaled a substantial 17.3% of governmental fund spending, and significantly exceeded the total \$31.2 million ARC. Additional payments may be directed at improving the funding of the police and fire plan beginning in fiscal 2016. The city was successful in notably reducing pension benefits for general employees and the magnitude of the annual funding for that liability, freezing the plan to all employees in fiscal 2010.

Other post-employment benefits (OPEB) are generally limited to the implied subsidy as required by state law. The city has established a trust and fully funds the ARC which Fitch views favorably. Total carrying costs, including debt service, pension ARC, and OPEB contribution, constitute a high 26.7% of governmental fund spending in fiscal 2014.

ABOVE-AVERAGE ECONOMIC PERFORMANCE
Pembroke Pines is a largely developed residential community, with a downtown center experiencing several redevelopment projects. Population more than doubled from 1990-2000 and has grown an additional 18% to 162,329 since the 2000 census.

City wealth levels generally exceed state and national averages and the individual poverty rate is low. Unemployment increased during the recent economic downturn but remained below regional, state and national levels. Unemployment fell to 4.8% in February 2015 from 5.3% the year prior due to labor force losses rather than employment gains, although the labor force has exhibited annual growth for the last five consecutive years.

REBOUNDING TAX BASE
AV, which declined 29% between 2009 and 2011, has experienced moderate growth in recent years. Regional housing data indicate year-over-year home price increases and a significant decline in foreclosures. Residential and commercial building permit activity in the city has been significant over the past two years. The tax base grew moderately by 7.8% in fiscal 2014 due largely to increased resale values and some new construction. Further growth of 3.4% was registered in fiscal 2015, increasing MV per capita to \$84,000. Fitch expects the tax base to continue to experience modest growth in the near term.