OREANDA-NEWS. Fitch Ratings has assigned an 'AA-' rating to the following the following Lake County (the county), Florida Bonds:

--$46 million capital improvement revenue bonds (CIRB) series 2015B.

The bonds are expected to sell through negotiation in mid-July. Proceeds will be used to refund a portion of the series 2007 CIRB for debt service savings.

In addition, Fitch affirms the following ratings:

--$51.8 million CIRB series 2007 at 'AA-';
--$3.3 million limited tax general obligation bonds (LTGO) series 2007 at 'A+'.
--Implied unlimited tax general obligation (ULTGO) at 'AA-'.

The Rating Outlook on the implied ULTGO and the CIRBs has been revised to Stable from Negative. The Rating Outlook on the LTGOs is Stable.

SECURITY

The CIRBs are payable from the county's portion of the local government half-cent sales tax.

The LTGO bonds are payable solely from a voter-approved ad valorem tax not to exceed 1/3 of a mill on all taxable property within the county.

KEY RATING DRIVERS

REVENUE STRENGTHENING STABILIZING FINANCES: With the economy improving, taxable values and sales tax collections continue to strengthen. Additionally, a property tax rate increase was adopted in fiscal 2015. The county is projecting balanced general fund operations in fiscal 2015 for the first time since 2010 and expects to propose a balanced fiscal 2016 budget. Further erosion of financial health is not expected and the rating outlook on implied ULTGO and the CIRBs is revised to Stable from Negative.

GO CEILING: The ratings assigned to the LTGOs and CIRBs are capped by the county's implied 'AA-' ULTGO rating.

SOUND CIRB COVERAGE: Maximum annual debt service coverage (MADS) on the CIRBs remains strong, at 2.3x in fiscal 2014.

ADEQUATE LTGO DEBT COVERAGE: The 'A+' rating on the LTGO bonds reflects adequate debt service coverage based on the maximum permitted millage rate.

LIMITED ECONOMY; RECENT ECONOMIC IMPROVEMENT: The county's economy is somewhat limited reflected in its largely residential base with a high retiree population and wealth levels slightly below state and national averages. Economic improvement is evident in an improving housing market and a declining unemployment rate.

MODEST DEBT BURDEN: The county's debt burden should remain low given no plans for additional issuance. Carrying charges for debt, pension, and other-post employment benefits (OPEB) are very low.

RATING SENSITIVITIES

DEBT SERVICE COVERAGE: The ratings on the LTGO and CIRBs are sensitive to shifts in debt service coverage.

FURTHER RESERVE WEAKENING: Further weakening of reserves would erode credit health and result in negative rating action.

CREDIT PROFILE

Lake County is located in central Florida. The county seat, Tavares, is about 34 miles from the city of Orlando. The county's 2014 population of 315,690 represents growth of over 50% since 2000.

STRONG CIRB DEBT SERVICE COVERAGE

Sales tax revenue showed strong growth of 7.3% and 7.9% in fiscal 2013 and 2014, respectively. The resultant fiscal 2014 debt service coverage was a strong 2.3x. Growth in sales tax continues in fiscal 2015, with the first seven months posting 4.4% growth over the same period in fiscal 2014 and exceeding the budgeted growth rate. The refunding bonds have a strengthened additional bonds test (ABT) of 1.3x, whereas the series 2007 CIRBs had a 1.2x ABT. After the refunding MADS is estimated to decline to $5.56 million, with fiscal 2014 revenues providing 2.4x coverage.

SUFFICIENT DEBT SERVICE COVERAGE FROM 1/3 MILL FOR LTGOs

If the county had levied the full 1/3 mill, the maximum permitted, fiscal 2014 debt service coverage would be 1.7x. However, the county levied for essentially sum sufficient coverage, and fiscal 2014 closed with $954 thousand in available reserves in the limited tax debt service fund. The fiscal 2015 budget reduces the LTGO levy to 0.16 mills from 0.19 mills the year prior, necessitating moderate reserve use for debt service. Management estimates a fiscal 2015 year-end reserve balance of about $500,000 and that no reserve use is expected to fund fiscal 2016 debt service.

In June of 2015 the county issued debt to refund the callable maturities of the LT GOs. The final maturity on the non-refunded series 2007 LTGOs is June 1, 2017, which is the call date.

STABILIZING FINANCIAL OPERATIONS

The county's tax base was hard hit during the recession, and property tax revenues suffered (property taxes account for 72% of fiscal 2015 budgeted general fund revenues). The county initially responded by implementing significant expenditure cuts and utilizing reserves. After several years of declines in financial reserves, the county implemented a 13.8% increase in the tax rate for fiscal 2015 to restore budget balance. The county's unreserved or unrestricted fund balance, which had generally ranged from 20% - 30% of spending over the last decade, was 13.4% for fiscal 2014 (or $16 million).

The county fiscal 2015 general fund budget of $131.7 million is a moderate 3.3% increase over the prior year. The general fund tax rate of 5.39 mills is still well below the state-imposed 10 mill cap. This increase, coupled with 4% growth in TAV, is budgeted to generate an additional $13.2 million in revenue in fiscal 2015. Property tax revenues are the largest source for the general fund, equal to about 70% of revenue. Management expects to keep the tax rate level over the next several years.

The fiscal 2015 budget includes a 3% raise for all employees (about $1 million) after five years of no salary adjustments, information technology and facilities upgrades ($700,000), $500,000 for a fuel remediation project, and a slight increase for pension funding ($100,000). The fund balance is expected to remain unchanged.

The fiscal 2016 proposed budget has not yet been released but officials indicate the budget will be balanced without use of reserves. The county revised its reserve policy in 2012 to set a targeted fund balance reserve range of 7% to 12% of the operating budget, down from the previous policy target of 15%. Maintenance of fund balance ranges close to the high end of the fund balance target range is a key factor in maintenance of the 'AA-' rating.

IMPROVING ECONOMY

The county is a largely residential community with a high retiree population. The economy has historically been concentrated in citrus, but the county's large number of residents over 65 years old has driven an expanding health care sector. The largest employers include the school district, followed by Leesburg Regional Medical Center and the Villages of Lake-Sumter, Inc. (a large retirement community). Proximity to Orlando enhances employment opportunities.

Employment continues its trend of healthy growth, increasing 3.8% in 2014. The unemployment rate, which reached a peak of 12.3% in 2010, continues to improve, dropping to 5.5% in March 2015, comparable to state and national averages both at 5.6%. Wealth levels remain slightly below regional, state and national averages. The median household income is 85% of the national rate; the poverty rate of 13.8% is below the national rate of 15.4%

The county experienced multiple years of sizable TAV declines, totaling about 34% from 2008 to 2013; however, fiscal 2014 TAV stabilized, increasing 0.7%, and growth began to accelerate in fiscal 2015, increasing 4.4%. The county expects additional modest growth over the near term which Fitch views as reasonable based on an improving housing market and development activity planned or underway. The tax base is not concentrated.

LOW LONG-TERM LIABILITIES

County overall debt levels are low at $1,178 per capita and 2.3% of taxable value of real property. Debt service relative to total governmental fund spending is a modest 4.2%. Amortization is slightly below average, with approximately 47% of principal retiring within 10 years. However, capital needs are limited and no additional debt issuance is contemplated.

County employees participate in the Florida Retirement System (FRS). The FRS funded ratio as of June 30, 2014 was 86.6% or 80.8% using Fitch's more conservative 7% discount rate assumption. Total carrying costs, including debt service, OPEB payments, and the pension actuarially required contribution are low at 9% of total governmental spending.