OREANDA-NEWS. Fitch Ratings has affirmed the 'A+' rating on the following Tampa, Florida (the city) solid waste system revenue bonds:

--$80.1 million solid waste system refunding revenue bonds (the bonds);

The Rating Outlook is Stable.

SECURITY

The solid waste system revenue bonds are secured by a senior lien on the net revenues derived by the city from the operation and ownership of the solid waste collection and disposal system (the department or system). The bonds are also secured by a cash-funded debt service reserve fund.

KEY RATING DRIVERS

SYSTEM METRICS CONTINUE TO IMPROVE: Implementation of the majority of approved multi-year rate increases has bolstered system financials. Operating margin, unrestricted cash balances and debt service coverage have all improved considerably since 2012, when the first rate increase was instituted. Enactment of the remaining rate hike is expected to further enhance system benchmarks while providing sufficient cash flow for operating and capital needs.

FLOW CONTROL LIMITS COMPETITION: The system controls waste flows through the use of a legal flow control ordinance which mitigates the risk of competition from neighboring facilities.

MODEST CAPITAL NEEDS: The system's capital plan for the next five years totals a very modest $6 million to be funded exclusively from system operations. Officials have no plans to issue additional bonds.

ROBUST ECONOMIC RECOVERY: The local economy continues to experience sustained growth. Job and housing gains have tempered recently but are expected to regain momentum as numerous planned developments are carried out.

MAJORITY OF REVENUES COLLECTED ON THE UTILITY BILL: Residential and commercial solid waste fees constituting 84% of total revenues are charged on the monthly utility bill, providing strong incentives for payment. Collection rates average over 98% annually.

RATING SENSITIVITIES

SUSTAINED FAVORABLE OPERATIONS: Maintenance of favorable financial metrics could lead to upwards rating movement.

CREDIT PROFILE

TIER III SYSTEM

The city's solid waste management system is an enterprise fund of the city of Tampa ('AA' Implied GO by Fitch) and is a Tier III credit under Fitch's criteria whereby the system collects and disposes of solid waste and operates a waste-to-energy facility.

The system encompasses approximately 85 square miles and serves the city of Tampa as it existed in 1983. Subsequent city annexations are not included in the system but are served by Hillsborough County's solid waste department. The system currently serves approximately 76,000 residential and 8,800 commercial customers. The city is generally built-out so Fitch does not expect the system's customer base to experience rapid expansion in the future.

FINANCIAL PICTURE BRIGHTENS

Financial operations have improved substantially due to the implementation of four of five successive annual rate increases approved by the city council in 2012. Prior to 2012, rates had not been lifted since fiscal 2006. The rate plan called for residential rate increases of 15% and 10%, respectively in April and October 2012, followed by rate hikes of 3% at the beginning of fiscals 2014, 2015 and 2016. Commercial rates were set to escalate by 12% each time in lockstep with the residential rate adjustments. When completed on October 1, 2015, the rate plan will have raised residential and commercial rates by a total of 38% and 76%, respectively.

The city also enacted a 15% franchise fee to be charged to private haulers that serve commercial customers. The franchise fee applies to city commercial hauling operations as well.

Operating revenues have jumped by nearly $16 million or 23% between fiscals 2012 and 2014, due to these rate hikes. The augmented revenues combined with aggressive cost control, have strengthened overall system metrics. Fiscal 2014 debt service coverage was an ample 2.5x which compares favorably with fiscal 2012 coverage of 1.5x. Coverage was also enhanced by lower debt service costs stemming from the refunding of outstanding series 1999B and series 2011 solid waste bonds during fiscal 2013. Unrestricted fiscal 2014 cash of $23.5 million represented an over 100% increase over fiscal 2012 cash levels. Days cash on hand (DCOH) totals a healthy 169 days of operations, well over the city's target of 90 DCOH.

Department officials have engaged in aggressive cost cutting, including personnel reductions, savings through new service contracts and improved operating efficiencies, such as utilization of GPS to optimize collection truck routes and the recent conversion of its truck fleet from diesel to compressed natural gas. As a result of these measures operating expenses have risen by only 4% since fiscal 2012 and are projected to grow modestly in each of the next three fiscal years.

Fiscal 2015 debt service is expected to widen from fiscal 2014 as operating revenues are forecast to increase by $5.2 million or 6% while expenses and debt service costs remain relatively flat. Operating revenues are predicted to expand by a more modest 3% in fiscal 2016 due to implementation of the last rate increase and then level out through fiscal 2018.

HIGH FEE STRUCTURE CONCERNS OFFSET BY FLOW CONTROL

The system's solid waste rates are higher than those of Tampa's surrounding communities without factoring in the last approved rate increases. This is partly due to a wider range of services provided by the city than offered by other communities such as more frequent recycling collection. Concern over the elevated rate structure is mitigated by the city's flow control ordinance, which gives the city control over how and where city waste is disposed.

SOLID WASTE FEES CHARGED ON THE UTILITY BILL

The system's three primary sources of revenues are solid waste collection and disposal fees (solid waste fees), electric generation revenues, and tipping fees. Solid waste fees comprised approximately 85% of operating revenues in fiscal 2014, up from about 80% in fiscal 2012 as a result of rate hikes already instituted.

Fitch considers the charging of residential and commercial solid waste fees on the monthly utility bill to be a positive credit factor as it creates strong incentives for payment. As such, this payment methodology provides the system with stable and reliable income which accounted for 84% of all revenues in fiscal 2014. Collection rates have historically hovered between 98% - 99%.

Additional revenues are received from the sale of power produced at its waste-to-energy facility which totaled $8.22 million and accounted for nearly 10% of operating revenues in fiscal 2014. Non-residential waste revenues are also derived through tipping fees, which accounted for about 6% of operating revenues in fiscal 2014.

THE CITY'S WASTE TO ENERGY PLANT CONTINUES TO PERFORM WELL

The waste-to-energy facility is operated by Wheelabrator McKay Bay (Wheelabrator) under a contract expiring in 2032. Wheelabrator, formerly a subsidiary of Waste Management, Inc. (Fitch IDR 'BBB' with a stable outlook), was recently sold to a private equity firm although Waste Management's guarantee of Wheelabrator's performance under the plant operating agreement remains in effect. The solid waste system has generally exceeded projections since a facility retrofit was completed in fiscal 2002, and has met its minimum annual waste guaranty. The city collects 100% of residential waste and 60% of commercial waste with the remaining 40% of commercial waste hauled by Republic Services of Florida under a contract which runs through June 30, 2016.

The city has a power purchase agreement with Seminole Electric Cooperative that provides for delivery of up to 20 megawatts of contracted energy. The term of the agreement runs through July 2026 with rates adjusted periodically throughout the life of the agreement.

MODEST CAPITAL NEEDS WITH NO PLANNED DEBT

The system is reportedly in good condition and additional capital needs are minimal. The five year capital plan totals a modest $6 million and includes expansion of the McKay Bay Scale House. In addition, the department is spending approximately $6 million annually on vehicle replacements. Funding will be from system revenues and no additional debt is anticipated. Any future debt is subject to a 1.1x additional bonds test. Current outstanding bonds are rapidly amortized with all debt retired by 2021.

DIVERSE SERVICE AREA; EMPLOYMENT GROWTH SUBSIDES

Tampa serves as an economic hub for the regional economy. Leading employers include the Hillsborough County School Board, MacDill Air Force Base, Hillsborough County government and Tampa International Airport.

The local economy, hit hard by the recession, expanded briskly adding over 30,000 jobs (20.8%) between 2009 and 2014. This growth pushed the county's unemployment rate down from 10.9% in 2010 to 5.9% in 2014, below both the state and national averages. The pace of job gains slowed considerably over the first five months of 2015 including preliminary May numbers with average employment up only 0.5% from the same period in 2014. April 2015 employment was a negligible 0.3% down year over year. The unemployment rate of 5.2% remains favorable compared with the state and national rates of 5.3% and 5.4%, respectively.

The city's housing market continues to recover from a steep recessionary decline, although growth rates have eased recently. Zillow forecasts growth to dampen further with values rising by only 1.9% over the next 12 months.

Taxable assessed value (TAV) trends have lagged those of the housing market. Following five years of declines aggregating a 26% drop, TAV reversed in fiscal 2014, growing by 6.0%. Values expanded by 7.2% in fiscal 2015, with gains in both years driven almost exclusively by the rising level of residential valuations, which represent almost half of all values. Preliminary TAV for fiscal 2016 show additional growth of over 8%, bringing it to about 90% of the previous high. Fitch believes that extensive residential and commercial development activity already in process will further bolster taxable value expansion.

MANAGEABLE RETIREMENT OBLIGATIONS

Solid waste system employees participate with most other city employees in the city-sponsored general employees' retirement fund. The plan is well-funded at 99.5% or an estimated 89.6% assuming Fitch's more conservative 7% discount rate. Retiree health benefits are provided through an implicit rate subsidy funded by the city on a pay-go basis.