OREANDA-NEWS. Fitch Ratings has assigned an 'A' rating to the following Riviera Beach, FL (the city) bonds:

--$57.17 million taxable public improvement revenue bonds, series 2015.

The bonds are expected to sell July 28 via a negotiated sale. Proceeds will fund a portion of the unfunded actuarial accrued liability (UAAL) of the city's three pension plans.

In addition, Fitch affirms the following ratings:

--$22 million outstanding public improvement bonds at 'A';
--Implied unlimited tax general obligation at 'A+'.

The Rating Outlook is Stable.

SECURITY
The public improvement revenue bonds are special obligations of the city, payable from its covenant to budget and appropriate (CB&A), by amendment if necessary, non-ad valorem (NAV) revenues. The availability of NAV revenues to pay debt service is subject to the funding of essential government services and obligations with a specific lien on NAV revenues. Such a covenant shall be cumulative to the extent the obligation is not paid, and shall continue until all required amounts payable under the indenture have been paid.

KEY RATING DRIVERS

IMPLIED ULTGO 'A+' RATING: The 'A+' rating on the implied unlimited tax general obligation bonds (ULTGO) reflects the city's satisfactory financial position, economic potential given its location within Palm Beach County, below-average wealth indicators, and moderately high debt load. Sizable growth of the city's revenue base in fiscal 2016 is expected to strengthen the city's credit profile.

IMPROVED PENSION OUTLOOK: Recently enacted pension reforms are expected to result in significant long-term pension savings.

WEAKER DEMOGRAPHIC PROFILE: The city, while part of the strong Palm Beach County economy, presents a much weaker demographic profile including low wealth indices, high rates of poverty and above-average unemployment trends. Recent economic movement, however, has been positive.

REDUCED BUT STILL HIGH RECEIVABLES: Reduction in general fund receivables has improved general fund liquidity. Liquidity remains somewhat tight as receivables still compose over half of the general fund balance.

CB&A DEBT ONE-NOTCH OFF GO: The city's NAV revenues are broad-based and provide strong coverage of CB&A debt. The bonds are rated one notch below the city's GO bonds due to the prior payment requirements of essential government service costs, the absence of a specific pledge, and the inability to compel the city to generate NAV revenues sufficient to pay debt service.

RATING SENSITIVITIES

IMPROVEMENT IN LIQUIDITY LEVELS: Continued improvement in balance sheet metrics, particularly a substantial increase in overall liquidity, could lead to positive rating action.

FINANCIAL DETERIORATION: Conversely, significant deficits or a further squeeze on already tight cash reserves could negatively pressure the rating.

CREDIT PROFILE
Riviera Beach is located in east central Palm Beach County (the county), along the Atlantic coast. A portion of the city is situated on Singer Island, just off the mainland. Encompassing an area of approximately 8.5 square miles with an estimated 2013 population of 33,560, the city is primarily urban and mostly built out.

PENSION MEASURES INTENDED TO GENERATE SAVINGS

The city sponsors three separate defined benefit, single-employer pension plans, for general employees, police and firefighters. The general employees' plan is poorly funded with a funded ratio as of Oct. 1, 2014 of 62.4%, using Fitch's 7% discount rate assumption. The other two plans are better funded.

The use of bond proceeds to erase the funding gaps of its three plans is being undertaken simultaneously with benefit reforms. The reforms involve the closure of the general employee and firefighter pension plans to new employees; those employees will now be enrolled in the state-administered Florida Retirement System (FRS). The police officers' union voted to keep the police plan open to new employees and not divert them to FRS. Existing members of the three city-administered pension plans were also given the opportunity to join FRS, although only a small number chose to. Based on an actuarial analysis, savings from these measures, primarily due to lower benefits of FRS, should be significant over time.

Fitch notes that the bond transaction does not in itself change the magnitude of the city's long-term obligations, as pension liabilities will be exchanged for additional debt. Furthermore, Fitch acknowledges the typical risks embedded in pension bond transactions are present here, including the replacement of a slightly more flexible pension liability with the hard obligation of debt and the risk of generating investment returns less than bond costs. Realization of the latter scenario could place greater stress on city finances. However, some comfort is derived from the difference between projected low financing costs and an assumed conservative investment rate of return, as well as from anticipated savings from future workers' lower benefit levels.

POSITIVE LIQUIDITY TRENDS

The city's financial position is characterized by solid reserves combined with improved but still tight liquidity. The total general fund balance at fiscal 2014 year-end totaled $18.4 million, or a strong 35.4% of expenditures. Unrestricted reserves were also healthy at 33.5% of spending. Management has maintained unassigned fund balances for at least the past four fiscal years in excess of its informal target of 90 days of operations (25% of spending).

General fund available resources improved in fiscal 2014 with the partial payment of some large interfund receivables but remain below average. Fiscal 2014 unrestricted cash and investments in the general fund totaled $6.5 million, up solidly from $3.7 million in fiscal 2013 but still covering only 1.5 months of spending. The receivables constitute over half of general fund balance, and full repayment is not expected to occur for at least several years. The city is afforded some additional flexibility due to sizable cash reserves in the city's utility fund, which could be tapped temporarily.

SPENDING CONTROLS OFFSET VOLATILE REVENUES

Property taxes make up slightly over half of general fund revenues. Despite some volatility in year-to-year revenues, officials have been able to keep spending in check with measures including hiring freezes, furloughs and wage freezes. As a result, the average annual increase in operating expenditures between fiscals 2010 and 2014 was a modest 2% and fund balance grew by $4.7 million or 34% over this period.

The fiscal 2015 general fund expenditure budget represents a $4.5 million or 9.1% increase over the fiscal 2014 budget. The spending growth is attributable to step-pay increases for police and firefighters and 3% raises for other personnel. Year-to-date results show revenues $1.3 million over budget, due to larger than expected delinquent property tax, utility tax, building permit and business license receipts. Management is projecting fiscal 2015 operations to end with a modest $1.5 million surplus.

The fiscal 2016 budget will benefit from the Florida Power & Light (FP&L) tax base expansion which is estimated to generate $6.8 million in additional general fund property tax revenues (at the current millage rate). The city is considering a possible millage reduction or cash-funding additional capital projects. Management's intent is that fiscal 2016 operations will be balanced.

MODERATE DEBT METRICS

Overall debt levels are slightly elevated with a debt-to-market value ratio of 4.1% and debt per capita at $5,123. Payout of the city's direct debt is average with about 48% of principal amortized within 10 years. Replacement of fire stations, a library and city hall comprise the capital needs list, as well as park and street projects. Management reports these projects will be undertaken when funding sources are identified; no additional general government debt is currently planned. Carrying costs for fiscal 2014 including debt service, pension contributions and OPEB requirements are midrange at 20% of governmental spending, although this metric will climb with the amortization of series 2014 public improvement bonds and this issue.

NAV REVENUES PROVIDE STRONG COVERAGE

NAV revenues include almost all city general government revenues except for property taxes. NAV movement has been mixed over the past five fiscal years, and receipts fell by about 18% across fiscals 2013 and 2014. These declines are mostly attributable to one-time events in prior years, including a sizable grant incorrectly reported as service charges in fiscal 2012 and receipt of $2 million of insurance funds in fiscal 2013. Charges for services are the largest NAV revenue source, representing about 25% of the fiscal 2014 total. Fiscal 2015 NAV revenues are projected to expand by 6.5% over prior year levels.

The series 2015 bonds will significantly increase CB&A debt service; however, the larger debt payments will be mostly offset by reduced pension contribution requirements. As a result, coverage of maximum annual debt service (MADS) net of pension savings for all CB&A debt remains strong at about 3.4x using fiscal 2014 revenue totals (even when essential service expenditures are taken into account).

Legal provisions are somewhat weak. The lack of a debt service reserve requirement is a concern, although it is mitigated to a degree by the wide coverage. An anti-dilution test limiting MADS, including any proposed debt, to no more than 50% of NAV revenues is not particularly rigorous; a significant amount of additional debt can be issued under this test. The city's use of NAV funds for general operations serves as a more practical check against over-issuance.

LIMITED LOCAL ECONOMY

The city is part of the county's broad and diverse economy, although local economic activity is much more limited. The city does benefit from the location of the Port of Palm Beach (port revenue bonds rated 'BBB-', Stable Outlook) within its jurisdiction. The port handles cruise ship traffic as well as cargo shipments. Proposed dredging of the Intracoastal Waterway by the U.S. Corps of Engineers is expected to spur additional activity at the port and enhance ship maintenance and repair operations along the coast. Leading city employers include a Veterans Affairs Medical Center, Tropical Shipping, Cheney Brothers (food distribution) and Pepsi Cola Bottling, Inc.

City employment levels were hit much harder during the recent recession than those of the county, state or nation. Between 2007 and 2010, the city lost nearly 3,600 jobs or 23% of its employment base. Since 2010, employment growth has been relatively strong and consistent, increasing by over 11% through 2014. Employment trends have leveled out in 2015 with March 2015 employment up only 0.3% from the prior year. Unemployment rates for the city spiked up in 2010 to over 13%, but rates narrowed to 7.1% in 2014. The March 2015 unemployment rate of 5.7% represented a significant drop from 8.2% from 12 months before, although the decline was mostly attributable to a contraction in the labor force.

City wealth indices are much lower than those of the county. Per capita income as of 2013 was 69% of county and 87% of state income metrics. Poverty rates remain elevated at almost 27% compared with 16% statewide.

HOUSING MARKET AND TAX BASE CONTINUE TO RECOVER

The city's housing market was devastated by the recession, with high rates of foreclosures and average home values falling by 65% between 2006 and 2012, according to the Zillow Group. Since 2012, the housing market has slowly recovered and home values as of June 2015 were 18.3% higher than the year before. Despite the bounce back, home values remain well below pre-recession highs. Foreclosures have also declined.

The housing crisis set back the city's tax base, which declined by 25% between 2009 and 2013. With the housing recovery, taxable assessed values increased by 5.7% in fiscal 2014 and 6.8% in fiscal 2015. A new FP&L natural gas-powered generating facility is expected to boost fiscal 2016 taxable values by $1.2 billion or 35%. The expected tax base concentration in FP&L will be mitigated by its extensive investment in this state-of-the-art plant.