Fitch Rates Palm Beach County, FL's Non-Ad Valorem Bonds 'AA+'; Outlook Stable
--$65.385 million public improvement revenue bonds (professional sports franchise facility project) taxable series 2015C;
--$59.63 million public improvement revenue bonds (professional sports franchise facility project) tax-exempt series 2015D.
The public improvement bonds will be sold on a negotiated basis on Nov. 17, 2015. Proceeds will be used to fund the construction of major league baseball spring training facility for joint use by the Washington Nationals and Houston Astros.
In addition, Fitch affirms the ratings on the following outstanding county bonds:
--Approximately $141.6 million general obligation (GO) bonds at 'AAA';
--Approximately $732.7 million non-ad valorem revenue bonds at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The county's non-ad valorem revenue bonds are special obligations of the county, 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 not paid, and shall continue until all required amounts payable under the indenture have been paid.
GO bonds constitute general obligations of the county, for which its full faith, credit, and unlimited taxing power are irrevocably pledged for the payment of principal and interest.
KEY RATING DRIVERS
'AAA'RATED CREDIT STRENGTH: The county's 'AAA' GO rating is supported by an extensive and robust economy, satisfactory financial condition and manageable debt and retirement liabilities.
CB&A DEBT ONE NOTCH OFF GO: CB&A debt is rated one notch below the county's GO bonds due to the absence of a specific pledge and the inability to compel the county to generate NAV revenues sufficient to pay debt service.
AMPLE NAV REVENUE BASE: NAV revenues represent a broad and diverse set of revenue streams which in aggregate provide adequate coverage of CB&A debt service requirements.
ADEQUATE BUT DIMINISHED FINANCES: Finances have declined in recent years with fiscal 2014 results bringing reserves down near the minimum range of 15% to 20% of spending under the county's financial policies. Management projects balanced operations in fiscal 2015 and similar results for fiscal 2016.
SUSTAINED ECONOMIC RECOVERY: The area economy is experiencing a prolonged post-recession recovery which is now in its fourth year. While recent job growth has moderated, a rebounding housing market and numerous development projects around the county are expected to further boost tax base growth over the next two or three years.
MODERATE DEBT LEVELS: The county's debt burden is generally modest although debt amortization has slowed with this issue. Fitch expects debt levels to remain manageable given limited capital needs and bonding plans.
RATING SENSITIVITIES
STRUCTURALLY BALANCED OPERATIONS: Fitch views the county's return to structural balance in 2015 or 2016 to be important to rating stability.
CREDIT PROFILE
The county, located along the southeast coast of Florida, is the largest county in the state, encompassing 2,228 square miles. With a population of nearly 1.4 million, the county contains 38 municipalities including the cities of West Palm Beach and Boca Raton.
EXTENSIVE AND DIVERSE NAV BASE
The county's NAV revenues include a broad mix of special taxes, license and permit revenues, fee income, and service charge revenues. While most NAV tax revenues are levied at the maximum or set rate, the large component of service charges and fees afford the county some flexibility in the ability to raise additional revenues. Overall NAV revenues have fluctuated over the past five years but were solidly up in fiscal 2014 with additional growth projected for fiscal 2015.
Fiscal 2014 NAV revenues totaling $392 million are sufficient to cover NAV-secured maximum annual debt service, even when essential services consisting of general government and public safety expenditures are taken into account. Coverage is expected to improve as annual NAV debt service costs decline gradually after fiscal 2017.
DIVERSE ECONOMIC UNDERPINNINGS
The county's economy is supported by its traditional underpinnings of agriculture, tourism, government, healthcare, and aerospace supplemented by growing bioscience and higher education sectors. Leading employers include the Palm Beach County School Board, the county government, Tenet Healthcare Corporation, and Florida Power and Light. Florida Atlantic University (FAU) enrolls over 20,000 students on campuses within the county.
County employment fell by over 9% between 2007 and 2010 as a result of the recession but has consistently gained jobs since then. Employment growth in 2013 was 3.4% and an additional 3.6% in 2014. Year over year growth moderated in 2015 with average employment through September up only 0.5% from the prior year. The county's unemployment rate as of August 2015 was 5.5% comparing favorably with 6.5% reported the year before. However, the decline was mostly attributable to contraction of the labor force rather than employment growth.
The county is experiencing a wave of new development, including office buildings and mixed use projects in the downtown urban areas and large residential projects in the suburbs. Other indicators of economic vitality include building permit values which increased by 6.7% in fiscal 2015. Tourism continues to expand with the five cent tourist development tax gaining over 11% in fiscal 2014 and 13% in fiscal 2015. Officials anticipate that the spring training facility to be financed with this issue will provide further impetus to the county's tourist sector. In February 2015, the county increased the tourist development tax to six cents which will generate additional revenues for tourist-related activities.
EMERGING BIOSCIENCE CLUSTER
The formation of a bioscience cluster in the northern part of the county has also attracted smaller bio-science firms to the area. Scripps Research Institute, a biomedical research firm, and Max Planck Florida Institute, in connection with FAU, are driving such growth. Recently, Sancilio & Company, Inc., a pharmaceutical developer, announced an investment of $6.7 million to expand their plant operations within the county.
TAX BASE GROWTH ACCELERATES
Housing continues to recover with median home values up 12% over the past year, according to the Zillow Group. A surging housing market has boosted the county's tax base. Following a 27% drop between fiscal years 2008 and 2012, taxable values stabilized in fiscal 2013, grew by 4% in fiscal 2014 and an additional 7% in fiscal 2015. Fiscal 2016 valuations jumped by 9.4% to $153 billion but remain below the pre-recession peak. Management project assessed values to grow an additional 7% - 8% in fiscal 2017 before moderating to 3% - 5% thereafter.
REDUCED BUT SATISFACTORY FINANCIAL POSITION
Officials have been challenged since 2008 by sizable declines in taxable values which generate property taxes - the county's largest source of general fund revenues - and other economically sensitive revenues against its goal of maintaining government services. Management has responded by raising tax rates three times during this period and reducing the number of employees and other costs as well as tapping reserves.
Modest, planned general fund operating deficits have been reported in four of the past six fiscal years. While reserve levels are diminished they remain adequate although approaching the bottom of the county's target range of 15% to 20% of general fund expenditures and transfers out. Fitch believes that further deterioration of financial margins on a sustained basis would raise potential rating concerns.
FISCAL 2014 DEFICIT REDUCES BALANCE TO MINIMUM TARGET
The county reported a general fund drawdown of $15.8 million for fiscal 2014 (1.5% of spending), a better result than the budgeted $36 million drawdown. An uplift in property tax revenues plus growth in sales tax, utility tax and other major revenue sources provided partial funding for an across the board salary increase of 3% for most employees, higher costs for public safety operations and rising pension contributions.
The drawdown reduced fiscal 2014 unrestricted (all unassigned) fund balance by $17.5 million to $158 million or close to 15% of spending. As such, reserves are at the low end of the county's fund balance target.
The fiscal 2015 budget benefits from a 7% increase in the tax base generating an additional $44 million in property tax revenues. Other major revenue sources such as sales and gas taxes are also trending above prior year receipts pushing overall revenues up by $60 million. Spending incorporates another 3% wage rise as well as some additional staffing. Management projects fiscal 2015 operations to be at breakeven with no change in total unrestricted general fund balance.
The fiscal 2016 budget is balanced and benefits from a substantial uplift in property tax revenues due to the sizable expansion of the tax base. These added revenues offset higher costs due in part to another 3% wage hike. Management projects a small increase in general fund reserves at fiscal year-end which Fitch views favorably.
MODERATE DEBT LOAD
Debt levels are moderate with a debt burden of 1.9%, or $2,675 on a per capita basis. Over 85% of the county's direct debt consists of bonds secured by the county's NAV revenues. With the new issue, principal amortization has slowed from 68% of principal retired within the next 10 years to a still satisfactory 60%.
The county's five-year capital improvement plan for fiscal years 2016 to 2020 identifies a manageable $171.2 million of general government capital needs with no plans to fund these needs with debt. Consequently, debt levels could decline as $389 million of outstanding principal is scheduled to mature over the next five years.
RETIREMENT OBLIGATIONS NOT A COST PRESSURE
The county participates in three pension plans. Most employees are members of the state-administered Florida Retirement System (FRS), which is relatively well-funded. The other two plans are small defined benefit and defined contribution plans: a plan covering firefighters from the Town of Lantana employed by the county (Lantana Plan) and the Palm Tran pension plan for members of the Amalgamated Transit Union (ATU) members.
The Lantana Plan is adequately funded but the Palm Tran plan has historically been underfunded as contribution rates, established through negotiations with the ATU have not met actual funding requirements. A 2013 agreement between the county and the ATU required the county to fund up the plan but reduced benefits for new employees with the county afforded the ability to determine benefits going forward. These changes are expected to improve future funding.
Funding for Palm Tran according to a January 2014 valuation increased to 75.3% from 65.8% in the previous year or 67.8% from 59.3% under Fitch's 7% return assumptions. The unfunded liability for the relatively small Palm Tran plan is $24.2 million. Overall pension costs are not a cost pressure, accounting for just over 6% of general government spending.
Other post-employment benefits (OPEB) are offered to retirees as an implicit subsidy with the exception of retirees from the Sheriff and Fire Rescue Union, who receive direct subsidies from the county. Consequently over 90% of the county's aggregate OPEB annually required contributions (ARC) derive from those two programs. Funding is on a pay-as-you-go basis and fiscal 2014 contributions constituted about 40% of the ARC requirements.
In addition, the county provides long-term disability benefits to retirees in fire rescue also funded on a pay-as-you-go basis. Combined unfunded actuarial accrued liability for the county's OPEB plans of $353 million represents a modest 0.2% of fiscal 2014 market value. Carrying costs, including debt service, pension contributions, and the OPEB contribution are manageable at less than 15% of general government spending.
Комментарии