OREANDA-NEWS. Fitch Ratings affirms the following ratings of Alachua County (the county), Florida:

--$19.88 million gas tax revenue bonds, series 2006 and 2008 at 'AA-';
--$42.3 million public improvement revenue and refunding bonds, series 2007A and 2007B at 'AA-';
--Implied general obligation unlimited tax (GOULT) at 'AA'.

The Rating Outlook is Stable.

SECURITY

The gas tax revenue bonds are payable from the county's receipt of the constitutional gas tax, the county gas tax, and the ninth-cent gas tax, each tax imposed on the sale of motor fuel, per gallon, throughout the county.

The public improvement revenue and refunding bonds are payable from the county's receipt of local government half-cent sales tax revenues. Both the gas tax and public improvement revenue bonds are additionally secured by cash funded debt service reserve funds.

KEY RATING DRIVERS

SUFFICIENT SPECIAL TAX COVERAGE: Coverage of maximum annual debt service (MADS) for the gas tax and sales tax revenue bonds was 1.7 times (x) and 2.1x from fiscal 2015 pledged revenue, respectively. No additional leveraging is expected for either security.

EXPANDING ECONOMIC PROFILE: The regional economy benefits from the stable presence of the University of Florida and the sizeable health care and government sectors. Unemployment continues to decline and remains below state and national averages. Income levels are below average, influenced by a large student population.

VERY LOW DEBT: Overall debt levels are low at 0.7% of market value, 1.4% of taxable assessed value (TAV) and $666 per capita. Nearly 95% of outstanding debt is repaid in 10 years, and the county has no near-term additional debt plans. Carrying costs related to debt and retiree liabilities are affordable relative to governmental spending.

STRONG RESERVES: Financial performance is generally stable, and reserves are expected to be maintained at a healthy level. Operations are largely property tax dependent, but revenue raising capacity is somewhat constrained given a high tax rate relative to the statutory cap.

RATING SENSITIVITIES

SHIFTS IN REVENUE AVAILABLE FOR DEBT SERVICE: The ratings on the gas tax revenue bonds and sales tax revenue bonds are sensitive to shifts in debt service coverage driven by economic trends affecting revenue performance or additional leveraging.

CREDIT PROFILE

Located in north central Florida, the county encompasses 969 square miles and has a 2014 population of 256,380.

EXPANDING ECONOMIC BASE

The county seat is the city of Gainesville (implied GO rating of 'AA'), which is home to the University of Florida (UF), the flagship institution in the state's public university system (UF enrollment approximates 50,000). UF is the largest employer in the county with more than 27,800 employees. The university stimulates and attracts private investment and grants and has a stabilizing influence on the county's long-term economic profile.

The regional economy is dominated by the educational, health services and government sectors. The largest healthcare enterprises are Shands Hospital and the Veterans Affairs Medical Center. Shands is affiliated with UF and includes two major teaching hospitals, Shands Children's Hospital and Shands Cancer Hospital. The hospitals have various development projects planned or underway, which are expected to positively benefit the local economy.

Job growth over the past four years has resulted in steadily declining unemployment rates and the October 2015 rate was a low 4.2%. The county fares better than the state (5.1%) and the U.S. (4.8%), a pattern consistent with long-term historical results. The county's per capita income approximates 98% and 91% of the state and U.S. averages, respectively, which is partially attributable to the large student population in the region.

STRONG FINANCIAL RESERVES

The county's financial operations remained healthy in fiscal 2014 with unrestricted general fund reserves equaling $25.8 million or approximately 17.2% of spending. Unaudited results for fiscal 2015 point towards continued stability of reserves, totaling approximately $25.5 million.

The county continues to budget conservatively: fiscal 2015 general fund revenues are approximately 102% of budget, while expenditures are approximately 87% of budget.

The fiscal 2016 general fund budget of $138.8 million is 2.5% higher than the original adopted fiscal 2015 budget. The fiscal 2016 budget includes a slight millage rate reduction to 8.795 mills. The budget includes a 3% wage increase for all employees funded through departmental budget cuts, with a resulting zero impact to the budget. Management projects the ending general fund balance to be relatively consistent with the prior year.

PROPERTY TAX DOMINATED BUDGET

Property taxes are the dominant operating revenue accounting for approximately 80% of budgeted general fund revenue. The general operating tax rate of 8.7950 mills is high relative to the 10-mill statewide cap, in part due to a high proportion of tax-exempt property within the county. Tempering the limited margin is the relative longer-term stability of the economic and tax base.

The county's fiscal 2015 taxable assessed value (TAV) increased a solid 5% over the prior year to a total of $11.8 billion. Preliminary property certifications show continued growth in TAV in fiscal 2016, of approximately 2.8%. Management indicates that this should allow them to implement another modest reduction in the millage rate.

FAVORABLE DEBT BURDEN

The county's overall debt burden is low at 0.7% of market value (inclusive of tax-exempt property) or 1.4% of TAV, and approximately $666 per capita. Fiscal 2014 debt service expenditures of $13.5 million are a manageable 6.2% of total governmental expenditures.

The county's capital needs include a backlog of road repairs and resurfacing projects, which are expected to be initially funded through a combination of multi-modal transportation mitigation funds, impact fees, fuel tax, federal and state grants, and remaining bond proceeds. The county has no near-term debt plans.

The county has no exposure to variable rate debt or derivatives. The rapid amortization of outstanding bonds (95% within 10 years) also reflects favorably on the county's debt profile. Long-term liabilities related to pension and other post-employment benefits (OPEB) are also manageable. The county participates in the Florida Retirement System, a relatively well funded statewide defined benefit pension plan. Total county carrying costs (debt service, pension ARC and OPEB pay-go) are a moderate 12% of total government expenditures.

SPECIAL TAX COVERAGE

Pledged sales tax revenues have grown an average of 2.7% annually over the past six years and increased by 4.3% in fiscal 2015. Fiscal 2015 pledged revenues provided solid coverage of MADS of 2.1x. No additional leveraging is contemplated by the county. The legal provision for issuance of additional debt is based on a lenient 1.25x coverage test. Surplus sales tax revenues are an important funding source for the general operating budget, creating a practical impediment to over-leveraging.

Pledged gas tax collections have demonstrated modest growth over the past two fiscal years, with growth of 2.6% and 4.6% in fiscals 2014 and 2015, respectively, reversing a six-year trend of decline. Fiscal 2015 revenues of $5.3 million provide 1.7x coverage of MADS. Similar to the sales tax, the additional bond provisions are based on a lenient 1.25x test though no additional leveraging is anticipated. Both the gas tax bonds and sales tax revenue bonds have cash funded debt service reserves.

Coverage for both the gas and sales tax revenue bonds respond well to stress scenarios. Fitch estimates that pledged gas tax and sales tax revenue would need to decline by 41% and 52%, respectively, to reach 1.0 MADS coverage.