OREANDA-NEWS. February 29, 2016. Fitch Ratings has assigned an 'AA-' rating to the following South Florida Water Management District (SFWMD) certificates of participation (COPs):

--\\$396.8 million refunding COPs, series 2015.

The COPS are scheduled for a negotiated sale on Jan. 12. Proceeds will be used to refund outstanding COPS for debt service savings.

Fitch currently rates the following:

--\\$454.8 million COPs, series 2006 'AA-';
--Implied unlimited tax general obligation (ULTGO) 'AA'.

The Rating Outlook is Stable.

SECURITY
{The COPs are backed by lease rental payments made by the district, subject to annual appropriation. In the event of non-appropriation, the district must surrender all facilities lease-purchased under the master lease agreement to the trustee who may re-let or sell the facilities for the benefit of certificate owners.}

KEY RATING DRIVERS
{DISTRICT CREDITWORTHINESS SOUND: The 'AA' implied ULTGO rating reflects the district's limited control over revenues, extensive and diverse economy, adequate financial position, a moderate debt burden, limited exposure to employee-related spending pressure, and essential operating purpose that centers on flood control and restoration of the Everglades.

COPS NOTCHED OFF IMPLIED ULTGO: Payment of COP debt service is subject to appropriation. The one-notch distinction reflects Fitch's belief that there are strong incentives to appropriate given the essentiality of the leased assets subject to loss due to non-appropriation.

RATING SENSITIVITIES
OPERATING STABILITY: The rating on the COPs and the implied ULTGO rating are sensitive to the district's ability to maintain sound operations in light of its limited independent control over revenues.

CREDIT PROFILE
SFWMD is the largest of five regional water districts created by the state in 1972 to provide regional flood control, water supply and water quality protection, ecosystem restoration, and to operate and maintain Lake Okeechobee and the Everglades. The district serves a population of 8.2 million residing in all or parts of 16 south and central Florida counties including Broward, Miami-Dade, Orange and Palm Beach.

LIMITED REVENUE CONTROL; CONSIDERABLE PROPERTY TAX BASE

Ad valorem taxes serve as the major revenue source for district operations and for repayment of the COPs. Ad valorem taxes declined from a peak of nearly \\$550 million in fiscal years 2007 and 2008 in all governmental funds to \\$273.2 million in fiscal 2012 due to a combination of significant tax base loss and a state directed 30% cut in the district's ad valorem tax rate in 2012.

Beginning in fiscal 2012, property tax rates are set by the state at the rolled-back rate, designed to produce the same property tax revenues as in the prior year with the exception of values related to new construction. Consequently, ad valorem tax revenues have been relatively stable since then. Due to rising property values, use of the rolled-back rate has resulted in actual tax rate decreases in each of the past five fiscal years through fiscal 2016. Despite the post-recession declines in ad valorem tax revenues, current property tax collections remain well in excess of maximum annual debt service.

District taxes are billed and collected by each county on a single tax bill combining county, city, school district and other special district taxes. The district's share represents a very small portion of the overall bill, and collection rates remain strong at 99% or better on a total basis.

STRONG INCENTIVES TO APPROPRIATE

The critical nature of the assets under the lease and budgetary process provide the district with strong incentives to appropriate lease payments. An event of non-appropriation would force the district to surrender all leased assets to the trustee. Leased assets include the Everglades Agricultural Area reservoir, several stormwater treatment areas and a flow equalization basin.

Fitch considers these assets to be essential to the district's core mission and ability to achieve its mandated goals. Furthermore, the project sites were largely acquired by the district under grant agreements with the U.S. Department of the Interior that would impose on the district the obligation to provide replacement land of at least equal fair market value if not used for purposes consistent with Everglades restoration.

The district's budget is subject to review and approval by the governor, minimizing the possibility that a budget would be approved that does not adequately provide for the full repayment of debt. In addition, the governor appoints the district board, subject to confirmation by the state senate. Finally, state law requires that the district's preliminary budget include debt service on its COPs and special obligation land acquisition bonds (of which none are currently outstanding) as the first obligation for payment.

CONSIDERABLE SPENDING FLEXIBILITY SUPPORTS ADEQUATE BALANCES

Financial operations are relatively well-managed as characterized by adequate reserves and strong liquidity. The district has considerable spending flexibility due to the sizable share of its spending for capital as well as its ability to control its non-unionized labor force. Furthermore, pension and other post-employment benefit costs are modest relative to operations. These strengths mitigate the district's lack of revenue autonomy.

In conjunction with the drop in revenues after fiscal 2008, management instituted extensive budgetary reductions, including the elimination of over 400 or 21% of positions between fiscals 2011 and 2016. As a result, annual operating expenditures and transfers out of the main operating funds - the general fund and the Okeechobee basin fund - totaled \\$250.2 million in fiscal 2015 compared to \\$470.4 million in fiscal 2008. Despite modest operating deficits in two of the last three audited fiscal years, reserves in the general fund and Okeechobee Basin fund remain robust. Fiscal 2014 combined unrestricted fund balance totaled \\$63.4 million or a healthy 24% of spending. A minimal \\$8.6 million surplus is projected for fiscal 2015. Liquidity is ample with cash and investments totaling \\$172.7 million, equal to nearly eight months of spending.

SIZABLE RESERVES ACROSS ALL GOVERNMENTAL FUNDS

Fiscal 2015 preliminary results for all governmental funds indicate about a \\$13 million use of reserves. Management's policy is to maintain a minimum balance of \\$60 million for economic stabilization, to be used only in emergencies. The \\$60 million minimum in fiscal 2015 totals 10.8% of spending which Fitch considers adequate.

The fiscal 2016 budget proposes a \\$225 million drawdown of governmental funds. Even in the unlikely event that the budgeted drawdown is realized, remaining reserves would still be in compliance with the district's minimum fund balance policy. Despite the drawdown, reserves remain robust as fund balance totals over 100% of spending. Almost all reserves are restricted for specific projects. District budgets typically include sizable use of reserves but actual results historically outperform the budget.

FAVORABLE DEBT POSITION

The district's debt burden is estimated at a moderate \\$2,895 per capita and 2% of market value inclusive of the outstanding debt of all underlying governments. The COPS represent the district's only outstanding debt. District debt contributes nominally to the overall burden as only \\$410 million in principal will be outstanding following bond issuance.

Fiscal 2015 debt service costs totaled \\$42.1 million or a moderate 9.5% of spending. Debt service requirements after the current fiscal year are expected to average about \\$32 million annually compared to about \\$275 million in annual revenue.

The district has no additional debt plans. The capital improvement plan (CIP) totals \\$1.23 billion, of which almost \\$611 million is funded by ad valorem taxes (an average of \\$122.2 million per year). The costs of construction and maintenance of the district's flood control and water supply infrastructure constitute the bulk of district expenditures.

Pension benefits are offered through the Florida Retirement System which retains an adequate funding ratio. The district subsidized retiree health insurance premiums but eliminated the subsidies for new members in 2012. The combined fiscal 2014 costs for retiree pension and health care benefits are a low 3.1% of governmental fund spending.