OREANDA-NEWS. March 24, 2016. Fitch Ratings has affirmed its ratings on the following Polk County, FL (the county) outstanding bonds:

--\\$71.4 million public facilities revenue refunding bonds, series 2014, at 'AA';
--\\$43.1 million transportation improvement revenue refunding bonds, series 2010, at 'AA';
--\\$24.3 million capital improvement revenue refunding bonds, series 2010, at 'AA';
--\\$3.2 million constitutional fuel tax revenue refunding bonds, series 2006, at 'AA';
--Implied unlimited tax general obligation (ULTGO) rating of 'AA'.

The Rating Outlook is Stable.

SECURITY

Transportation Improvement Bonds: Supported by a lien on and pledge of the five-cent local option fuel tax and 2% of revenues derived from the 10% county-levied public service tax (PST). The bonds are additionally secured by a standard-size, cash-funded DSRF.

Public Facilities Revenue Bonds: Supported by a lien on and pledge of 8% of the 10% county-levied PST (excluding fuel oil) and 50% of the county's portion of the state revenue sharing trust fund received by the county in the previous fiscal year. No debt service reserve fund (DSRF) was established for the series 2014 bonds.

Capital Improvement Bonds: Supported by a lien on and pledge of local government half-cent sales tax revenues. A standard-size DSRF is cash funded.

Constitutional Fuel Tax Bonds: Supported by a lien on and pledge of the county's constitutional fuel tax revenues. The DSRF is funded with a surety bond issued by National Public Finance Guarantee.

KEY RATING DRIVERS

SUFFICIENT REVENUE BOND COVERAGE: Coverage of maximum annual debt service (MADS) for all special tax bonds is sufficient for the 'AA' rating level, in spite of varying degrees of volatility over the last several years; legal provisions are sound. Additional bonds tests are generally lenient but the county relies on a portion of the pledged revenues for operations reducing the likelihood of full permitted leverage.

ADEQUATE FINANCIAL FLEXIBILITY: The 'AA' ULTGO rating reflects the county's sound financial profile including solid liquidity levels.

ECONOMY AND TAX BASE EXPANSION: The economy has experienced a notable recovery following the recession as evidenced by growth in the tax base and an upward trend in economically sensitive tax revenues. Additionally, unemployment rates have improved as jobs and workers have increased.

MANAGEABLE FIXED COSTS: Debt levels should remain low given no immediate tax-supported debt plans. Pension and other post-employment benefits costs are manageable and do not pressure finances. Overall carrying costs are low.

RATING SENSITIVITIES

REVENUE BOND RATINGS CAPPED BY ULTGO: A reduction in the county's implied ULTGO rating would result in a downgrade of the county's transportation improvement, public facilities and capital improvement revenue bond ratings.

DECLINE IN DEDICATED REVENUES: A declining trend in pledged tax revenues used to support the dedicated-tax bonds or an increase in debt resulting in materially lower debt service coverage could pressure the ratings.

MANAGEMENT OF RESERVE LEVELS: The maintenance of adequate reserve levels consistent with the rating category is a key rating factor.

CREDIT PROFILE

Polk County is situated near the center of Florida almost equidistant from Orlando and Tampa and residents enjoy easy commuting access to these growing metropolitan areas. It had an estimated 2014 population of 634,638 which is up 5.4% since 2010.

FINANCIAL RESULTS REFLECT ECONOMIC CYCLE

The county ended fiscal 2014 with a \\$6.1 million net operating deficit (after transfers) resulting in an unrestricted fund balance of \\$55.5 million or a solid 20% of spending. Positive variances in expenditures due to conservative budgeting resulted in the modest use of reserves. Tax base values improved by 3.6% after declining the prior five fiscal years, due primarily to the downturn in the housing market.

The county's tax base grew again in fiscal 2015 by 5.5% resulting in additional revenues of \\$6.8 million. Continued conservative budgeting and growth in non-ad valorem revenues resulted in a projected \\$10 million surplus and increase in fund balance.

The fiscal 2016 budget is up approximately \\$11 million and reflects continued growth in the tax base (up 6%) and sales tax revenues. The budget includes an appropriation of reserves for one-time capital projects and equipment as well as approximately \\$7.2 million for recurring expenditures. Fitch expects fund balance levels to remain sound as management continues its prudent budget practices and non-ad valorem revenues benefit from the growing economy.

TRANSPORTATION IMPROVEMENT REVENUE BONDS

The transportation improvement revenue bonds are secured by a pledge of the county's five-cent local option fuel tax and 2% of the county's 10% PST levied on sales of electric, gas, water and fuel oil in the unincorporated area of the county. Additional bonds are subject to a 1.5x additional bonds test (ABT).

Coverage of MADS by unaudited fiscal 2015 pledged revenues of \\$13.4 million is a strong 3.2x. Revenues grew 5% and 3.7% in fiscals 2014 and 2015, respectively, following modest declines of 4.2% and 2.3% in fiscals 2011 and 2012 due to higher fuel costs and a reduction in electricity usage. Fuel tax revenues must be used for transportation related capital expenses while excess PST revenues may be used for general government operations.

PUBLIC FACILITIES REVENUE BONDS

The public facilities revenue bonds are supported by a pledge of 8% of the county's 10% PST, excluding fuel oil, and 50% of the prior fiscal year's revenue the county receives from the State Revenue Sharing Trust Fund for counties, which includes the Guaranteed Entitlement and the Second Guaranteed Entitlement. The revenue sharing funds are distributed to the county monthly and are composed of a portion of various state collected taxes. Distribution to counties is based on population and sales tax collections.

Coverage of MADS by unaudited fiscal 2015 revenues of \\$24.8 million is strong at over 4.0x. Pledged revenues increased by between 3% and 5% the past 3 fiscal years after declining a modest 2.8% and 3.8% in fiscals 2012 and 2011, respectively, due primarily to some negative volatility in fuel costs. Additional bonds are subject to a weak 1.25x ABT, but Fitch does not expect full leverage through additional debt as the county relies on the excess pledged revenues for operations.

CAPITAL IMPROVEMENT BONDS

The capital improvement bonds are secured by a pledge of local government one-half-cent sales tax (the sales tax) revenues. Under state statute the state levies a 6% sales tax and distributes 8.814% of taxes generated within a county to its local governments monthly. Taxes are divided among the counties and cities pursuant to a population-based formula that guarantees that counties will receive at least 40% of receipts.

Coverage of MADS by unaudited fiscal 2015 revenues of \\$30.5 million was over 10x. Revenues exhibited some volatility between fiscals 2007 and 2010 but have bounced back nicely with an annual average increase of 5.5% in each of the last five fiscal years.

Although coverage levels are very high, the rating is not likely to be adjusted upward, as Fitch caps the rating at the level of the county's ULTGO and additional debt is permitted. Additional bonds are subject to a 1.6x ABT.

The opening of LegoLand in October 2011 and subsequent expansions, as well as the new Streamsong Resort have contributed to growth in tourism and dedicated sales and fuel tax revenues. Other notable construction projects and expansions of existing business are underway as evidenced by growing building permits, which should fuel additional sales tax growth.

CONSTITUTIONAL FUEL TAX BONDS

The constitutional fuel tax bonds are secured by a pledge and a lien on the constitutional fuel tax revenue, which is a two-cent per gallon levy on the sale of gasoline and like sources of energy to fuel motor vehicles. Additional bonds are subject to a 1.5x ABT. Coverage of annual debt service is expected by Fitch to exceed 2.0x as existing bonds mature Dec. 1, 2017 and the county has no current plans for additional leverage. Revenues were up 4% and 3.4% in fiscals 2014 and 2015 respectively, after prior years of declines (-10% from fiscal 2008 to 2011) when gas prices were much higher.

DEBT LEVELS ARE LOW

Overall debt levels, including overlapping debt, are estimated to be low by Fitch at 1.7% of market value and \\$1,074 per capita. Management re-implemented some impact fees recently, which are anticipated to help with future infrastructure needs. A small portion of tax revenues has been re-allocated in fiscal 2016 to help subsidize funding needs for parks, roads and the general fund. The county has no immediate plans for debt with the exception of water related borrowings which will be supported by user revenues.

PENSION AND OPEB COSTS ARE MANAGEABLE

All full-time county employees participate in the well-funded state managed Florida Retirement System. The county's employer contribution was \\$23 million in fiscal 2014, equal to a manageable 4.6% of total governmental spending. The county's contribution towards OPEB costs in fiscal 2014 was \\$2.7 million and its unfunded liability was \\$193 million as of October 2014, or a low 0.5% of the county's \\$41.35 billion tax base. Total carrying costs for debt service, pension and OPEB pay-as-you-go equaled a low 8.6% of fiscal 2014 total governmental spending.

DIVERSIFIED ECONOMY EXPERIENCING ECONOMIC DEVELOPMENT

Historically known for its citrus and phosphate mining industries, Polk County's economy has diversified in recent years into health care, light manufacturing, distribution and tourism. Management reports numerous commercial development projects either underway or nearing startup due to the county's ideal location along Interstate 4 and the opening of the new Florida Polytechnic University campus in 2014. Additionally, Legoland has been expanding its attractions to meet demand including a new hotel and restaurant opened in 2015, and new retail development nearby.

Unemployment has improved to 5.3% (preliminary) as of December 2016, down from 6.8% as both labor and employment increased. Median household income is below average, equal to an estimated 91% and 81% of state and national averages, respectively.