OREANDA-NEWS. April 13, 2016. Fitch Ratings has assigned a 'AAA' rating to the following state of Florida full faith and credit refunding bonds:

--\\$183.325 million State Board of Education Public Education Capital Outlay Refunding Bonds, 2016 series B.

The bonds are expected to sell competitively as soon as April 18, 2016 for bids on 18 hours' notice.

The Rating Outlook is Stable.

SECURITY

Florida's full faith and credit bonds are secured first by specific revenues. For PECO bonds, a first lien on utility gross receipts taxes deposited into the state public education trust fund secures the bonds. Florida's full faith and credit are also pledged and provide the basis for the rating.

KEY RATING DRIVERS

SOLID LONG-TERM ECONOMIC PROSPECTS: Long-term economic fundamentals are strong with future growth expected. The pace of economic growth has accelerated and the housing market continues to recover.

ECONOMIC AND REVENUE STABILIZATION: Revenue performance has improved along with the economy providing the state with increased financial flexibility.

STRONG FINANCIAL MANAGEMENT PRACTICES: The state employs sound financial management practices, including the use of consensus revenue estimating, and has a history of prompt action to maintain fiscal balance and reserves.

SATISFACTORY RESERVES: Reserves remain satisfactory and offset risks associated with an economically sensitive revenue system vulnerable to declines in the rates of population growth, consumption, and activity in the housing market.

MODERATE LIABILITIES: The state's debt burden is moderate and pensions are adequately funded.

RATING SENSITIVITIES
The rating is sensitive to continued stability in economic and financial performance.

CREDIT PROFILE

The 'AAA' rating on Florida's general obligation (GO) bonds recognizes the state's strong financial management practices, moderate debt burden, adequately-funded pension system, solid long-term economic prospects, and satisfactory level of reserves.

IMPROVING ECONOMY

The economic recovery in Florida continues to accelerate, having emerged slowly at first from the national recession. The labor market continues to show signs of a stronger expansion; employment is up and the unemployment rate is down, the housing market is improving, and collections of economically sensitive state revenues are increasing.

The Florida economy has been characterized by rapid growth, economic broadening, and diversification as it transformed from a narrow base of agriculture and seasonal tourism into a service and trade economy, with substantial insurance, banking and export components. Strong underlying fundamentals include a relatively low cost of living, attractive tourist and retirement destinations, and favorable geographic location. The state's natural amenities include 2,200 miles of tidal shoreline, proximity to Latin American and Caribbean markets, and the presence of some of the world's most popular tourist destinations, large convention venues, and major cruise ship ports.

The disproportionate impact of Florida's poor economic performance during the recession is evident in wealth levels that had been growing more slowly than the national average, although recent performance has improved. Florida's per capita personal income was 101.5% of the national average in 2006, preceding the recession. Post-recession, per capita personal income has fallen to 92.5% of the national average in 2015; ranking Florida 28th by this measure, down from 18th in 2006.

SOUND FINANCIAL MANAGEMENT

Florida has consistently demonstrated sound financial operations, taking action to balance budgets and rebuilding and maintaining solid reserves. Florida's revenue sources (primarily a sales tax, but also a documentary stamp tax in large part based on real estate transactions) were especially susceptible to the state's steep housing market correction; the state has no personal income tax.

After steep declines during the downturn, revenue performance has returned to steady growth. Fiscal 2015 revenues increased 5.7% on a year-over-year basis, reflecting strong sales tax collections. Revenue growth is estimated to increase 2.1% in fiscal 2016, inclusive of a variety of tax reductions that were estimated to have an aggregate impact of \\$420 million. Through February, general revenue fund (GRF) revenues are marginally ahead of estimate and up \\$432.5 million (1.6%) on a year-over-year basis.

The enacted budget for fiscal 2016 increases overall spending 1.7% to \\$78.4 billion and the general revenue budget 4.3% to \\$28.7 billion. The budget funds a sizeable increase in Medicaid, reflecting in part a reduction in federal funding for non-compensated care. Education spending is also increased and pension contributions are fully funded.

The recently enacted \\$82.3 billion all-funds (\\$30.3 billion GRF) budget for fiscal 2017 reflects the expectation for strong revenue growth and continues to reduce taxes. The budget increases spending by approximately 5% from fiscal 2016, funding ample increases in K-12 education, higher education, health and human services, and transportation. Pension contributions are fully funded.

SIGNIFICANT RESERVES

The state has successfully rebuilt reserves as the economy has recovered, having substantially reduced them during the recession for budget balancing purposes. The combined unencumbered general fund and budget stabilization (rainy day) fund balance totaled \\$6 billion at the end of fiscal year (FY) 2006, or 22.4% of general fund revenues. As the state drew down reserves during the recession, the combined balance declined to a low of \\$905 million, or 4.3% of fiscal 2009 revenues.

Balances have rebounded with positive budget performance and some reallocation of reserves from various trust funds to the general fund. The combined unencumbered general fund and rainy day fund balance totaled \\$3.7 billion as of June 30, 2015, or 13.3% of general fund revenues. Trust fund balances, an additional source of financial flexibility, are lower than they were at their peak (\\$3.8 billion at the end of FY 2006) but remain stable at \\$2.4 billion as of fiscal 2015.

MODERATELY LOW LIABILITIES

The state's debt position and structure are conservative. Debt represents a moderate burden on Florida's resources with net tax-supported debt of about \\$22 billion equal to 2.5% of 2014 personal income. Florida's debt portfolio does not include derivatives and variable-rate debt is negligible at less than 0.5% of net tax-supported debt.

On an actuarial basis, FRS reported a July 1, 2015 funded ratio of 86.5%; this figure was 80.7% using a 7% return assumption (compared to the 7.65% assumption used by FRS). Deep recessionary losses ended a long period when FRS' assets far exceeded liabilities, with the state responding by implementing wide ranging reforms to benefits and contributions. Although the funded ratio has stabilized since then, progress toward higher funded ratios has been limited in part due to a lack of full actuarial contributions during the fiscal 2011-2013 period. Fiscal 2014 and 2015 contributions matched the actuarial required level.

As of Fitch's 2015 pension update, net tax-supported debt and unfunded pension obligations attributable to the state, as adjusted for a 7% return assumption, together totaled 3.3% of 2014 personal income, the tenth lowest such burden for states and well under the median for U.S. states.

Florida's full faith and credit bonds are secured first by specific revenues. PECO bonds, which are the state's primary method to fund school construction, are secured first by a first lien on utility gross receipt taxes. The bonds are ultimately backed by Florida's full faith and credit pledge.