Fitch Rates Hillsborough CO, FL's CIT Bonds 'AA' and Cap Improv Bonds 'AA+'; Outlook Stable

Fitch Ratings assigns the following ratings to Hillsborough County, Florida (the county) obligations:

--$83.1 million community investment tax (CIT) refunding revenue bonds, series 2012A and 2012B at 'AA';
--$66.7 million capital improvement program revenue bonds, series 2012 at 'AA+';

In addition, Fitch takes the following rating actions on the county's outstanding obligations:

--Approximately $72 million general obligation (GO) bonds, series 2002, 2009A and 2009B affirmed at 'AAA';
--Approximately $285 million (pre-refunding) community investment tax revenue bonds, series 2001A, 2001B, 2004 and 2007 affirmed at 'AA';
--Approximately $32 million capital improvement program refunding revenue bonds, series 2006 affirmed at 'AA+';
--Approximately $33 million court facilities refunding revenue bonds, series 2005 affirmed at 'A+'

The Rating Outlook is Stable

SECURITY
The GO bonds are secured by the county's full faith, credit and taxing power.
The capital improvement bonds are secured by the county's share of the proceeds of the local government half-cent sales tax on parity with outstanding series 2006 bonds.

The CIT bonds are secured by the county's share of revenues derived from the local option infrastructure surtax (CIT).

The court facilities bonds are secured by court surcharge revenues and a lien on CIT revenues on parity with the CIT bonds. The CIT revenues are available to cover any shortfalls in traffic surcharge fees and may be released under certain conditions.

KEY RATING DRIVERS

TOP LINE CREDIT STRENGTH: The 'AAA' GO rating reflects the county's broad based and diverse economy, strong management team, consistently healthy financial position, and manageable debt levels.

SOLID FINANCIAL MANAGEMENT: County officials have been able to restore fiscal balance through a concerted effort to reduce spending. Despite ongoing revenue pressures, the county reports two consecutive years of general fund operating surpluses, increasing already healthy reserve levels.

CIT AND SALES TAX REVENUES RESUME GROWTH: Both CIT revenues and half cent sales tax revenues displayed significant growth in fiscal 2011 after several successive years of declines, signaling an uptick in economic activity. Year to date fiscal 2012 collections for both revenue sources are up over prior year collections for the same period.

SATISFACTORY CIT BOND DEBT SERVICE COVERAGE: Fiscal 2011 CIT revenues cover maximum annual debt service (MADS) on CIT bonds by over 1.6 times (x). CIT revenues increased in fiscal 2011 after three years of decline.

HALF CENT SALES TAX COVERAGE REMAINS WIDE: Debt service coverage of half cent sales tax bonds continues to be robust despite recent legislation which deducts county Medicaid reimbursement obligations from the county's allocation of half cent sales taxes. Officials estimate the loss of between $20 million to $25 million in half cent sales tax revenues annually over the next five years or about 30% of current receipts. Even after netting out the maximum projected deduction of $25 million, coverage of MADS remains robust at 5.2x.

COURT FACILITIES BONDS BENEFIT FROM CIT BACK-UP: Although court surcharge revenues have declined precipitously over the past four years and barely cover debt service, the CIT back-up pledge alone provides 1.5x coverage of combined CIT and court facilities bond MADS. The 'A+' rating incorporates the potential release of the CIT revenues if court facilities revenues cover MADS by at least 1.5x for three consecutive years, a situation which appears unlikely for the foreseeable future.

CREDIT PROFILE

BROAD-BASED ECONOMY CHALLENGED BY THE RECESSION
Located midway down the western coast of Florida, Hillsborough County serves as the economic center for Florida's Gulf Coast with major sectors in business services, government, health care, education and tourism. The county has begun to recover from the magnified effect of the recent downturn in the economy. County employment levels have increased significantly over the past few months, bringing unemployment rates down to the 9.0% range from nearly 12% reported in 2011. Rising sales and tourist taxes are also indicative of the county's emerging recovery. Wealth levels hover around regional and national averages.

The housing sector remains weak and officials expect foreclosures to increase over the next year as banks resolve their mortgage documentation issues. While housing difficulties may hamper short term recovery prospects, Fitch believes that underlying economic characteristics of the county point to favorable prospects for long-term economic growth and strength.

CIT REVENUE REBOUND BOOSTS COVERAGE
CIT revenues, derived from a discretionary 0.5% sales tax, resumed growth in fiscal 2011, increasing by about 5% after three straight years of decline. This positive trend has continued into fiscal 2012 with five month year to date CIT revenues up by over 4% from same period in fiscal 2011. Debt service coverage remains strong at over 1.6x MADS. A 1.35x MADS additional bonds test (ABT) provides some protection against over-issuance. However, county officials have elected not to include a debt service reserve fund (DSRF) for the series 2012 bonds, diverting from past practice. Fitch believes that the absence of a DSRF does not significantly detract from credit quality given the solid coverage and breadth and diversity of the underlying economy.

The CIT also secures the county's court facilities bonds as backup revenues in case pledged court surcharge revenues are insufficient. Bond provisions allow for the release of the CIT revenues if court surcharge revenues cover court facilities bond MADS by at least 1.5x for three consecutive years. Court surcharge revenues have experienced steady declines since fiscal 2007 and have failed to meet the 1.5x coverage test, although these surcharges have always been sufficient to pay debt service on the court facilities bonds. Fiscal 2011 court surcharge revenues provided only 1.1x MADS coverage. However, CIT revenue coverage of combined CIT and court facilities bond MADS is still robust at almost 1.5x, assuming no court fee surcharges.

HIGH DEBT SERVICE COVERAGE LEVELS DESPITE STATE DEDUCTIONS
The capital improvement bonds are being issued to redeem $50 million of outstanding commercial paper and provide an additional $30 million for the capital program. Recently enacted state legislation requires the Florida Department of Revenue to deduct the county's annual Medicaid reimbursement obligations from the county's allocation of half cent sales tax revenues. Previously, the state billed the counties for their pro rata share of Medicaid costs. County officials estimate that the Medicaid deductions will range from $20 million to $25 million annually over the next five years, which represent between 25% and 33% of fiscal 2011 collections. Despite the deductions, half cent sales tax coverage of MADS, including this issue, remains wide at over 5.0x.

Half cent sales tax collections rebounded in fiscal 2011, increasing by 4.0% after falling 25% over the previous four years. Year to date collections are up by nearly 5% over prior year collections for the same period. As with the CIT bond issue, this issue will not have a DSRF, which Fitch does not view negatively given the extremely wide level of coverage. A 1.35x MADS ABT and use of excess half cent sales tax revenues to fund county operations also restricts the amount of further issuance.

FINANCES EXHIBIT SOLID RESERVES AND HIGH LIQUIDITY
County financial operations have been consistently sound as evidenced by sizable reserves and strong liquidity. The county reported a $30 million general fund operating surplus for fiscal 2011, boosting unrestricted general fund balance (the sum of assigned, unassigned and committed per GASB 54) to a notable 20% of spending. Management has been proactive in reducing spending in response to sizable and sustained declines in property taxes, the major source of general fund revenues.

Property tax revenues declined at an average annual rate of 8% over the past four years due to falling valuations and the county's long term policy of reducing tax rates every year; fiscal 2012 is the 18th consecutive year in which tax rates have been reduced. Cost cutting measures have included personnel reductions, operating efficiencies, lower capital spending and programmatic changes to trim costs. The county has been shrinking its staff since fiscal 2008. In fiscal 2011, the county eliminated 250 positions through a combination of layoffs, unfilled vacancies and outsourcing.

The county has budgeted a modest drawdown for fiscal 2012 general fund reserves of about $35 million, about a 14% reduction in the general fund balance. This reflects the county's target of maintaining fund balance at fiscal 2010 levels, which represents between 15% and 20% of general fund expenditures. The drawdown of reserves is being used for one-time items, according to officials as opposed to structural budgetary imbalance. High levels of liquidity are consistently maintained with the ratio of available cash and investments to liabilities at well over 2.0x, providing additional financial flexibility.

MODEST DEBT LOAD
County debt levels are manageable as indicated by a debt burden of 3.8%. Most of the debt burden is attributable to the underlying debt of the Hillsborough County School District and the city of Tampa. Direct debt to taxable assessed value is a much more modest 1.2%. Most of the county's debt consists of sales tax-secured bonds, either with the CIT or the half cent sales tax. Principal amortization rates are about average with 48% of principal retired within the next ten years. Officials plan on issuing approximately $100 million of additional bonds over the next five years. Future bonds will be secured by the CIT or possibly some combination of CIT and other revenues, depending upon future revenue trends.

RETIREMENT COSTS DO NOT PRESSURE FINANCES
The county participates in the Florida Retirement System (FRS) pension plan, a state-run multiple employer plan for virtually all of its employees. Pension costs have not been a burden for the county, constituting a manageable 7.4% of general fund expenditures in fiscal 2011. The FRS is relatively well-funded compared to most state pension systems. Retiree healthcare benefits are funded on a pay-go basis. The county does set aside funds for future other post employment benefit costs in an internal service fund but has elected not to establish a dedicated trust fund in order to retain future flexibility.

Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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