Fitch Ratings assigns an 'AA' rating to Sarasota County, Florida's (the county) 1/2 cent local government sales tax, series 2009A and 2009B. Series 2009A will be issued as Build America Bonds (BABs) while series 2009B will be issued as Recovery Zone BABs. The bonds are expected to price the week of Jan. 14, 2010. Proceeds will be used to fulfill the county's agreements to the City of Sarasota and the Baltimore Orioles to finance renovations to a sports complex to be used for major league baseball spring training operations. Fitch also upgrades the county's approximately $33.5 million in communication services tax (CST) bonds to 'AA' from 'AA-'. The Rating Outlook is Stable.
Concurrently, Fitch affirms the following ratings:
--Implied general obligation at 'AA+';
--$205.6 million in infrastructure sales tax revenue bonds at 'AA';
--$17.5 million in 5th cent local option gas tax revenue bonds at 'AA'.
The Rating Outlook is Stable.
The 'AA+' implied GO is based on the county's historically strong financial management exhibited by conservative budgeting practices and the accumulation of robust fund balances, low debt burden with rapid amortization, and high wealth levels. Credit concerns include the recent deterioration of the area economy, including significant decreases in the tax base as well as high unemployment and foreclosure rates, which are projected to lead to an increasing structural imbalance and decreasing reserve levels unless substantial measures are taken. Over the next few years a combination of a lack of economic recovery and a continued structural imbalance could lead to downward pressure on the rating.
The upgrade to 'AA' on the CST revenue bonds reflects the stability in pledged revenues during the current economic downturn leading to continued high debt service coverage, along with the adequate legal provisions and the general credit characteristics of the county.
The 'AA' rating on the 1/2 cent sales tax revenue bonds and the affirmation of the other revenue backed securities incorporates the sound debt service provided by the respective pledged revenues, adequate legal provisions and the general credit characteristics of the county discussed above. The Stable Outlook reflects Fitch's expectation that the pledged revenues can sustain a moderate amount of further declines while remaining adequate for the rating categories.
The 1/2 cent sales tax revenue bonds are secured by the county's portion of the local government 1/2 cent sales tax. The state levies a 6% sales tax and distributes the revenue collected within each county to the county and its incorporated municipalities according to a population-based formula. Historically, the county has received between 72% and 74% of total revenue collected within the county. The current issuance is being issued as subordinate debt to the series 2000 and series 2002 bonds which have a senior lien that has now been closed by resolution. Coverage of maximum annual debt service (MADS) on this issuance as well as senior lien debt based on prior year's revenue has historically been strong at 8.3 times (x) in fiscal 2008. Unaudited actuals for fiscal 2009 show a steep 13.8% decline in revenues decreasing coverage to a still robust 7.2x. Coverage is expected to remain high as excess revenues are used to fund general government operations. Legal provisions are adequate requiring 1.3x MADS coverage to issue additional debt.
Sarasota County is located along the Gulf of Mexico in central Florida. The county is a popular winter destination for wealthy retirees with historic economic concentrations in health care and education. However, economically sensitive tourism and real estate account for significant portions of the economy causing the impact of the current recession to be greater on the county than in surrounding areas. Unemployment rates, which have historically been lower than state and national averages, have increased markedly to 12.3% for September 2009 from 8% a year prior and have been over the national average for the past two years. The tax base has also softened as a result of recent statewide property tax reform and the housing market correction declining a combined 27.6% between fiscal 2008 and fiscal 2010. The county is projecting an additional 8.5% decrease in assessed value (AV) in fiscal 2011 before stabilizing in future years. Foreclosure rates are over twice the national average. However, despite the recent weakening in the area economy, wealth levels and median home values remain well above average.
The county's financial position has been historically strong with conservative budgeting practices including the maintenance of designated reserves for economic uncertainty and hurricane relief which when combined require the county to reserve roughly 33% of annual spending. Both reserves are fully funded. Unaudited results for fiscal 2009 show approximately a $65 million surplus resulting from a reallocation of the prior years' $47 million investment loss, which was posted entirely in the general fund, across multiple funds as well as revenues coming in above budget. The unreserved fund balance increased to an all time high of 60% of spending, well in excess of what Fitch considers to be adequate for the rating category. The fiscal 2010 budget is balanced through a combination of expenditure reductions and appropriated reserves. The county traditionally appropriates a portion of fund balance annually and usually doesn't use any of it due to conservative revenue and expenditure assumptions. However, due largely to the affects of the economic downturn, the county expects to drawdown roughly $20 million of the $36 million appropriated in the budget. The unreserved fund balance is projected to decrease to a still robust 45%. Due to the expected drawdown of reserves for operating purposes in fiscal 2010 and potential further softening of the tax base and other economically sensitive revenues, the county is facing a sizeable structural imbalance in fiscal 2011. While the county has significant financial flexibility to increase or implement revenue streams as well as make additional expenditure reductions, failure to regain structural balance over the next few years could put downward pressure on the rating.
Overall debt levels are very low at 1.5% of assessed value or $1,928 per capita. The county's capital improvement plan (CIP) for fiscal 2010-14 totals $353.5 million, down over 25% from the prior year's five-year plan. The downturn in the economy has led the county to prioritize projects as a portion of the plan is funded by economically sensitive infrastructure sales tax revenue (excess after debt service payments) and general government excess revenue.
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or
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