Fitch Ratings affirms Hillsborough County, FL's outstanding debt ratings as follows:
--$72.8 million in outstanding general obligation (GO) bonds at 'AAA';
--$3.5 million in outstanding limited ad valorem revenue bonds at 'AA+';
--$32.6 million in outstanding non ad valorem revenue bonds at 'AA';
--$84.1 million in outstanding special assessment revenue bonds, series 2006 at 'A';
--$33.8 million in outstanding half-cent sales tax revenue bonds at 'AA+;
--$34.2 million in outstanding traffic surcharge revenue bonds at 'A+';
--$17 million in outstanding 4th cent tourist development tax (TDT) revenue bonds at 'AA-';
--$27.1 million in outstanding 5th cent TDT revenue bonds at 'AA-';
--$1.7 million in outstanding fuel tax revenue bonds at 'AA'.
Fitch affirms the Tampa Sports Authority (TSA), FL's outstanding debt ratings as follows:
--$100.7 million in outstanding local option sales tax revenue bonds at 'AA+';
--$23.3 million in outstanding TSA state payment revenue bonds at 'AA'.
The Rating Outlook for the securities listed above is Stable.
Fitch also affirms approximately $298.8 million in outstanding Hillsborough County, FL community investment tax (CIT) revenue bonds at 'AA'.
The Rating Outlook on the CIT bonds remains Negative.
RATING RATIONALE
--Strong financial management is evidenced by stringent policies and robust reserves.
--The area economy, while significantly affected by the current recession, remains strong and diverse, serving as the economic anchor of western Florida.
--Fitch expects moderate debt levels, coupled with the county's manageable future capital needs, to keep the debt burden relatively stable in the foreseeable future.
--The Negative Outlook on the CIT revenue bonds reflects the continued volatility in pledged revenues, although year to date revenues are on par with those from a year prior.
--Pledged revenues on all other securities remain adequate for the respective rating levels.
KEY RATING DRIVERS (NON-CIT BONDS):
--The county is expected to maintain adequate financial flexibility.
--Pledged revenues and debt service coverage are expected to sufficient for the respective ratings.
WHAT COULD TRIGGER A DOWNGRADE (CIT BONDS):
Further declines in pledged revenue would lead to downward pressure on the rating. However, continued stability or improvement in pledged revenues may result in the Outlook being revised to Stable.
SECURITY:
The GO bonds are bonds are secured by the full faith, credit and taxing power of the county.
The half-cent sales tax revenue bonds are secured by a pledge of, and lien on, the proceeds of the local government half-cent sales tax received by the county.
The TSA local option sales tax bonds are limited obligations payable solely from the portion of the community investment tax dedicated to TSA for debt service and capital expenditures according to the interlocal agreement.
The traffic surcharge revenue bonds are secured by a lien on pledged revenues, defined as court surcharge revenues and, until the earlier of Dec. 1, 2026 or the date it is released pursuant to the bond resolution, the county's portion of CIT revenues. The CIT portion of the security is on parity with the county's outstanding CIT revenue bonds until the release of the CIT portion of the security.
The community investment tax (CIT) revenue bonds are secured by a pledge of the county's portion of CIT revenues. The CIT is a 30-year local option half-cent sales surtax for infrastructure that is effective through Dec. 1, 2026, one month after the final maturity of the bonds. Revenues are distributed according to an interlocal agreement between the county, the school district, and incorporated municipalities within the district. A quarter of revenues go to the school district, followed by a fixed distribution to TSA for the payment of debt service on the TSA local sales tax bond, and the remaining revenue is divided between the county and cities according to a population-based formula.
The TSA state sales tax payment bonds are secured by an annual distribution of sales tax pursuant to Florida statutes. Sales tax revenue is collected by FDOR and an amount equal to $166,667 monthly ($2 million annually) is distributed to counties maintaining a professional sports franchise. Pursuant to an interlocal agreement for stadium financing, revenues received by the county from this source are assigned to a trustee for the benefit of bond holders. The rating incorporates the risk, albeit remote, that the state could alter the statute that provides for the allocation of this payment to the county.
The 4th cent tourist development tax (TDT) revenue bonds are secured by the county's 4th cent tourist development tax.
The 5th cent TDT revenue bonds are secured by the county's 5th cent tourist development tax.
The fuel tax revenue bonds are secured by the county's fuel tax and local option gas tax revenues. Pursuant to the bond resolution, the pledge of the local option gas tax can be released if the amount of county fuel tax revenues received in each of the three most recently completed fiscal years equal to 2 times (x) maximum annual debt service (MADS) coverage. This portion of the security has not been released.
The non ad valorem revenue bonds are secured by a covenant to budget and appropriate legally available non-ad valorem revenues. The bonds have no lien on any of the available revenues. A number of these revenues are subject to a first lien from other outstanding bonds, making payment of the non ad valorem revenue bonds subordinate to certain other debt service payments. The two notch distinction from the GO reflects the prior lien on a significant portion of non ad valorem revenues.
The limited ad valorem revenue bonds are secured by a pledge and lien on the proceeds of a tax, not to exceed 0.25 mills, on all taxable property within the limits of the county, excluding homestead exemptions as required by law, sufficient in amount to pay debt service on the bonds.
The special assessment revenue bonds are secured by a senior lien on all capacity assessment fees levied and collected within the capacity assessment units included in the bond resolution.
PLEDGED REVENUES CREDIT SUMMARY:
The majority of pledged revenues have declined based on year to date fiscal 2010 data, although losses have moderated from fiscal 2008 to 2009 year over year losses. The half-cent sales tax revenue fell 10.4% in fiscal 2009, marking the third consecutive year of declines. However, MADS coverage remains strong at 5.68x. Fiscal 2010 year to date data shows revenues being down 3% for the year, which, if annualized, would result in still sound coverage at 5.51x.
Another sales tax, the CIT, is distributed first among the school district and TSA based on an interlocal agreement. The TSA receives annual disbursements ranging between $9.86 million and $13.36 million through 2027 for the purpose of paying debt service on the TSA local option sales tax revenue bonds. Coverage remains at least 1.1x based on the minimal annual disbursement set by the agreement. After the school district and TSA are allocated their portions of the total CIT revenues, the remainder is distributed to the county and its incorporated municipalities according to a population based formula.
The county's portion of CIT revenues is pledged to the CIT revenue bonds as well as being temporarily pledged to the traffic surcharge revenue bonds, as discussed under the security section. The CIT portion of the traffic surcharge bonds security is able to be released upon board approval if traffic surcharge revenues cover MADS a minimum of 1.5x for three consecutive years. Due to the potential discharge of the CIT pledge, the rating is based solely on traffic surcharge revenues. While the county met the three-year coverage test for release of the CIT coverage in fiscal 2008, the county chose not to release the CIT portion of the pledge due to its projections at the time. Since then, surcharge revenues have fallen 15.6% in fiscal 2009, lowering coverage to 1.30x and resulting in the CIT being unable to be released from the surcharge revenue bonds for at least the next three years.
CIT revenues received by the county decreased 10.7% in fiscal 2009. This lowered coverage on bonds secured solely by CIT revenues to 1.53x. Fitch assigned a Negative Outlook to the CIT revenue bonds in 2009 based on its expectation that the trend of weakening revenues could continue or even accelerate, given the economic climate. While overall fiscal 2010 year to date revenues are up 0.3% from a year prior, monthly year over year figures continue to fluctuate. Continued stabilization of this revenue stream could lead to a revision of the Rating Outlook to Stable. When traffic surcharge revenues, as well as surcharge debt service, is added to the CIT, coverage from both revenues on all applicable bonds remains above 1.5x for fiscal 2009 and projected for fiscal 2010.
Along with TSA local option sales tax bonds discussed above, the county also receives $2 million annually, in accordance with state statute, for maintaining a professional sports franchise. The distribution is payable for 30-years and runs through maturity of the bonds. Coverage on the TSA state payment revenue bonds is constant at slightly over 1x throughout the life of the bonds, including fiscal 2009 and fiscal 2010.
Both the 4th and 5th cent TDT have been the most volatile in recent years, reflecting the elasticity of the hotel industry and the narrow tax base with a 13.5% decline in revenues in fiscal 2009. Despite the decrease, MADs coverage on the 4th cent TDT totaled a good 3.09x for the year. Coverage on the 5th cent was significantly lower at 1.15x. However, debt service on the 5th cent will go down substantially beginning in fiscal 2011. While fiscal 2010 revenues are down an additional 5.1% year to date, coverage from the 5th cent would total 1.95x MADs based on the lower MADS beginning in fiscal 2011 compared to 1.09x prior MADs. Coverage on the 4th cent bonds would remain above 2.9x based on current year to date information.
The gas tax continues to show a lower degree of fluctuation with a 0.6% decline in revenues in fiscal 2009 leading to 21.5x MADs coverage, followed by a 0.3% decrease in fiscal 2010 year to date revenues. The gas tax bonds have a final maturity in fiscal 2012.
For the non ad valorem revenue bonds, the county draws from a diverse mix of revenues. A first lien on a number of these sources, including the half-cent sales tax and the CIT, secure revenue bonds, making debt service payments on the non-ad-valorem bonds subordinate to a variety of revenue bonds. Additional leveraging of individual revenue sources is possible under these bonds' indentures. However, after backing out revenues needed to fund essential services as well as debt service from securities with a first lien on any of the included revenues, coverage remains sound at 3.7x for fiscal 2009. The county anticipates fiscal 2010 coverage to be comfortably above 3.0x.
The county still has substantial flexibility under the maximum 0.25 mill cap for the limited ad valorem revenue bonds. However, since the bonds have a final maturity in fiscal 2011 and the county had excess revenues from prior years held in reserves, totaling $22.2 million at the end of fiscal 2009, the county levied slightly less than debt service in fiscal 2010 and again in fiscal 2011. Meanwhile, capacity assessment fees that secure the series 2006 special assessment revenue bonds are included on the property tax bill for the capacity assessment units included in the bond resolution. Taxpayers are required to pay all property taxes and assessments without preference for any particular tax or fee amount. Coverage remains above 1.1x for fiscal 2009 and fiscal 2010. Additionally, the county has $4.9 million in residual revenues, equal to 0.55x MADs, which although not pledged, is reserved in addition to the DSRA and may be used for debt service if current revenues ever prove insufficient.
GENERAL GOVERNMENT CREDIT SUMMARY:
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. While the long-term profile of the county economy is strong and diverse, the current downturn in the economy has had a magnified affect on the area. Unemployment in the county has increased to 12.2% for July 2010 from 11.2% a year prior, although it has begun to decrease modestly from its high of 12.8% in January 2010. The tax base has declined over 26% from its high in fiscal 2008 due the ongoing housing market correction as well as recent state property tax reform.
The county's financial position has historically been sound with increasing reserve levels over the past 10 years and benefiting from stringent policies. Fiscal 2009 ended with a $22 million use of fund balance resulting from a policy decision to reduce service levels gradually. Despite the draw on reserves, the unreserved fund balance dropped to $203.7 million, equal to a sound 20.5% of spending. Estimates for fiscal 2010 show a $14.4 million operating surplus, of which approximately $2.9 million will be added to general fund balance with the remainder going to the special purpose repair and maintenance (R&M) fund. While traditionally used for maintenance related capital, the R&M fund is anticipated to have a $34.5 million fund balance at the end of fiscal 2010 which can be used for operating if needed.
County debt levels are moderate and are expected to remain so in the foreseeable future. The county's fiscal 2011-201 fiscal 2011-2015 capital improvement plan (CIP) totals $469.5 million with roughly 2/3 devoted to utilities. Debt plans, which account for a little over half of total funding, are concentrated in roughly $90-$120 million in general government financing with the remaining debt for utilities. The county continues to fund 100% of its OPEB ARC in fiscal 2011.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc. and IHS Global Insight.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21, 2009.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research:
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=492470
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
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