In the course of routine surveillance, Fitch Ratings has affirmed the following revenue bond rating of the City of Tampa, Florida (the city):
--$81.5 million occupational license tax revenue bonds at 'AA-'.
Concurrently, Fitch assigns the city an implied general obligation (GO) rating of 'AA'.
The Rating Outlook is Stable.
SECURITY
The occupational license tax (OLT) revenue bonds are secured by a pledge of the city's OLT revenue, defined as a business tax imposed for the privilege of engaging in or managing any business, profession, or occupation within the city.
As additional security, the city covenants to budget and appropriate (CB&A) legally available non-ad valorem revenue in any year that OLT revenues are not sufficient to pay debt service.
KEY RATING DRIVERS
Non-Ad Valorem Covenant: As the broader and more creditworthy of the revenue streams securing bondholders, the city's covenant to pay debt service from non-ad valorem revenues, subject to annual appropriation, serves as the basis of the 'AA-' rating on the OLT revenue bonds.
'AA' General Creditworthiness: A history of conservative financial management contributing to strong reserves and healthy financial flexibility underpin Tampa's credit profile. Tampa's position as the hub of economic activity for Florida's Gulf Coast, and a low-to-moderate debt burden with manageable capital needs are additional credit positives.
Offsetting Factors: The city's high unemployment rate and significant housing stress have contributed to declining taxable values, revenue weakness and budgetary pressure resulting in an increased reliance on reserves to support operations.
CREDIT PROFILE
Very Strong Resource Base
In fiscal years 2008 through 2010 the city held a very tight line on spending and conservatively forecast its revenues, contributing to positive year-end results despite the impact of the recession and the fallout of the housing market on key revenue streams.
Tampa completed fiscal 2010 reporting a net surplus of $4.8 million or 1.4% of spending for the combined general fund and utility tax fund (as the recipients of the city's discretionary resources, the city's operating funds). Fiscal 2010 marked six consecutive years of surplus results, an impressive stretch during which the unreserved fund balance of the operating funds improved to $170.4 million or 47.9% of spending from $71.5 million or 22.5% of spending.
A portion of the unreserved fund balance is designated for emergencies and self-insurance, totaling $7.7 million and $20.1 million, respectively, leaving an available fund balance of $142.7 million or 40.1% of spending. The city targets an available fund balance equal to no less than 20% of spending.
The city's balance sheet is exceptionally liquid, with more than $385 million in cash and investments reported across governmental fund types in fiscal 2010 (or the equivalent of more than 290 days operating expenses).
Fiscal 2011 Performance
In fiscal 2011 the city anticipates spending approximately $25.4 million of the $35.3 million in fund balance appropriated to balance the fiscal 2011 budget. The projected available fund balance at the close of fiscal 2011 is $117.3 million or approximately 30% of spending, which Fitch still considers quite healthy.
Operating Pressures
Contributing to the fiscal 2011 deficit is the continued decline of the city's taxable assessed value (TAV) and policymakers' decision to maintain a flat tax rate. At 5.7 mills the city's tax rate is considered low by Fitch and well within the 10 mill statutory cap. The city has taken action to enhance certain non-ad valorem revenue streams, but not nearly sufficient to offset a decline in property tax revenue of $40.6 million or 25% from fiscal 2008 (actual) to fiscal 2011 (projected).
Rising pension costs also factored into the fiscal 2011 results, as the city budgeted a $10 million or 32% increase in pension contributions from the year prior. Pay-as-you-go capital budget at $19.4 million was also significantly higher year-over-year.
Fiscal 2012 Projections
The gap in fiscal 2012 that the city plans to close from available reserves totals a relatively modest $6.2 million or 1.6% of the $391.8 million operating funds budget. The projected deficit is lower from the year prior reflecting a one-time reconciling transfer to the general fund in the amount of $4.2 million, a reduction in pay-as-you-go capital spending to $6.8 million, and the carry forward of approximately $8 million in annually recurring expenditure reductions implemented in fiscal 2011.
Despite recent spending cuts, officials believe the city retains some flexibility to address future budget challenges without having a material impact on service delivery. Fitch notes the fiscal 2012 budget significantly lowers the number of positions eliminated from years prior, but the cumulative reduction in personnel since fiscal 2008 has been steep, with more than 350 or 10% of tax-supported positions eliminated mostly through attrition.
TAV declined a more modest 4% on the year relative to reductions of 12% or more in each of the two preceding fiscal periods. City officials forecast flat growth for fiscal 2013, which Fitch believes may be optimistic, but potentially mitigated through adjustments to the millage rate, which has not been increased since at least 1993.
Affordable Debt Levels
Debt ratios remain low to moderate on an overall basis at 2.8% of market value and $3,202 per capita. Governmental debt service is budget at $37.5 million in fiscal 2012, which is less than 9% of the combined budget of the operating and debt service funds.
Approximately 70% of the city's outstanding debt is repaid within 10 years, which is considered rapid and provides management options to fund future capital needs. The city does not have exposure to variable-rate debt, short-term debt, or derivative products.
Additional issuance plans are limited. The city anticipates selling up to $30 million in taxable non-ad valorem debt in November 2011 to fund the settlement of certain outstanding worker's compensation claims. The 2012-2016 capital improvement plan (CIP) totals $327.4 million or approximately 1% of market value, of which only $12 million is expected to be funded from new debt. The CIP is fully funded, with $143.5 million or 44% of the plan to be financed from water and sewer utility revenue and an additional $110 million from local fuel and sales taxes.
Adequately Funded Employee Benefits
Tampa administers a single employer defined benefit plan for pension and other post-employment benefits (OPEB). The city fully funds the actuarial required contribution (ARC) for its pension plans, which has risen rather sharply due to recent market losses which are smoothed over a shorter three-year period. Pension plans are adequately funded at 88% for general employees and 69% for police and fire (adjusted by Fitch to assume a 7% investment rate of return).
Retiree health coverage is offered at the blended group rate in accordance with state law. The city does not explicitly subsidize retirees' cost of coverage. The city's OPEB liabilities are funded on a pay-as-you-go basis, with an annual contribution equivalent to less than 1% of operating funds spending.
Gulf Coast Economic Anchor
Despite being hit hard by the recession, Fitch believes the Tampa metropolitan statistical area (MSA) employment base retains the solid long-term economic underpinnings that have made it the economic hub of Florida's Gulf Coast.
The city is served by an excellent regional transportation network, featuring interstate highway access and passenger rail service in addition to domestic and international air travel via Tampa International Airport.
Furthermore, according to Property and Portfolio Research (PPR) the city's low business costs should benefit prospects for continued corporate expansion and relocation. PPR and Global Insight forecast annual employment gains of 2.2% from 2011-2015, on par with the national forecasted rate of growth.
Economic activity is fairly broad including the traditional tourism and agriculture sectors, as well as trade and transportation activity at the Port of Tampa. MacDill Air Force Base is located eight miles south of downtown Tampa and is the second largest employer behind the county school board with more than 21,000 civilian and military personnel.
Among Tampa's other major employers is the University of South Florida (USF), Tampa General Hospital, and the Veteran's Administration Hospital. These entities serve as the core of an education and health service sector which has lent stability to the city's employment base during the throes of the recession and is forecast to drive future growth by PPR and Global Insight.
Still Significant Housing Stress
The Tampa area housing market was among the earliest and hardest hit, and the crisis remains severe. According to Zillow.com the median Tampa home value has fallen 12.8% over the prior year, which compares poorly to the 5% and 5.1% decline in home value for Florida and the U.S., respectively, over the same period. A large number of foreclosure units for sale (countywide data) combined with continued high levels of unemployment (11.3% in June) are likely to pressure the housing market for the foreseeable future.
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, and Property and Portfolio Research.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated 16 Aug. 2010;
'U.S. Local Government Tax-Supported Rating Criteria', dated 08 Oct. 2010.
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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