TEXT - Fitch affirms Florida Municipal Loan Council
Nov 8 - Fitch Ratings affirms at 'AA' the following Florida Municipal Loan Council's (FMLC) revenue refunding bonds: --$4.3 million series 2011B (Village of Pinecrest series). In addition, Fitch affirms at 'AA+' Pinecrest, Florida's (the village) implied unlimited tax general obligation (ULTGO) bonds. The Rating Outlook is Stable. SECURITY The bonds are limited obligations of the FMLC, payable solely from loan payments made by the village in an amount equal to debt service on the FMLC revenue bonds to the FMLC. Pursuant to the loan agreement, the village covenants to budget and appropriate (CB&A) in its annual budget, by amendment if necessary, an amount of legally available non-ad valorem revenue sufficient to satisfy its loan agreement. KEY RATING DRIVERS COVENANT DEBT NOTCHING: A one-notch distinction in the rating of the revenue bonds and the implied ULTGO reflects a more limited revenue stream, the potential for further leveraging on a priority basis of the available revenues, and the inability of bondholders to compel the village to generate non-ad valorem revenues sufficient to pay debt service. STRONG FINANCIAL FLEXIBILITY: Fund balance levels are strong, and ample flexibility remains both to raise revenues and cut expenditures. Management adheres to prudent fiscal policies. DEPENDENCE ON REGIONAL LABOR MARKET: The village serves as an affluent bedroom community for nearby Miami. While county unemployment remains above that of the nation, strong job growth in the region over the past several years continues to lower this metric. Wealth indicators for the village exceed national averages by a factor of two. LOW DEBT LEVELS: Overall debt levels are low and expected to remain so given limited capital needs. Amortization of outstanding principal is rapid. Carrying cost of tax-supported debt and employee benefits is affordable and does not pressure financial flexibility. CREDIT PROFILE The Village of Pinecrest, with a 2010 population of 18,700, is an affluent residential community that is located 15 miles south of downtown Miami. MAINTENANCE OF ROBUST RESERVE LEVELS DESPITE PRESSURED OPERATING ENVIRONMENT Fund balance levels remain healthy, notwithstanding recent structural imbalance in fiscal 2010 and 2011. The village reduced reserves in fiscal 2011 by $636,000 or 3.6% of spending for a year-end unrestricted fund balance of $6.9 million or a strong 39.7%. As a prudent cushion against potential hurricane damage, the village has maintained unreserved / unassigned fund balance levels at least $1 million above of the target level of 10% of spending and formalized this policy in fiscal 2013. The village's liquidity remains similarly robust, with a fiscal 2011 year-end cash position of $7.2 million covering current liabilities 9.7 times (x). The village has sought to mitigate cumulative declines in taxable values (9.9% from 2008 through 2012) through millage rate hikes. Despite these annual increases, the village's tax rate (2.2 mills) is competitive for the region and comfortably below the state's 10-mill cap. Expenditure flexibility also remains, as spending reductions to date have been modest in nature and limited to salary and hiring freezes. FISCAL 2012 AND 2013 ESTIMATES AND BUDGET Fiscal 2012 projections (based on 11 months of actuals) show a $1.7 million addition to reserves (9.9% of spending), which represents a $2 million improvement to budget due to conservative budgeting practices. A one-time transfer of $400,000 was made from the capital projects fund to the general fund for operational support. The adopted fiscal 2013 budget shows moderate growth (4.6% relative to the fiscal 2012 budget) and a marginal use of reserves ($42,000 or 0.2% of spending). Operating revenues are diverse, including property taxes (42%), utility taxes (11%), and franchise fees (7%). The millage will be held constant. LARGELY RESIDENTIAL COMMUNITY, RESILIENT TAX BASE The very limited commercial presence in the village centers on retail but is heavily reliant on the city of Miami's economy (ULTGO rated 'A-' with a Negative Outlook by Fitch). Mid-level shopping centers account for seven out of 10 of the village's top taxpayers, and retailers Kendall Imports and Home Depot are the village's largest private employers with over 600 employees in aggregate. Taxable values in the village have fared relatively well for this hard-hit region, falling approximately 10% during the housing crisis. Following growth of 2.5% in 2012, the village reports a very modest decline of 0.5% in 2013. Fitch notes that current tax collections declined steeply in 2011 from the historical 96% level to 89.7%. Management attributes this decline to heightened delinquencies and changes in the processes of the Board of Appeals. Current year tax collections for fiscal 2012 show signs of recovery and are projected at 95%. Economic indicators for Miami-Dade County (ULTGO rated 'AA' with Stable Outlook) continue to show improvement. Though the county's unemployment rate (9.7% as of July 2012) remains above state and national averages, it has declined relative to the year prior (11.5%) due to employment gains of 4.6%. Wealth levels for the village are double the national average. Educational attainment levels also exceed those of the nation: 32% of village residents hold an advanced degree compared to 10.3% nationally. Market value per capita is an impressive $200,000. LOW-RISK DEBT PROFILE Overall debt levels are low on a per capita ($1,213) and percentage of market value (0.6% of MV) basis. Fiscal 2011 debt service totaled $1.5 million or a moderate 8.2% of general and debt service funds spending. Amortization of outstanding principal is rapid, with 86.5% retired in 10 years. The village has no exposure to variable rate debt, derivative instruments, or short-term financings. Capital needs appear modest based on the village's fiscal 2013-2017 capital improvement plan (CIP). Totaling $14.5 million (an affordable 0.4% of MV), the CIP is devoted largely to transportation ($8.9 million) and drainage ($3.4 million) projects. Though the village has no definite plans for future debt, it may issue $1.5 million in lease-backed bonds to finance renovation of a facility in the near term. BROAD REVENUE BASE AVAILABLE FOR CB&A COVERAGE The CB&A bonds have no direct lien on any specific revenue stream. Non-ad valorem revenues grew by 6% in fiscal 2011 relative to the year prior, while expenditures related to essential services increased by less than 1%. Essential services include general government and public safety, and these expenditures are required to be paid before debt service. Consequently, coverage of maximum annual debt service (MADS) net of essential expenditures increased from 1.85x in fiscal 2010 to 2.1x in 2011. MADS of debt supported by non-ad valorem revenues is $1.6 million and occurs in fiscal 2019, after which debt service will decline precipitously. Fitch takes comfort in the diverse nature of revenues available for debt service and notes that robust general fund reserve levels provide further debt service cushion for these bonds. The anti-dilution test requires that the average of non-ad valorem revenues for the prior two fiscal years cover MADS by at least 1.5x and that projected MADS for all debt secured or payable from non-ad valorem revenues must not exceed 20% of governmental fund revenues. Fitch considers this test weak as it does not include essential expenditures. MANAGEABLE LONG-TERM OBLIGATIONS Employee benefits represent an affordable percentage of annual spending and do not pressure financial flexibility. The village participates in the state-administered Florida Retirement System (FRS), for which the annual required contribution (ARC) for fiscal 2011 totaled $705,000 (4% of spending). Fitch views positively management's decision to set aside its savings from the recently-imposed 3% employee contribution into a separate contingency fund in the event of an adverse court ruling. The village provides an implicit subsidy for its other post-employment benefits (OPEB). As of Jan. 1, 2010, the most recent actuarial date, the village's unfunded OPEB liability of $634,000 represented a manageable 0.02% of MV. The village contributed $6,000 in pay-go in fiscal 2011 toward its $147,000 ARC.