TEXT-Fitch affirms Miami Lakes, Fla. special obligations at 'AA'
Dec 6 - Fitch Ratings has affirmed its 'AA' rating on the following outstanding Town of Miami Lakes, Florida's (the town) special obligation (GO) bonds: --$7.33 million (Government Center Project) special obligation bonds (Federally Taxable - Build America Bonds - Direct Subsidy), series 2010. In addition, Fitch has affirmed the town's implied unlimited tax GO rating at 'AA'. The Rating Outlook is Stable. SECURITY The town irrevocably pledges its electric utility tax (part of the public service tax) for repayment of the bonds. The electric utility tax levied at 10% of electricity purchases and included on each customer's electric bill. Bonds are additionally secured by a cash funded debt service reserve fund. KEY RATING DRIVERS TAX REVENUE DERIVED FROM ESSENTIAL COMMODITY: Pledged tax revenues provide ample coverage of maximum annual debt service (MADS). Legal provisions for the special tax bonds are adequate. STABLE FINANCIAL PROFILE: Management's conservative budgeting practices and expense management has resulted in maintenance of adequate financial flexibility despite substantial assessed value and revenue declines and significant fund balance drawdowns for one-time capital. FAVORABLE DEBT PROFILE: Debt levels are exceptionally low and capital needs are manageable, offsetting the very slow amortization rate. Pension costs are very low and the town does not offer retirement benefits. ECONOMY SHOWS IMPROVEMENT: The town benefits from its location in the broad and diverse Miami metropolitan area. The town's tax base is showing signs of stabilization and is poised to benefit from ongoing development efforts which should also help continue to reduce the still elevated tax payer concentration. SOCIOECONOMIC INDICATORS MIXED: Area wealth levels are above-average but unemployment rates remain high. CREDIT PROFILE Miami Lakes, incorporated in 2000 with a population of 29,000, is located in Miami Dade County (rated 'AA' with a Stable Outlook by Fitch), 16 miles from downtown Miami. PLEDGED REVENUES PROVIDE AMPLE COVERAGE OF MADS The pledged revenues on the bonds are derived from a tax on the purchase of electricity within the town. The tax is currently levied at the maximum rate permitted by statute of 10% and is collected by the seller (Florida Power & Light, IDR of 'A' Stable Outlook by Fitch) at the time of sale and remitted to the town. Coverage from fiscal 2012 pledged revenues on MADS (in 2019) of $928,499 was 2.7x based on revenues of $2.5 million. Coverage is even stronger at 3.4x when the federal subsidy is included. Electric utility tax revenues improved 2.14% last year from fiscal 2011 levels and have increased an average of 3.4% annually over the last five fiscal years. The 10% utility tax is levied on each customer's electric bill and therefore total revenues are influenced not only by changes in economic activity but also changes in the cost of generating and delivering the essential commodity. The town has no current plans to levy the electric tax further and utilizes residual tax revenues to fund town operations. Fiscal 2011 revenues of $2.45 million represented 17% of general fund revenue. LEGAL PROVISIONS ARE ADEQUATE The issuance of additional parity bonds requires historical pledged revenues to provide 1.25x coverage of MADS on existing and proposed debt. The series 2010 bonds are Build America Bonds subject to a direct subsidy from the U.S. Treasury. All principal and interest payment calculations referred to in the bond resolution are net of the annual 35% interest rate subsidy expected from the U.S. Treasury. This includes the ABT and sizing of the cash funded reserve fund. Revenues are deposited monthly in the town held interest and principal accounts equal to 1/6th and 1/12th of bond payments due, respectively. FINANCES ARE SOUND The town's financial position remains sound after a period of reduced revenues due to a stressed economy and lower property values. In fiscal 2011, the general fund balance decreased by $1.4 million primarily due to payment of a one-time residence dividend ($600,000) from available funds from fiscal year 2010 along with a transfer to capital for ongoing capital improvement needs. The town's unrestricted general fund reserve position at fiscal end 2011 was $8.4 million or a high 51% of spending. The town provides few services to residents directly and negotiates contracts with outside entities for the provision of most key services. Fire service is provided by Miami-Dade County and residents are assessed a separate ad valorem millage by the county for this purpose. Public safety, provided through a contract with the county, is the largest town expense accounting for nearly half of all general fund spending in fiscal 2011. Revenues are diversified with property taxes accounting for 36% of the fiscal 2012 budget, followed by intergovernmental revenues (27%), utility taxes (17%), and electricity franchise fees (11%). The town's ad valorem millage rate of 2.35 mills in fiscal 2012 and 2013 is low compared to other towns in the county and well below the maximum state cap of 10 mills. The fiscal 2012 budget included an appropriation of fund balance of $4 million towards capital projects as well as a carryover of unused funds of $1.1 million from fiscal 2011. Fitch does not generally view the use of reserves for one-time capital purposes as a credit negative when overall financial flexibility remains adequate. Projections for fiscal 2012 show an $845,000 operating surplus according to management as a result of positive variances primarily on the expenditure side. The town's general fund balance is projected to decline to approximately $3.6 million, or a still solid 25% of the fiscal 2013 budget. The fiscal 2013 budget does not include any material changes except for additional contributions from revenues of $400,000 towards capital construction improvements throughout the town. Fund balance is expected to remain unchanged and well in compliance with the town's 15% policy. MIXED SOCIOECONOMIC INDICATORS Town wealth levels are high relative to the state and national averages. Employment information for the town is not available but countywide unemployment remains elevated at 8.9% in October compared to 10.7% a year prior. The town's tax base of $3.37 billion has experienced material weakening in recent years declining 33% between 2008 and 2012. Taxable value was up slightly in 2012 and while Fitch views management's expectation for continued growth somewhat cautiously, stabilization does appear likely. Successful new development either near completed or underway would bolster tax base performance. The Graham Companies is a privately held corporation with substantial real estate interests and a major presence in the town. The owner of a large portion of property within the town's central business district, Graham and the Sengra Development Corporation, together compose a sizeable 16% of the tax base. Top 10 taxpayer concentration, reported at an above-average 21% for fiscal 2013, has declined from 24% in fiscal 2011 even with the decline in AV, further evidencing the new development. Longer-term economic prospects for the county are favorable and supported by an excellent regional transportation network featuring interstate highway access and domestic and international air service via several airports. The region also benefits from year-round tourism, cultural, and recreation attractions, and a sizable education and healthcare presence. FAVORABLE DEBT PROFILE Debt levels are low. The bonds represent the town's first and only direct public debt issuance. The town also pays 2.9% of debt service towards Quality Neighborhood Improvement bonds issued by the county for a total debt service burden at a low 0.9% of spending. The town plans to use accumulated capital project funds and some general fund reserves for pay-as-you go capital projects. A potential $1.8 million borrowing may be sought for road improvements which is well affordable and would not materially affect debt ratios. The town participates in the state operated Florida Retirement System (FRS). The annual pension contribution is approximately $200,000 per year (1.2% of spending). The town has 34 full time employees but does not have any union contracts. No retirement benefits are offered by the town, other than benefits provided through the FRS. 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 Fitch's 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. 14, 2012); --'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012). Applicable Criteria and Related Research: Tax-Supported Rating Criteria U.S. Local Government Tax-Supported Rating Criteria
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