TEXT - Fitch rates Florida's Manatee County, Florida bonds 'AA+'
Feb 8 - Fitch Ratings has assigned an 'AA+' rating to the following Manatee County, Florida (county) obligations: --$82 million revenue refunding and improvement bonds, series 2013. The bonds are expected to sell the week of Feb. 18 via negotiation. Proceeds are being used to refund the county's outstanding revenue improvement bonds, series 2004 and 2006 and refund outstanding 2004 transportation bonds and fund some capital projects. In addition, Fitch affirms the following ratings: --$7.1 million general obligation (GO) bonds at 'AAA'; --$94.3 million non-ad valorem revenue bonds at 'AA+'. Fitch also affirms the following Manatee Port Authority, FL (port authority) ratings: --$40.3 million revenue refunding bonds, series 2012A and 2012B (port authority bonds) at 'AA+'. The Rating Outlook is Stable. SECURITY The bonds are secured by pledged revenues consisting of non-ad valorem (non-AV) revenues of the county deposited into the debt service fund. The county has covenanted to annually budget and appropriate, by amendment if necessary, from legally available non-ad valorem revenues (CB&A) sufficient funds to pay debt service when due. In addition, the county's non-ad valorem pledge is extended on parity to the port authority bonds to replenish any deficiencies in the cash-funded reserve. The indenture does not create a lien on non-ad valorem revenues and the county's pledge is subject to the payment of obligations secured by specific non-ad valorem revenues. KEY RATING DRIVERS STELLAR CREDIT CHARACTERISTICS: The county's exceptional credit profile includes strong financial reserves buttressed by proactive management, a modest and rapidly amortized debt load and a diverse and strengthening economy. NON-AV REVENUES PROVIDE SOLID MADS COVERAGE: Available non-AV revenues of the county provide ample coverage of maximum annual debt service (MADS) of bonds secured by the county's CB&A pledge. These revenues stabilized in fiscals 2011 and 2012 after four years of decline. PRUDENT FINANCIAL MANAGEMENT: County financial operations are conservatively managed as evidenced by ample reserves and solid liquidity. Officials have made significant spending cuts to counter sizable declines in revenues. Recently, the county has been using part of its extensive reserves to maintain critical levels of service, but under the multi-year spending plan, balances will remain well above the county's policy minimum of 20% of expenditures. DIVERSIFIED ECONOMY EXPERIENCES HEALTHY RECOVERY: Economic drivers include a diverse mix of services, retail, manufacturing and tourism. Strong job growth, recently increasing housing values and expanding building permit activity are indicative of a strengthening recovery. MANAGEABLE LONG-TERM LIABILITIES: The county's debt load is modest with direct debt rapidly amortized. Pension and OPEB liabilities are moderate and do not pressure spending. CREDIT PROFILE STRONG MADS COVERAGE FROM RECURRING NON-AV REVENUES CB&A MADS coverage from available recurring non-AV revenues, including an amount which would be required to refill the Manatee Port bonds, series 2012 DSRF, is robust at 4.7x. Taking into account essential service expenditures which must be funded ahead of debt service, MADS coverage remains very healthy at 1.50x MADS. Additional available funding sources include sizable unrestricted reserves in the general fund and transportation trust fund totalling over $90 million. The county's non-ad valorem revenue base is both broad and diverse. Chief sources of revenue include the half-cent sales tax, gas taxes, and service charges. Recurring legally available non-ad valorem revenues grew a modest 0.46% in fiscal 2012, the second straight year of growth, after four consecutive years of recession-induced declines totalling 14%. The recent gain was driven primarily by increases in the half-cent sales tax and state revenue sharing allocations and growth in service charge revenues. WELL-MANAGED FINANCIAL OPERATIONS County finances are prudently managed, characterized by strong reserve levels and ample liquidity. Officials have implemented spending reductions in response to severe multiple-year declines in property tax revenues, the largest revenue source. Cost-cutting measures include personnel and service reductions, reduced capital spending and technology improvements. As a result, general fund spending fell by over 16% between fiscals 2008 and 2010. More recently and in light of ongoing property tax contraction, management decided to use a portion of its reserves to alleviate additional cuts to critical programs. Additional operating fund balance drawdowns are planned over the next three years totalling approximately $30 million. Despite the planned use of reserves, general fund balance would still be maintained at a level well above the county's minimum target balance of 20% of expenditures. For fiscal 2012, the county reported a general fund net operating deficit ofapproximately $13.4 million; modestly better than the budgeted $16 million net operating loss. Despite the deficit, unrestricted general fund balance remains at a still sizable $99 million or 44% of spending. A 4% decline in property tax revenues was only partially offset by increased state revenue sharing receipts. Fiscal 2012 expenditures fell by 2.0% from fiscal 2011 spending due to ongoing county cost-cutting including reductions in full-time positions. The fiscal 2013 budget provides for an average 3% increase in employee salaries, the first increase in six years, and adds approximately $1.7 million to the sheriff's department budget. Increases in compensation will be balanced with minor reductions in personnel, lower benefit costs and a modest gain in intergovernmental revenues. Officials indicate that property tax and sales tax collections are over budget and project year-end unassigned general fund balance to decline by a somewhat better than budgeted $16 million. DIVERSIFIED ECONOMY EXPERIENCES A HEALTHY RECOVERY The county's economic base is diversified with major sectors consisting of services, retail and manufacturing. Tourism and agriculture are also important components of the local economy. After losing nearly 14% of its employment base between 2006 and 2010, the county is experiencing a robust jobs recovery that appears to be strengthening. Employment increased by 1.6% in 2011 and an additional 2.4% in 2012. December 2012 employment increased rapidly year over year by 2.5%. As a result of the county's job recovery, unemployment rates have fallen from over 12% in 2010 to an average of 9% in 2012. The December 2012 unemployment rate of 7.8% was down from 9.9% in the prior year, and is now in line with the state and national benchmarks. Manufacturing and construction sectors have been important drivers of these job gains. A number of area manufacturing firms have expanded during the past 12 to 18 months and fiscal 2012 building permit values are up 31% over fiscal 2010 permit activity. Tourism has also experienced a strong season with fiscal 2012 tourist tax collections up nearly 16% over fiscal 2011 totals. Housing values within the county declined by over 50% from the peak in 2006 but have increased significantly during the past year, according to Case-Schiller. SLOWING TAX BASE LOSSES POINT TO NEAR-TERM STABILIZATION Typical of many Florida counties, Manatee County lost 31% of its tax base between fiscals 2008 and 2012, due to a combination of state-wide property tax reform and the housing meltdown. Taxable value losses have eased over the past two fiscal years, dropping by only 2% in fiscal 2013, which Fitch believes is indicative of near-term stabilization. Officials project the tax base to grow about 1% to 2% next year followed by gradually accelerating growth in the 1 1/2% to 2 1/2% range over the next three years. Fitch views these projections as reasonable given the recent positive trends in both jobs and housing. BELOW-AVERAGE LEVERAGE Debt indices are below average with direct and total debt to full value of 0.4% and 1.5%, respectively. The county relies primarily upon debt secured by its CB&A pledge rather than general obligation bonds. The new issue refunds most of the county's outstanding bonds secured by non-ad valorem revenues for debt service savings. The refunding does not extend the term of the bonds to be refunded and amortization will remain aggressive with over 80% of principal retired within ten years. Debt service requirements do not claim a disproportionate share of county spending; fiscal 2012 debt service requirements were a manageable 8.0% of general fund and debt service expenditures. The county's capital needs are manageable and tax-supported debt plans include very modest issuances. MANAGEABLE PENSION AND OPEB LIABILITIES The county's retirement obligations do not represent a cost pressure. The county participates in the Florida Retirement System (FRS) in which nearly all county employees are members. The county's fiscal 2012 contribution to the plan was lower than prior contributions due to changes in state law which now require employees to contribute 3% of their salary and represented a manageable 5.2% of general fund spending. Retired employees also have the opportunity to participate in the county's defined benefit health care plan for active employees, which includes medical coverage, prescription drug benefits, dental benefits and life insurance coverage. The county subsidizes the retirees' costs on a pay-go basis. Fiscal 2012 contributions totalled $3.8 million or just 1.7% of general fund expenditures. The county's unfunded accrued actuarial liability as of fiscal 2012 of $147 million represented just 0.5% of full value. The county recently increased the proportion of health insurance premium costs paid by the retirees, which is expected to reduce the county's future liabilities.
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