TEXT - Fitch rates Florida's Manatee County, Florida bonds 'AA+'

Fri Feb 8, 2013 1:39pm EST

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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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