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.
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
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.
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
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
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
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
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.