Fitch Rates Sarasota County, FL's CST Revenue Bonds 'AA+'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA+' rating to Sarasota County, Florida's (the county) $19 million communication service tax (CST) revenue bonds, series 2010A and series 2010B.

At the time of issuance the county will decide whether to issue CST revenue bonds as tax-exempt series 2010A or taxable Build America Bonds (BABs), series 2010B.

The CST revenue bonds are expected to sell via negotiation Dec. 6.

In addition, Fitch affirms the following county ratings:

--Implied general obligation (GO) at 'AAA';

--$53.1 million outstanding CST revenue bonds at 'AA+';

--$191.9 million outstanding infrastructure sales tax bonds at 'AA+';

--$16.4 million outstanding five cent local option fuel tax revenue bonds at 'AA+';

--$0.7 million second guaranteed entitlement revenue bonds at 'AA+';

--$5.9 million outstanding stormwater utility revenue bonds at 'AA-'.

The Rating Outlook for the second guaranteed entitlement revenue bonds is Negative. The Rating Outlook for all other securities is Stable.

RATING RATIONALE:

--Debt service coverage on all other securities remains healthy.

--Financial management is strong with high reserve levels and stringent financial policies.

--The county's low debt profile is complemented by manageable capital needs.

--The area economy has been significantly impacted by the recession with significant decreases in the tax base as well as high unemployment and foreclosure rates. However, there have been recent signs of stabilization.

--The rating for the 2nd guaranteed entitlement revenue bonds is capped at the lower of the rating for state appropriation debt (AA+, Negative Outlook) or the county GO.

KEY RATING DRIVERS:

--Coverage is expected to remain adequate for the respective securities; coverage on the infrastructure sales tax revenue bonds is sufficient for the rating category, although future volatility or additional leveraging could reduce coverage to a level inconsistent with the current rating level.

--While the county has significant financial flexibility, Fitch views the ability to regain structural balance over the next few years as vital for the county.

WHAT COULD TRIGGER A DOWNGRADE FOR THE SECOND GUARANTEED ENTITLEMENT REVENUE BONDS?

--Further negative rating action on the state would lead to rating action on the security.

SECURITY:

The CST revenue bonds are secured by revenues received by the county from the Local Communications Services Tax Clearing Trust Fund created with the Florida Department of Revenue pursuant to Section 202.193, Florida Statutes (communication services tax revenues). According to the statute, local governments are allowed to levy a tax on the sale of communications services within the entity.

The infrastructure sales tax revenue bonds are secured by the county's portion of infrastructure sales surtax revenues. The infrastructure surtax is a one-cent surtax levied by the county. Twenty-five percent of the tax proceeds are distributed to the Sarasota County School Board with the remaining proceeds divided between the county and its incorporated municipalities in accordance with an interlocal agreement that allocates revenues based on population.

The five cent local option fuel tax revenue bonds are secured by the county's portion of revenue produced by the five cents per gallon local option fuel tax levied in accordance with state statute and distributed to the county pursuant to an interlocal agreement. Collected revenues are divided between the county and its incorporated municipalities based on population.

The second guaranteed entitlement revenue bonds are secured by the county's second guaranteed portion of the Revenue Sharing Trust Fund for Counties, established by state statute.

The stormwater utility revenue bonds are secured by an irrevocable pledge of and lien upon the net proceeds of any and all special assessments against property benefited by the original project financed by the bond proceeds or any part lawfully levied and collected by the county. Pursuant to the bond resolution, the county agrees to levy for each bond year stormwater assessments in each stormwater improvement area in an amount sufficient to pay debt service coming due in the upcoming bond year.

CREDIT SUMMARY:

Sarasota County is located along the Gulf of Mexico in central Florida. The county is a popular winter destination for wealthy retirees with historic economic concentrations in health care and education. Economically sensitive tourism and real estate activity also account for significant portions of the economy causing the impact of the current recession to be greater on the county than in other regions. However, data suggests that effect to be moderating. The 12.5% unemployment rate for September 2010, remains above the national average but has increased only marginally since the 12.2% rate from a year prior. Additionally, housing data provided to Fitch shows signs of stabilization with declines in foreclosures, an increase in building permits and a leveling off of home prices in calendar 2010. Wealth levels remain well above average.

The county's financial position has been historically strong with conservative budgeting practices including the maintenance of designated reserves for economic uncertainty and hurricane relief which, when combined, require the county to reserve roughly 33% of annual spending. Both reserves are fully funded. Fiscal 2009 ended with a $58.3 million surplus, increasing the unreserved fund balance to a very high 61% of spending. Prior to fiscal 2010, the county decided to use a portion of reserves over the next few years to soften the impact of the recession on its residents. In fiscal 2010 the county opted to utilize some reserves rather than increase the millage rate to soften the impact of the recession on residents; estimated fiscal 2010 results show the use of approximately $14 million of reserves, which compares favorably to the projected $20 million use of fund balance at the time of Fitch's last rating and continues to provide ample financial flexiblity. The fiscal 2011 budget includes the use of an additional $14 million of reserves for recurring expenditures, which would reduce the unreserved fund balance down to a still robust 50% of spending. The county expects to accomplish structural balance over the next few years.

Overall debt levels are low and are expected to remain so given the county's stated debt and capital needs. The fiscal 2011-2015 capital improvement plan (CIP) totals $281.1 million and is fully funded. The plan is 37% debt funded. Upcoming debt plans include roughly $35 million for general government needs as well $40 million for the utility system.

DEBT SERVICE COVERAGE FOR SPECIAL TAX AND ASSESSMENT BONDS:

Debt service coverage of MADs remains sound for the CST revenue bonds following this issuance at 2.3 times (x) and incorporates a 4.7% revenue decline in fiscal 2010. Legal requirements are sound including a 1.35x additional bonds test. There is no debt service reserve for the current issuance. Currently outstanding parity series have debt service reserves fulfilled by sureties from Ambac.

Pledged revenues for the infrastructure sales tax and five cent local option fuel tax also exhibited moderate losses in fiscal 2010 of 1.8% and 2.2%, respectively. Coverage of MADs remained sound for both, however, at 1.8x for the infrastructure sales tax and 3.9x for the five cent fuel tax. The county reports that it will consider future leveraging of the infrastructure sales tax which may decrease coverage to a level inconsistent with the current rating level depending on future revenue trends and additional debt service requirements. Both securities require 1.35x coverage to issue additional debt. The infrastructure sales tax bonds have a cash funded debt service reserve while the debt service reserve for the fuel tax revenue bonds was fulfilled by a surety from FGIC.

Second guaranteed entitlement revenues are distributed to the county in a set amount month, in accordance with statute. Sarasota County receives $1,148,225 annually in second guaranteed revenues equal to 1.58x maximum annual debt service (MADS). Debt service is level. The final maturity of the bonds is October 2011. Legal requirements are below average requiring only 1.0x coverage for the issuance of additional debt.

For the stormwater assessment revenue bonds, the county has made a combination of extraordinary redemptions and calls over the life of the bonds to shorten the final maturity from the original date of Oct. 1, 2019 to the current date of Oct. 1, 2016, while lowering future debt service requirements. The current amortization schedule shows level debt service of $1.2 million for the remaining maturities. While the county is legally required to levy assessments to provide revenue sufficient to attain 1.0x debt service coverage annually, it has historically levied a higher level, resulting in 2.2x coverage in fiscal 2010.

Additional information is available at www.fitchratings.com.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, LoanPerformance, Inc. and IHS Global Insight.

Applicable Criteria and Related Research:

'Tax-Supported Rating Criteria', dated Aug. 16, 2010;

'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566

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