NEW YORK--()--As part of its routine surveillance efforts, Fitch Ratings has taken the following rating action on Hillsborough County, Florida's (the county) Tampa Sports Authority (TSA) bonds:
--$22.3 million Florida sales tax payments refunding revenue bonds (stadium project) affirmed at 'AA+'.
The Rating Outlook is Negative.
SECURITY
The bonds are secured by an annual $2 million distribution of sales taxes which are allocated from the state's 6% sales tax. The annual payments are equal to the debt service requirements. Pursuant to an interlocal agreement, the county is obligated to pay immediately all sales tax revenues distributed to it to the trustee on behalf of the TSA for the benefit of bond holders.
KEY RATING DRIVERS
RATING CAP: The rating is capped by the lower of the county general obligation (GO) rating or one notch below the state GO rating. The county is rated 'AAA' with a Stable Outlook and the state is rated 'AAA' with a Negative Outlook.
NEGATIVE OUTLOOK LINKED TO THE STATE: The Negative Outlook on the state sales tax revenue bonds reflects that of the state GO rating, reflecting concern regarding the state's ability to maintain a balanced budget and an adequate reserve position, along with the economy's ability to meet forecasted performance.
REMOTE RISK FOR PAYMENT ALTERATIONS: The rating incorporates the risk, albeit remote, that the state could alter the statute that provides for the allocation of this payment to the county.
COUNTY CREDIT CHARACTERISTICS: Credit characteristics of the county include strong financial management as evidenced by sound reserves, a diverse economy that anchors western Florida, and a moderate, stable debt burden coupled with a willingness to defer non-essential future capital funding.
STATE CREDIT CHARACTERISTICS: Credit characteristics of the state include sound and well-ingrained financial management practices, solid long-term economic prospects, moderate debt burden, and well-funded pensions, balanced against revenue sources vulnerable to declines in the rates of population growth and consumption activity.
WHAT COULD TRIGGER A RATING ACTION
NEGATIVE RATING ACTION ON THE STATE: A downgrade of the state's rating would result in negative rating action on this security.
CREDIT PROFILE
THE TSA
The TSA was created for the purposes of planning, constructing and maintaining sports and recreational facilities within the county. The board is composed of 11 voting members, with five each appointed by the county and the city of Tampa (implied GO bonds rated 'AA', Stable Outlook) and one appointed by the governor. The county and the city hold certain oversight powers, including the right to approve all TSA debt contracts and all nonbudgeted expenditures exceeding $100,000. The county and the city are obligated to pay a portion of TSA's operations and maintenance shortfalls. The TSA issued bonds in 1997, which were subsequently refunded, to finance construction of Raymond James Stadium. The TSA has operated the county-owned stadium since 1998.
STATE REVENUE SOURCE
The bonds are payable solely from an annual $2 million distribution to the county of state sales tax revenue, pursuant to Florida statutes, for maintaining a professional sports franchise. The county receives the annual fixed-dollar distribution from a portion of the 6% state sales tax, which is collected by Florida Department of Revenue. The distribution is payable for 30 years and runs through maturity of the bonds.
Coverage of maximum annual debt service (MADS) by the $2 million distribution is only slightly greater than 1.0 times (x), as is typical of debt secured by fixed sales tax distributions. Additional parity bonds are allowed to be issued as long as pledged revenues equal 1x MADS on all outstanding and proposed debt. Fitch believes that the slim current coverage will prevent any further leveraging of the security. The debt service reserve account is cash funded at 50% of MADS.
COUNTY-STRONG ECONOMIC BASE AND FINANCIAL MANAGEMENT
Located midway down the western coast of Florida, Hillsborough County serves as the economic center for Florida's Gulf Coast with major sectors in business services, government, health care, education and tourism. The county has begun to recover from the magnified effect of the recent economic downturn. The county's unemployment rate declined to 10.5% for September 2011 from its high of 12.8% in January 2010. Unemployment remains on par with the region and above that of the nation. Wealth levels hover around regional and national averages. Fitch believes that the county's underlying economic characteristics support favorable prospects for long-term economic growth.
The county consistently maintains a sound financial position with healthy reserves within prudent policy levels. Fiscal 2010 ended with an unreserved fund balance equal to 16.6% of spending. The merging of the constitutional officers fund into the general fund due to a new accounting treatment elevated spending booked to the general fund. Accordingly, the unreserved fund balance as a percent of spending decreased from 20.5% in fiscal 2009, despite the addition of $13.3 million to the unreserved fund balance. The county expects to increase fiscal 2011 total fund balance by $31 million, with positive operations largely attributable to expenditure controls.
The fiscals 2012 and 2013 budgets represent a prudent return to structural balance, and year-to-date fiscal 2012 results indicate revenue collections meeting the budget. In fiscal 2009, the county utilized a portion of its reserves to lessen service reductions in the context of a weakening revenue environment, structurally balanced the fiscal 2010 budget, but again used one-time revenues to offset declining tax collections in fiscal 2011. The fiscals 2012 and 2013 budgets do not utilize one-time revenues or reserves to fund recurring expenditures, even though this entailed unpopular program reductions. Fitch believes that implemented expenditure controls have not affected core services and that the county retains financial flexibility to respond, if necessary, to additional revenue declines.
County debt levels are expected to remain moderate in the foreseeable future. Overall debt equals 3.8% of taxable assessed value and $1,922 on a per capita basis. The county's fiscal 2012-2017 capital improvement plan (CIP) totals $550 million. The county is prepared to defer $128 million of projects for which revenue has not yet been identified. Pension and other post employment benefit (OPEB) obligations do not pressure the credit.
STATE-REVENUE PRESSURES
Florida's 'AAA' general obligation (GO) rating recognizes the state's strong financial management practices, moderate debt burden, well-funded pension system, solid long-term economic prospects, and still significant reserves, including various trust funds. The Negative Outlook reflects the severity of the state's economic and revenue decline as well as continuing uncertainty associated with the economic and revenue outlook.
Florida's revenue sources (primarily a sales tax, but also a documentary stamp tax in large part based on real estate transactions) have been especially susceptible to the state's steep housing market correction; the state has no personal income tax. The Florida legislature consistently and promptly addressed numerous large negative revenue estimate revisions during the downturn, maintaining budget balance and an adequate reserve position.
For more information on the state, please see Fitch's latest release dated Jan. 26, 2012. For more information on the county, please see Fitch's latest release dated Sept. 22, 2011. Both are available on Fitch's website at 'www.fitchratings.com'.
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, and the National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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