NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the following bonds for Bradenton, Florida (the city):
--$16.9 million special obligation revenue bonds, series 2007 at 'AA-';
--$5.3 million increment tax revenue bonds, series 2011 (downtown redevelopment area riverwalk project) at 'AA-' issued by Bradenton Community Redevelopment Agency.
--Implied general obligation bonds (GO) at 'AA'.
The Rating Outlook is Stable.
SECURITY
The tax increment bonds are secured by a lien on tax increment revenues, with the provision that the revenue pledge is junior to the Community Redevelopment Agency's (CRA) obligation under the county administration center interlocal agreement. As additional security, should the increment tax revenues be insufficient, bonds are secured by the city's covenant to budget and appropriate (CB&A) non-ad valorem (non-AV) revenues.
The special obligation bonds are secured by a first lien on state sales tax rebate grants distributed under the retained spring training franchise incentive program (the pledged revenue). In addition, the city has covenanted to appropriate in its annual budget non-ad valorem revenues in an amount sufficient to pay debt service on the bonds and fund any debt service reserve fund (DSRF) deficiency, after taking into account the pledged revenue.
KEY RATING DRIVERS
STELLAR FINANCIAL POSITION: The city's finances are characterized by historically elevated reserves and high levels of liquidity. Management has displayed its willingness to raise property taxes to partially offset tax base declines.
CYCLICAL LOCAL ECONOMY: The economy, traditionally reliant upon agriculture and tourism, suffered severe job losses and high unemployment during the past recession. While the economy is recovering, employment remains well below prior levels. Low wealth indices and an aging population may hinder further diversification.
REVENUE BONDS RATINGS BASED ON CB&A: The rating on the CRA tax increment bonds and special obligation bonds is based on the city's CB&A. Legally available non-AV revenues provide solid coverage of all obligations secured by this pledge, including the special obligation and tax increment revenue bonds.
RATING SENSITIVITIES
DOWNTURN IN NON-AV REVENUES: Significant reductions in non-AV revenues could lead to negative rating pressure on the CRA tax increment bonds and special obligation bonds.
ONGOING TAX BASE DECLINES: Continued drop-off in taxable values may lead to a downgrade of the city's ratings.
CREDIT PROFILE
The city is located on the west coast of Florida, in Manatee County (GO bonds rated 'AAA', Stable Outlook), approximately 40 miles south of Tampa. Encompassing approximately 15 square miles, the city is relatively mature with an estimated population of 50,200.
ECONOMIC RECOVERY GAINS STRENGTH
The city's economy is somewhat limited, due to some reliance upon agriculture and tourism. However, other sectors including education, health care, retail and manufacturing provide some diversity. The leading employer is the Manatee County school board with 5,200 employees (representing over 25% of total city employment).
After a period of rapid growth, the city's economy was hard hit by the recession, experiencing significant job losses and precipitous declines in housing values. The city's unemployment rate topped 12% in 2010 and Manatee County housing values fell by over 50% from peak levels in 2006. Post-recession recovery, beginning in 2011, has been modest but has been gaining traction over time.
Employment increased a healthy 3.4% in 2012 and March 2013 jobs exceeded March 2012 levels by 1.4%. Increasing tourist traffic, bolstered by an improving U.S. economy and the opening of the city's Riverwalk, has also contributed to the economic revival. Home values as of March 2013 are up 8.7% over the prior year according to Zillow.com, but growth remains tentative as values have only recently moved up.
The uptick in housing values is not yet reflected in the tax base. Taxable values have declined continuously since fiscal 2008, dropping by about 40% in total. Recently, the pace of decline has slowed noticeably and officials expect to see some growth within the next year, which Fitch believes is reasonable given other positive economic signals.
Wealth indices are low with per capita income levels at 87% and 83% of the state and national averages, respectively. Population growth has been static and the percentage of residents over 65 years old is higher than the Florida norm.
ALREADY HIGH RESERVES BOOSTED BY GASB 54 MERGERS
The city's financial profile is stellar-- characterized by substantial reserves and high levels of liquidity. The city has historically maintained large fund balances to account for the risk of storm damage stemming from its location along the Gulf of Mexico. Unreserved general fund balance averaged about 50% of expenditures between fiscals 2008 and 2010. In fiscal 2011, the city merged many of its special revenue funds into the general fund to comply with GASB 54. This change added nearly $21 million of reserves to the general fund. Fiscal 2012 unrestricted general fund balance of $38 million represented 108% of spending.
MANAGEMENT MEASURES TO MAINTAIN FISCAL BALANCE
Management has been able to maintain ample reserves despite the effects of the recession through the implementation of a series of property tax increases and spending adjustments including position reductions and across-the-board budget cuts. Between fiscals 2007 and 2012, full time equivalent employees fell by 71 positions or over 12%. As a result, general fund operating expenditures contracted by 12% between fiscals 2008 and 2011--enabling the city to report relatively balanced operations over that period.
For fiscal 2013, the city budgeted a 3% increase in employee salaries, the first increase in five years, to offset the 3% employee funding requirement instituted last year for the Florida Retirement System. Based on year-to-date actual results, officials project a very modest year-end general fund deficit.
DEBT LOAD IS NOT A COST PRESSURE
City direct debt levels are low at 0.8% of market value and $564 per capita, but the debt burden trends towards moderate when overlapping debt of the county and school board are considered. All of the city's debt is backed by non-ad valorem revenues. Principal amortization is somewhat slow with 44% of principal retired within the next ten years. There are no plans for additional bonding for the foreseeable future as capital needs are funded on a pay-go basis.
The city has variable rate and associated swap exposure on four bond issues. Three of those issues (with $6.5 million outstanding) financed a parking garage at the county judicial center and are being paid by the county. The swaps do not expose the city to basis risk and Fitch considers the swaps' negative fair value of $1.6 million to be manageable given the city's extensive reserves.
RETIREMENT LIABILITIES ARE MANAGEABLE
General employees of the city participate in the Florida Retirement System (FRS), the multiple-employer cost-sharing plan administered by the state. The city maintains separate plans for firefighters and police officers. The firefighters and police officers' plans not well-funded at 67.4% and 76.4%, respectively (61% for the firefighters' plan and 69% for the police officers' plan, using Fitch's more conservative 7% discount rate). In 2012, the city increased the firefighters' percentage contribution from 7% to 8% of earnings with further increases scheduled for 2013 and 2014; Fitch expects these measures will improve the plan's level of funding.
The city has recently instituted measures which have reduced its other post-employment benefit (OPEB) liability. Actions taken include eliminating the city's subsidy for retiree health care for new employees, increasing employee contributions, and mandating that Medicare-eligible employees enroll in Medicare parts A & B. As a result of these changes, the OPEB plan's actuarial accrued liability (AAL) fell from $62 million in fiscal 2009 to $21 million in fiscal 2011 and is expected to decline further. The city has yet to establish an OPEB trust. The city's fiscal 2012 carrying cost (combined debt and benefit contributions) was moderate at 20% of governmental spending.
NON-AV REVENUES PROVIDE SUFFICIENT COVERAGE
Non-AV revenues include utility taxes, half cent sales tax receipts and service charges. These revenues dropped 15% between fiscals 2007 and 2010 but have since stabilized. Despite the decline, debt service coverage remains solid. Fiscal 2012 available non-AV revenues cover MADS on all CB&A secured debt (including the special obligation and tax increment bonds) by 1.8x. Excluding an unusually large principal maturity in fiscal 2027, coverage jumps to nearly 3.0x. An anti-dilution test and a cash-funded reserve provide additional security.
TAX INCREMENT REVENUES COVER DEBT SERVICE
The primary source of repayment on the tax increment bonds is the CRA tax increment revenues. Increment revenues levied by the city and county are derived from a 536 acre portion of the downtown section of the city. The tax increment revenues attributable to the county levy are subject to a prior lien until early 2017, leaving only the city's share to pay debt service during this period. Accordingly, the tax increment bonds have been structured as interest-only until the September 2017 bond payment. The city's non-AV pledge is triggered only if tax increment revenues are insufficient to pay debt service in any year.
Tax increment revenues amply cover debt service requirements despite recent declines. Fiscal 2012 tax increment revenues provided 5.1x coverage of MADS while the city's share alone covered MADS by 2.25x. MADS occurs in 2031, well after the expiration of the prior lien on the county's share of tax increment revenues. A 1.50x additional bonds test limits the issuance of additional tax increment bonds.
SALES TAX REBATE SUPPORTS BOND PAYMENTS
The special obligation bonds are secured by a first lien on state sales tax rebate grants, and the CB&A. The grants are distributed by the state to certified local governments for the purpose of constructing or renovating spring training facilities. Distributions consist of monthly payments of $41,667 ($500,000 annually) for 30 years, equal to the life of the bonds. The sales tax covers only about 45% of debt service on the special obligation bonds, with the CB&A covering remaining annual debt service requirements. A cash-funded debt service reserve further secures the bonds.
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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors,
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=792012
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