Fitch Affirms at 'AA+' Manatee County, FL's Non-AV Bonds; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the 'AA+' rating on the following Manatee County, Florida (county) obligations:

--$99.4 million non-ad valorem revenue bonds.

Fitch also affirms the following Manatee Port Authority, FL (the port authority) ratings:

--$33.2 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 (NAV) 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 fund (DSRF).

The indenture does not create a lien on non-ad valorem revenues and the county's pledge is subject to the payment of essential services and obligations secured by specific non-ad valorem revenues.

KEY RATING DRIVERS

PRUDENT FINANCIAL MANAGEMENT: County financial operations are conservatively managed as evidenced by ample reserves and solid liquidity. The county has been using part of its extensive reserves to maintain critical levels of service but expects to achieve structural balance by fiscal 2018 or before. Reserves will remain well above the county's policy minimum of 20% of expenditures.

LOCAL ECONOMY EXPERIENCES HEALTHY RECOVERY: Economic drivers include a diverse mix of services, retail, manufacturing and tourism. Strong job growth, increasing housing values and expanding building permit activity are indicative of a strengthening recovery.

MODEST LONG-TERM LIABILITIES: The county's debt load is modest and carrying costs are light. Pension and OPEB liabilities are moderate and do not pressure spending.

NAV REVENUES PROVIDE SOLID MADS COVERAGE: Available NAV revenues of the county provide ample coverage of maximum annual debt service (MADS) of bonds secured by the county's CB&A. These revenues increased sharply in fiscal 2013.

PORT AUTHORITY BONDS AT 'AA+': The rating of 'AA+' on the port authority bonds is based on the county's CB&A to replenish any deficiencies in the DSRF. The CB&A is on parity with the county's NAV debt.

RATING SENSITIVITIES

LARGE FUTURE RESERVE DRAWDOWNS: Ongoing general fund deficits which significantly narrow current financial margins could lead to negative rating pressure.

SUBSTANTIAL LEVERAGING: Extensive additional leveraging of NAV bonds, reducing available NAV revenues for operations would be a credit concern.

CREDIT PROFILE

The county encompasses 740 square miles located in the central part of Florida's west coast. The city of Bradenton (implied ULTGO rating of 'AA') is the county's largest city and serves as the county seat. Population growth was brisk during the last decade, increasing at an average annual rate of 2%. The estimated 2013 population of 342,106 represents 6% growth since 2010. The county has a large retiree population with 25% of residents over 65 years of age, according to the U.S. Census.

WELL-MANAGED FINANCIAL OPERATIONS DESPITE PRESSURES

County finances are prudently managed, characterized by strong reserve levels and ample liquidity. In response to multiple annual declines in property tax revenues, the largest source of revenues, officials instituted cost-cutting measures including personnel and service reductions and reduced capital spending.

To avoid additional cuts to critical programs, management decided to use a portion of its exceptionally large reserves beginning in fiscal 2011. Consequently, the county has reported significant drawdowns in each of the past three fiscal years through fiscal 2013. The decline in fund balance aggregated to $29 million or 22% of the prior balance. Despite the drawdowns, reserves remain robust. Fiscal 2013 general fund balance of $100 million represents 45% of expenditures and transfers out. Unrestricted general fund balance accounts for a stout 37% of spending.

The fiscal 2014 budget benefits from a 3.8% increase in taxable assessed valuations, reversing a five-year downward trend. Increased revenues were partially offset by salary increases and modest growth in personnel. A $14 million general fund operating deficit was budgeted. Officials are projecting a $7.4 million drawdown primarily due to better than expected revenues. The projected year-end general fund balance is $83.8 million or about 38% of general fund expenditures and transfers out.

The county's multi-year general fund forecast projects a $9 million deficit for fiscal 2015 followed by decreasing operating deficits in fiscals 2016 and 2017 before finances stabilize in fiscal 2018. The total aggregate planned additional drawdown of fund balance over this period is approximately $17 million. Under this scenario, unrestricted fund balance would be maintained at over 25% of spending. Not included in the projections is $11.5 million of reimbursements for prior capital spending to the general fund expected in fiscal 2015. This infusion would bring unrestricted fund balance up above 30% of expenditures. Fitch expects management to maintain reserves markedly above the county's minimum target balance of 20% of expenditures, even if anticipated tax base growth fails to materialize. Fitch also notes that actual results have historically outperformed county budgets and financial forecasts.

DIVERSIFIED ECONOMY EXPERIENCING 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. The economy is experiencing a strong recovery after losing nearly 14% of its employment base between 2006 and 2010. Since then, employment has expanded every year, aggregating to a 10% increase in jobs through 2013. The upward trajectory has continued into 2014. June 2014 employment was up 4.5% over June 2013 levels, pushing unemployment rates down to 6% from 7.5% the year before.

Manufacturing and construction sectors have been important drivers of these job gains. Air Products, an energy technology company, recently opened a manufacturing facility within the county. The presence of Port Manatee, Florida's fifth largest deep-water seaport adds to local economic activity, although volume at the port has declined in recent years.

A number of area manufacturing firms have expanded during the past 12 to 18 months and fiscal 2014 11 month combined residential and commercial building permit values are up 15.1% over fiscal 2013 permit activity. Tourism has also experienced a strong season with year-to-date fiscal 2014 hotel tax collections up nearly 15% over fiscal 2013 totals. Housing values declined by over 50% from the peak in 2006 through December 2011 but have since increased by about 33%, according to Zillow.com. Valuations were up 12% year over year as of the end of August.

TAXABLE VALUES REBOUND

Tax base losses reversed in 2013 with county-wide assessed values gaining 3.8% after dropping 33% between fiscals 2008 and 2013. Valuations grew an additional 7.4% in fiscal 2015, suggesting an accelerating growth trend. Fitch believes taxable values will continue to expand given the recent positive trends in both jobs and housing and improving affordability of homes. Wealth levels exceed the Florida averages but fall short of the national benchmarks. The county's poverty rate has inched up since 2008 but remains below those of the state and nation.

MODEST LEVERAGE

Debt indices relatively low with debt to full value of 1.4% and debt per capita of $1,310. The county relies primarily upon debt secured by its CB&A rather than general obligation bonds. Amortization is aggressive with 66% of principal retired within the next 10 years. Despite that, carrying costs for debt service, pensions, and OPEB are affordable, representing a modest 10.4% of general government spending. The county's capital needs are manageable and tax-supported debt plans over the next few years include several modest issuances secured by the county's CB&A.

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) of which nearly all county employees are members. The county's fiscal 2013 contribution totaled $13.7 million, which represented a small 4% of general government spending.

Retired employees also have the opportunity to participate at a subsidized rate 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 subsidy is funded on a pay-go basis. Fiscal 2013 contributions totaled $2.2 million. The county's unfunded accrued actuarial liability as of fiscal 2013 of $160 million represented just 0.5% of full value. The county has been increasing the proportion of health insurance premium costs paid by the retirees. This has reduced the number of retirees on the county's health plan by over 20% since fiscal 2011.

STRONG MADS COVERAGE FROM RECURRING NAV REVENUES

CB&A MADS coverage from available recurring NAV revenues, including an amount which would be required to refill the port authority bonds' debt service reserve is robust at nearly 6.0x. Taking into account essential service expenditures which must be funded ahead of debt service, MADS coverage remains satisfactory at 1.50x MADS. Additional available funding sources include sizable unrestricted reserves in the general fund totaling over $80 million.

The county's NAV 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 NAV revenues grew a healthy 6.5% in fiscal 2013, the third straight year of growth, after four consecutive years of recession-induced declines totaling 14%. The recent gain was driven primarily by increases in service charge revenues and inter-fund transfers.

PORT AUTHORITY BOND RATING BASED ON CB&A PLEDGE

The port authority bonds are first payable from authority net revenues and then backed by the county's CB&A pledge, on parity with the county's own NAV bonds, to replenish any draws from the cash-funded DSRF. The CB&A DSRF deficiency make-up provides the ultimate credit support for bond repayment given thin debt service coverage from authority net revenues. Although the DSRF has never been drawn upon, net revenues from port operations have been volatile and several years ago dipped below 1.0x coverage of debt service.

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, Zillow.com, National Association of Realtors, U.S. Census.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;

--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14, 2012.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=885914

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Contacts

Fitch Ratings
Primary Analyst
Larry Levitz, +1 212-908-9174
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi, +1 212-908-0833
Senior Director
or
Committee Chairperson
Amy Laskey, +1 212-908-0568
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Larry Levitz, +1 212-908-9174
Director
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Michael Rinaldi, +1 212-908-0833
Senior Director
or
Committee Chairperson
Amy Laskey, +1 212-908-0568
Managing Director
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com