Fitch Affirms Various Tamarac, FL Ratings; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings has affirmed the following ratings of Tamarac, FL (the city):

--$0.7 million general obligation (GO) bonds, series 1998 at 'AA';

--$13.5 million capital improvement bonds, series 2005 and series 2013 at 'AA-';

--$3.5 million sales tax revenues bonds, series 2009 at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are general obligations of the city for the payment of which the city's full faith and credit and unlimited taxing power are irrevocably pledged.

The capital improvement revenue bonds are payable from the city's covenant to budget and appropriate (CB&A) available non-ad valorem (NAV) revenues in its annual budget.

The sales tax revenue bonds are payable from a first lien secured by the half-cent local option sales tax as well as a covenant to budget and appropriate NAV revenues to pay debt service.

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE: The city demonstrates sound financial management, as evident in its conservative budgeting, consistently positive operating results, and robust reserves.

LIMITED ECONOMY: The city is primarily residential with modest economic development opportunities. Income levels are below average and the tax base experienced significant volatility during the recession.

LOW DEBT; AFFORDABLE CARRYING COSTS: The long-term liability profile is characterized by low debt ratios, satisfactory pension funding progress and manageable carrying costs. A significant portion of the direct debt is in the form of variable-rate line of credit.

CB&A RATING: The capital improvement bonds rating is based on the city's general credit quality; a one-notch distinction from the GO rating reflects the absence of a specific lien on revenue and bondholders' inability to compel the city to generate sufficient NAV revenue to pay debt service.

SALES TAX BOND RATING: Fitch views the sales tax pledge and the secondary CB&A as providing similar levels of credit quality. If the creditworthiness of the securities were to diverge, the rating on the bonds would reflect the higher of the two securities.

RATING SENSITIVITIES

FINANCIAL STRENGTH: Fitch expects the city to retain a sound financial position and solid reserves to counterbalance concerns over its limited economy and volatile tax base, credit factors that Fitch believes limit the ratings to their current levels.

CREDIT PROFILE

Tamarac, with a population of approximately 63,000, is located in northwest Broward County, about 14 miles northwest of Fort Lauderdale. The city was created as a retirement community and remains primarily residential (68% of total assessed value) despite recent diversification.

VOLATILE TAX BASE; BELOW-AVERAGE SOCIOECONOMIC INDICATORS

The city's tax base was highly vulnerable to the economic downturn. Taxable assessed value (TAV) halved from fiscal 2008 to 2011, from $4.6 billion to $2.3 billion. Despite some recent recovery (4% and 7% increases in fiscal 2014 and 2015, respectively), TAV is still 40% below its 2008 peak. Fitch believes future growth will be at a modest pace.

Income levels are below average, with median household income at 93% and 82% of state and national levels. Poverty rates are slightly more favorable.

The city's population growth over the last decade was on par with the nation's (0.9% annually), but lower than the state's (1.6%). The largest employers include a call center, retailers, and healthcare providers. The city's unemployment rate compared unfavorably to state and national averages during the recession, but has since improved and is back at an average level relative to the state and U.S.

SATISFACTORY NAV PERFORMANCE

Sales tax revenues grew at 5.7% annually on average between fiscal 2011 and 2014. As a result, maximum annual debt service (MADS) coverage on sales tax revenue bonds in fiscal 2014 was a sound 1.7x, which means the pledged revenue can withstand a 41% decline while still meeting MADS. In comparison, during the past recession, the peak to trough (2006-2010) sales tax revenue decline was 18.2%.

Similarly, NAV revenue increased at an average annual rate of 5.1% from 2011 to 2014, and represents a significant resource to cover debt service on the outstanding capital improvement revenue bonds. In fiscal 2014, MADS on total debt with a NAV pledge was $5.3 million (including $2.2 million sales tax revenue bonds MADS), compared with an estimated NAV of $12.8 million after taking into account general government and public safety expenditures. NAV revenues are diverse but economically sensitive, including sales and various taxes (46%) and intergovernmental transfers (21%).

STRONG FINANCIAL PROFILE

The city continues to produce operating surpluses and add to reserves as revenue prospects improve. Fiscal 2014 ended with a $28.6 million unrestricted general fund balance, or a high 58.6% of spending, according to unaudited results. The fiscal 2015 budget currently projects a $1.8 million deficit, or 3.4% of spending. Given the city's track record of outperforming its budgets, Fitch expects any actual deficit to be modest, with minimal if any impact on high reserve levels.

The city benefits from a relatively diverse revenue stream, led by property tax revenues (over 35% of total revenues) and complemented by sales tax revenues (8%) and other taxes (17%). The city has been able to increase its property tax rate by 43% since 2008 to partially offset the dramatic tax base loss, lending stability to city finances. The current rate of 7.3 mills provides an adequate level of flexibility under the statutory 10-mill cap.

Public safety is the city's largest expenditure category. The city contracts out police service to Broward County under a 5-year agreement, which is subject to renewal soon. Its labor negotiation with firefighters will also start soon. Fitch's ratings assume that the city will exercise sufficient cost control to ensure structural balance, as it has done during the recession.

LOW DEBT; VARIABLE-RATE EXPOSURE

Overall debt ratios are low at $766 per capita or 1.1% market value. Potential new debt issuance in the next two years likely will not materially impact the debt profile.

The city continues to utilize a $20 million interest-only variable-rate line of credit with PNC bank, with a current drawdown of $17 million. The current level represents a substantial 41% of the city's direct debt. Under the current terms, the line of credit will automatically convert into a 7-year amortizing term loan in October 2016 to bear either a fixed or variable rate, at the city's option.

SATISFACTORY PENSION FUNDING PROGRESS; AFFORDABLE CARRYING COSTS

Tamarac operates four single-employer defined benefit pension plans. The combined funded ratio in 2013 was 76%, a significant improvement from 64% two years ago. The city has successfully negotiated employee contribution rate increases and has been funding its pension plans at levels above the annually required contribution (ARC), and plans to continue doing so to reduce future ARC and pension liabilities.

The city pay-go funds other post-employment benefits (OPEB) with an UAAL of $2 million (less than 0.1% of market value). Total carrying costs (debt service, pension ARC and OPEB pay-go) were an affordable 17% of governmental spending in fiscal 2014, which is expected to increase moderately once the line of credit begins amortizing.

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, and Zillow.

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:

Tax-Supported Rating Considerations for 2010

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=500988

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=980345

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Contacts

Fitch Ratings
Primary Analyst
Yueping Liu
Analyst
+1-415-732-5629
Fitch Ratings, Inc.
650 California Street4th Floor,
San Francisco, CA 94108
or
Secondary Analyst
Michael Rinaldi
Senior Director
+1-212-908-0833
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Yueping Liu
Analyst
+1-415-732-5629
Fitch Ratings, Inc.
650 California Street4th Floor,
San Francisco, CA 94108
or
Secondary Analyst
Michael Rinaldi
Senior Director
+1-212-908-0833
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
New York
elizabeth.fogerty@fitchratings.com