Fitch Affirms Maitland, FL's Issuer Default Rating at 'AA+'; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the city of Maitland, Florida's Issuer Default Rating (IDR) at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The IDR indicates the general credit quality of the city. Fitch does not rate any debt obligations of the city.

KEY RATING DRIVERS

The 'AA+' IDR reflects the city's very strong financial position and Fitch's expectations for continued financial strength despite weak revenue growth prospects. Historically stable general fund operations have resulted in ample general fund reserves, providing the city with a very high level of financial flexibility.

Economic Resource Base

Maitland is located in Orange County approximately 10 miles north of Orlando encompassing 6.5 square miles with a population of approximately 17,000.

Revenue Framework: 'a' factor assessment

The city's revenues are expected to remain fairly stagnant, though substantial flexibility to raise revenues remains due to the legal ability of management to increase taxes.

Expenditure Framework: 'aa' factor assessment

Low fixed costs and a favorable workforce environment allow the city to control expenditure growth to follow that of its revenue base.

Long-Term Liability Burden: 'aaa' factor assessment

The city's long-term liability burden is a low burden on resources, with the majority of total liabilities attributable to overlapping debt.

Operating Performance: 'aaa' factor assessment

The city's financial cushion is well maintained at levels far above the emergency reserve policy. Fitch believes that the city is exceptionally well positioned to maintain strong finances throughout the economic cycle.

RATING SENSITIVITIES

FINANCIAL MANAGAMENT: The rating is sensitive to the continued maintenance of sound financial practices and adequate financial flexibility in the form of reserves sufficient to offset weak revenue growth prospects.

CREDIT PROFILE

Despite its small area, the city's commercial base is significant. Maitland is characterized by a dominant suburban office market for the region. The commercial mix also features a number of hotels and restaurants, Florida Hospital, and a sports and training facility affiliated with the NBA's Orlando Magic. Economic activity is also driven by the leisure and hospitality sectors, with education and healthcare providing some diversity. City residents' educational attainment is nearly twice that of the nation with almost 60% of residents holding a bachelor's degree or higher.

The city's tax base was negatively impacted by the housing crisis, declining 23% between 2009 and 2013. Since then, taxable assessed value (TAV) has increased 11%. City management expects AV growth to continue as a result of the rebound of the local housing market and new developments coming on line in the near future. Despite continued growth, home values remain well below the 2006 peak.

Revenue Framework

Property taxes account for a third of general fund revenues and are the largest single source. This is followed by a mix of sales-based taxes, utility tax, and franchise fees that provide a stable though relatively flat source of revenues for the general fund.

While the mix of revenues provides some stability, general fund revenues increased only slightly over the last decade at a pace that is behind both U.S. economic expansion and inflation. The city's AVsremain well below pre-recession levels. The city is mature and minimal population growth is expected, leading to limited revenue growth prospects without revenue-raising measures.

Property taxes are subject to a state statutory limit of 10 mills (excluding voter millage for debt service). The city's non-voted tax rate of 4.15 mills allows for significant additional taxing flexibility. On an annual basis the maximum millage rate that may be levied is limited to a revenue neutral rate, adjusted for inflation. However, this maximum may be exceeded (up to the cap) by the vote of city council and is therefore under the city's independent control. The city also has the ability to raise fees and other service charges, including the fire impact fee, which Fitch expects will be raised to pay down a deficit in the fire impact fee fund from the fire station built in 2003.

Expenditure Framework

The city's largest expenditure is for public safety, which is about half of the city's general fund budget. Flexible workforce laws in the state allow significant control over headcount and wages, lending flexibility to the city, though management avoided significant spending reductions during the recession. Population growth in the city is not a pressure; the population increased about 8% from the 2000 to 2010 censuses, below the national rate of growth over this period.

Fitch expects the city's spending needs to slightly exceed stagnant revenue growth in the absence of policy action.

The city's fixed carrying costs are a relatively low 11% of governmental spending reflecting the minimal debt issued, history of making 100% of the actuarially determined contributions to pensions, and other post-employment benefits (OPEB) that are limited to an implicit subsidy.

Long-Term Liability Burden

The city's long-term liability burden is low at about 8% of personal income, primarily driven by overlapping debt of the county and school district. The city's 2016-2020 capital improvement plan is modest, with $6 million in general fund projects planned largely for a downtown revitalization project using pay-as-you-go financing. The city's public debt was fully refinanced with private bank notes in 2014; $25 million remains outstanding. The amortization schedule remains fairly slow with 41% of the debt retired within 10 years.

The city's primary pension expenditure is for police and fire retirees who are covered under a single-employer defined benefit pension plan administered by the city. At the most recent actuarial valuation dated Oct. 1, 2014, the city's defined benefit plan is funded at 78%, or an estimated 72% using Fitch's 7% rate of return. The city also participates in the Florida Retirement System (FRS), a statewide cost-sharing pension plan. On an actuarial basis, FRS reported a July 1, 2015 funded ratio of 87%; this figure drops to an estimated 81% using a 7% return assumption. The state legislature set employer contributions at the actuarial level in fiscal 2014 and 2015. The combined net pension liability of the plans is $10.5 million or just 1% of personal income.

OPEB is funded on a pay-as-you-go basis and provides an implicit rate subsidy to retirees hired after 1990. The unfunded accrued actuarial liability is a low 1.2% of personal income.

Operating Performance

A long history of mainly operating surpluses aided the buildup of reserves to very high levels that the city plans to maintain to offset tax base volatility and emergencies. General fund reserves at fiscal 2015 year-end equaled 78% of spending. Pressures from a downturn also could be mitigated through a combination of revenue-raising policy adjustments and expenditure flexibility remaining in the budget.

The city manages its budget conservatively, maintaining reserves proactively well in excess of their formal policy to keep 15% of governmental spending available for emergencies. This was the case throughout the recession when the city continued making full annual pension payments on an actuarially determined basis.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis and InvestorTools.

Applicable Criteria

U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478

Additional Disclosures

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005985

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Contacts

Fitch Ratings
Primary Analyst
Parker Montgomery
Analyst
+-1-212-908-0356
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Larry Levitz
Director
+1-212-908-9174
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Parker Montgomery
Analyst
+-1-212-908-0356
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Larry Levitz
Director
+1-212-908-9174
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com