Fitch Affirms Volusia County, FL's Limited Tax GOs and Outstanding Revs; Outlook Stable
NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the ratings on Volusia County, Florida's (the county) bonds as follows:
--$23.0 million limited tax general obligation (LTGO) bonds, series 2005 at 'A-';
--$3.0 million gas tax revenue bonds, series 2004 at 'A+';
--$55.4 million tourist development tax (TDT) revenue bonds, series 2004 at 'A'.
In addition, Fitch has affirmed the county's implied general obligation unlimited tax (GOULT) rating at 'AA'.
The Rating Outlook is Stable for all bonds.
The limited tax general obligation bonds (LTGO) are secured by the levy of a limited ad valorem tax not exceeding 0.2 mills against all taxable property within the county. Neither the full faith and credit nor the unlimited taxing authority of the county is pledged to bondholders.
The gas tax revenue bonds are secured by a pledge of the first 6-cents of the local option fuel tax (LOFT) levied and received by the county pursuant to state law. The bonds are additionally secured by a surety-funded debt service reserve fund (DSRF).
The tourist development tax (TDT) revenue bonds are secured by a pledge of a 3% countywide tax on hotel rooms, mobile homes, and other short-stay residences. The bonds are additionally secured by a surety-funded DSRF.
KEY RATING DRIVERS
IMPLIED GOULT RATING CONSIDERATIONS: Volusia County has an extended history of sound financial operations that contribute to strong reserves and liquidity. Debt levels are low and future capital needs manageable. The local economy is heavily influenced by tourism and retail activity, and is now recovering from significant stress from the fallout of the housing market. Income levels are below-average.
LTGO COVERAGE NARROW: Coverage of the LTGO bonds from the maximum millage rate pledged to bondholders is relatively narrow at an estimated 1.4x in fiscal 2014, reflecting the significant declines in the county's tax base in the recession.
SATISFACTORY TOURISM TAX COVERAGE: Pledged revenues have been stable over the prior two years with fiscal 2012 collections providing 1.56x coverage of MADS. Coverage levels are exposed to the volatile nature of discretionary travel and high degree of competition for tourism spending. No additional leveraging is anticipated.
GAS TAX REMAINS ADEQUATE: Gas tax revenue declines have been steady but more moderate compared to the TDT. Fiscal 2012 receipts provide coverage of 1.48x MADS. Gas tax revenues remain susceptible to economic factors in much the same way as the TDT, although the essential nature of the commodity tempers this risk.
TDT AND GAS TAX DILUTION: Existing coverage levels for the TDT and gas tax revenue stream do not support any meaningful amount of additional debt at the respective rating levels.
Volusia County is located on Florida's central Atlantic coast and includes the cities of Daytona Beach, New Smyrna Beach, and Port Orange. The 2012 population was 496,950.
SATISFACTORY GENERAL FUND OPERATIONS
At the close of fiscal 2012 the general fund reported an unrestricted fund balance of $47.8 million or 25.1% of total spending (the sum of operating expenditures and transfers out), a moderate $3.6 million decline (1.9% of spending) from the prior year. The county's formal reserve policy sets aside 5% to 10% of current revenue for emergency purposes (this reserve is not available for recurring spending). Similar reserve policies are established for other governmental fund types (library, fire services, etc.) providing a safety net to respond to unanticipated changes in revenue or expenses. Reflected in the nonspendable balance of the general fund is an $11 million advance to the Volusia Forever fund used to finance the purchase the 4,806 acre Deep Creek Reserve, which is being paid back through 2021 from excess of the .2 mills pledged to the LTGO bonds.
The fiscal 2013 general fund budget included no salary increase, no tax rate increase and was essentially balanced. Unaudited fiscal 2013 statements are not available, but officials expect better than budget results with an increase in total general fund balance of as much as $3 million to $4 million.
The adopted fiscal 2014 budget includes $42.5 million of existing fund balance as revenue and on the expenditure side appropriates $41.9 million towards several reserves which in sum total 18% of expenditures. State law requires counties to budget 95% of anticipated revenue. The property tax rate increased 6% in fiscal 2014 to maintain services. On the expenditure side, 26 positions were cut or frozen and salaries were increased 3%. The general fund budgeted expenditures for capital needs totals $1.1 million.
AFTER STEEP DECLINE, TAX BASE SHOWS FIRST YEAR OF IMPROVEMENT
Property tax revenues account for 80% of general fund revenue and the taxbase declined, from peak to trough, a sizable 43.7% during the recession. The resultant declines in general fund revenues necessitated a combination of tax rate increase and workforce reductions. After six years of declines, taxable assessed values grew 2.4% in fiscal 2014 and are estimated by the county to increase 2.5% in fiscal 2015. The county's fiscal 2014 operating tax rate of 6.87 mills (a 6% rate increase) remains well within the statutory 10-mill cap, and is generally competitive when compared to other counties in the region. Total market value of real property was $36.2 billion in fiscal 2014.
STABILIZATION OF TAXBASE BENEFICIAL TO LTGO SECURITY
In fiscal 2012, the LTGO's pledged 0.2 mills generated $4.6 million, providing 1.35x coverage of MADS. The fiscal 2014 millage levied for debt service is 0.1453 or 72.7% of the 0.2 mills pledged to repayment of the LTGO bonds. The maximum 0.2 mills is budgeted to generate approximately $4.57 million or 1.39x coverage of MADS based on the fiscal 2014 TAV of $24.22 billion and a 95% collection rate. TAV could fall 27.8% before coverage falls below 1.0x. Given the modest taxbase improvement in fiscal 2014 and prospect of further growth, erosion of debt service coverage is not anticipated. Additional borrowing is not authorized. The bonds are not secured by a debt service reserve fund (DSRF).
STILL SATISFACTORY COVERAGE FROM GAS AND TDT REVENUE
Pledged TDT revenues grew a favorable 6.9% in fiscal 2012 after being flat for the previous three fiscal periods. TDT revenue of $7.3 million in fiscal 2012 was equal to 1.56x MADS. Unaudited figures for fiscal 2013 indicate healthy 5.6% growth. Revenues peaked in fiscal 2007 before revenue declined 15.5% in aggregate. TDT revenue would have to fall 36% before coverage falls below 1.0x. Employment levels within the leisure and hospitality sector are up a very favorable 4.0% from the year prior in October, well outpacing the sector growth statewide and nationwide.
Gas tax revenue grew minimally in fiscal 2012 after an 8.9% peak to trough decline. Fiscal 2012 pledged revenues of $7.25 million provided 1.48x coverage of debt service. The final maturity of Fitch-rated gas tax bonds occurs in 2014 as the balance of the gas tax bonds were refunded with a privately placed issuance.
LOW DEBT AND MANAGEABLE CAPITAL NEEDS
Debt ratios remain very low on an overall basis, with $348 million in net overall debt equal to 0.8% of market value and $700 per capita. The fiscal 2012 general government tax-supported debt service of $23.3 million is equal to a modest 6.1% of general government spending. The rapid pace at which the county repays its outstanding debt (70% within 10 years) further tempers the county's debt service burden calculation.
The county's most recent capital improvement plan (CIP) identifies a moderate $137 million in capital needs for fiscal years 2014 to 2017. The dominant expenditure needs are for transportation projects and water and sewer projects. The county has no exposure to variable rate debt or derivatives.
Long-term liabilities related to pension and other post-employment benefits (OPEB) are manageable. The county participates in the Florida Retirement System, a relatively well funded statewide defined benefit pension plan. The county's fiscal 2012 contribution was $16.1 million. Total county carrying costs (debt service, pensions and OPEB) are a moderate 11.0% of total government expenditures. The OPEB unfunded accrued liability is $15.7 million.
Growth in sales taxes, hotel/motel taxes and gas taxes are all indicators of increasing activity in the tourism based economy. Airline traffic has seen strong growth, another indicator of positive tourism activity. The county is home to the Daytona Beach International Speedway, where popular NASCAR events including the Daytona 500 and the Coke Zero 400 auto races, are held annually. In 2013 the speedway broke ground for a $400 million expansion. Other recent major development announcements include two hotel/condominium related projects, valued at $100 million and $150 million.
Unemployment in the county as of October 2013 was 6.5%, below the national rate of 7.0%. Income levels are below average, reflecting the prevalence of lower paying service industry jobs related to the county's tourism market. Poverty levels approximate the national average.
The single largest employer within the county is the county school district (8,917). Other major employers include Florida Hospital (3,723), Halifax Health (4,037), and Embry-Riddle Aeronautical University (1,125).
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:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria