2009-09-10 23:26:02 -

Fitch Ratings assigns an 'AA-' rating to Jacksonville, Florida's (the city) approximately $110 million in special revenue bonds, series 2009B.
Proceeds will finance various Better Jacksonville Plan (BJP) transportation capital needs. The bonds are expected to price the week of Sept. 21, 2009. Concurrently, Fitch affirms the city's $54.5 million in outstanding special revenue bonds at 'AA-'. The Outlook is Stable.

Fitch also affirms the 'AA' rating on the city's $534.4 million in BJP transportation revenue bonds. The Rating Outlook is revised to Stable from Negative.

The 'AA-' rating on the special revenue bonds is based on the strong coverage provided by a diverse mix of non-ad valorem revenue sources from which the city covenants to budget and appropriate debt service (CB&A)

as well as general credit characteristics of the city including strong management, healthy financial position, and a diverse economy.
The bonds are payable from covenant revenues, subject to annual appropriation. Covenant revenues include all general fund non-ad valorem revenues. There is no lien on the non-ad valorem revenues, and several of the revenues have a prior lien from other securities, which is common with CB&A secured debt. Legal provisions under the covenant ordinance are sound and include a debt service reserve fund and an anti-dilution test.

Fiscal 2008 revenues cover maximum annual debt service (MADS) on all CB&A secured debt a strong 3.4 times (x). The city's projected issuance of approximately $97.5 million in parity debt later this fall is included in coverage calculations. Fiscal 2009 non-ad valorem revenues are projected to increase 5.8% from a year prior due to the implementation and increase in multiple fees. Fitch expects the city to further leverage the covenanted revenues over the next few years. While coverage is expected to remain high due to the government's reliance on these revenues for operations, substantial leveraging of the individual revenues could pressure the rating.

The 'AA' rating on the BJP transportation revenue bonds reflects sound debt coverage, adequate legal provisions and the general credit characteristics of the city. The bonds are secured by the city's half-cent local option transportation sales tax and constitutional fuel tax revenue on a subordinate basis to bonds issued by the State of Florida for the benefit of the Jacksonville Transportation Authority (JTA). The JTA has pledged under an interlocal agreement with the city not to incur additional debt senior to or on parity with the city's bonds. Coverage of annual debt service for fiscal 2008 remained ample at 2.55x while MADS coverage was lower but still adequate at 1.66x due to ascending debt service. MADS occurs in fiscal 2031. Fiscal 2009 year to date revenues are down 8.4% from a year prior through the first ten months of the year which, if annualized, would lower annual debt service coverage to 2.8x and MADS coverage to 1.52x.

The prior Negative Outlook reflected the city's prior plans to further leverage the security to the point where coverage levels may be inconsistent with the current rating category. The Outlook revision to Stable from Negative reflects the city's decisions not to further leverage the security and to authorize that the remaining $300 million of BJP projects, including $200 million of transportation projects and $100 million of additional projects, be financed through CB&A secured bonds, including the current issuance discussed above. In fiscal 2000, the city authorized $750 million in transportation projects and $1.5 billion in infrastructure sales tax projects over a 10-year period as part of the $2.25 billion Better Jacksonville Plan, a comprehensive capital program that will fund various infrastructure and economic development improvements with roughly $300 million of BJP projects left to be funded.

Located on the northeastern coast of Florida, Jacksonville is the most populous city in Florida; the 2007 estimated population was 805,605, an increase of 9.4% over the 2000 census figure. The city's diverse economic base has a strong long term profile bolstered by its historical naval presence, large cargo port with a natural river harbor, and major banking, insurance, health care, and manufacturing industries. While the effect of the current economic downturn has so far been less severe in the city than in other parts of the state, unemployment has increased to 10.9% in June 2009 from 6.2% a year prior.

Financial operations are strong resulting in operating surpluses in four out of the last five years. Unaudited fiscal 2008 results show a $14.2 million surplus driven by the implementation of an effective expenditure reduction program and additional fees instituted to offset the impact of recent property tax reform. The unreserved fund balance plus a $40 million emergency reserve held in the general fund equal a satisfactory 8.8% of spending. Estimates for fiscal 2009 year end indicate break even results.

Overall debt levels are moderate at 4.3% of taxable assessed value, or $3,215 per capita. The city's capital improvement plan (CIP) for fiscal 2009-13 is relatively small at $77 million, although it excludes all Better Jacksonville Plan (BJP) projects, which at $2.3 billion account for the majority of the city's capital needs. The CIP is fully funded and projects are concentrated in roads, accounting for roughly 50% of spending.

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