2008-11-21 23:12:03 -
Fitch assigns an 'AA' rating to Sarasota County, Florida's approximately $69.2 million infrastructure sales surtax revenue bonds series 2008B. The bonds are scheduled to sell via negotiation the week of Dec. 1, 2008. Proceeds for the bonds will be used to fund general government capital improvement needs.
Fitch also affirms the 'AA' rating on the county's approximately $74.0
million of outstanding infrastructure sales surtax revenue bonds. Additionally, Fitch withdraws the 'AA' rating assigned to Sarasota County's estimated $10.3 million infrastructure sales surtax revenue bonds, series 2008B on Sept. 10, 2008. These bonds were originally scheduled to sell the week of Sept. 8, 2008. Fitch's action follows the county's decision to postpone the sale due to market conditions until the current time. The Rating Outlook is Stable.
The 'AA' rating is based on the sound debt service coverage from pledged revenues, solid legal provisions, and the general credit characteristics of the county which include strong management, sizeable reserves, high wealth levels, and a low debt burden. The rating also incorporates planned further leveraging of the security. Credit concerns include the significant downturn in the local housing market, the negative trend in sales tax receipts, the increasing jobless rate driven largely by the contraction in homebuilding, and the affects of recent Florida property tax reform.
However, Fitch notes that the county's reserve levels provide considerable financial flexibility to mitigate investment and housing market-related pressures and the affects of Florida's Amendment One. In addition, the county participates in a securities lending program, permitted under its revised investment policy, and recorded a sizeable unrealized loss for year-end FY 2008.
The bonds are secured by a 1% discretionary local infrastructure sales surtax that was reauthorized by voters in 2007 and is valid through December 2024, two months after the final maturity of the series 2008B bonds. County voters approved an additional authorization in May 2008 to issue up to $300 million in infrastructure sales surtax bonds. The referendum allows the county to bypass its county charter debt ceiling of $20.7 million per issuance for non-voter authorized projects. Both referenda passed with strong support of 67% of voters. Legal provisions are solid requiring historical pledged revenues to cover maximum annual debt service (MADS) 1.35 times (x) for the issuance of additional bonds. On a pro-forma basis, MADS coverage by audited fiscal 2007 infrastructure sales surtax receipts on this issuance and outstanding parity debt is a sound 2.36x. Fiscal 2008 revenues declined 9.2% from fiscal 2007 levels driven largely by the downturn in construction and general economic conditions. However, projected MADS coverage for fiscal 2008 is still healthy at 2.14x. The county plans to issue an additional $64.7 million in infrastructure sales tax revenue bonds over the next three years although the issuance level may depend on future sales tax trends; the county has budgeted revenues to increase by $2.5 million in fiscal 2009 which may be optimistic. MADS coverage on this issuance and all anticipated debt remains adequate at 1.41x based on projected fiscal 2008 revenues.
Sarasota County is located along the Gulf of Mexico in central Florida. Incorporated municipalities include the cities of Sarasota (general obligation [GO] bonds rated 'AA' by Fitch), Venice (GO rating of 'AA' by Fitch), North Port (sales tax bonds rated 'A' by Fitch), and the Town of Longboat Key (not currently rated by Fitch). The county is a popular winter destination for wealthy retirees and the local economy is fueled by the health care and professional services industries.
Assessed property value (AV) for the county increased precipitously through the early portion of the decade rising over 260% between fiscal 2000 and fiscal 2008. However, the affects of the national housing downturn have been amplified in Sarasota County over the past year. Fiscal 2009 AV declined 15.2% due to a combination of weakening housing values and Amendment One. Building permits for fiscal 2008 declined 74% from fiscal 2006 levels and 35% from fiscal 2007. The county also reports a 500% increase in foreclosures since the peak of the housing market. County unemployment has increased to 7.6% in September 2008 from 5.1% a year earlier. Wealth levels remain very high with per capita income at 143.7% of the state and national averages.
The county's financial position has been strong historically and remains so on an unaudited basis for fiscal 2008 despite a $47 million unrealized loss in the general fund to reflect investment losses in the securities lending program. A large general fund surplus of $12.8 million in fiscal 2007 boosted available reserves to $96.8 million, equal to a strong 32.2% of general fund spending. Results for fiscal 2008 suggest a large $45 million operating surplus but actual balances are expected to decline slightly - $3 million - as a result of recording losses associated with the securities lending program. The majority ($35 million) of the losses are associated with Lehman Brothers which declared bankruptcy in September; the timing and amount of recovery of these losses is uncertain and subject to bankruptcy proceedings. Fitch's analysis assumes no recovery is achieved. The county expects to recover the majority of the remaining $291.9 million in the program without material losses and is in the process of unwinding the program. To date, roughly 9% of its portfolio has been divested since September. Fitch will monitor the situation to ensure that liquidity remains ample and general fund flexibility is maintained.
The county's budget for fiscal 2009 incorporates a 15.2% AV decline resulting in a general fund property tax revenue reduction of $26 million. Many of the operating efficiencies the county implemented in fiscal 2008 will carry forward in fiscal 2009 to offset a portion of the impact. A $16 million shortfall is budgeted which the county plans to fill with the use of unreserved, undesignated general fund reserves. The county's practice of budgeting conservatively typically results in positive year-end performance relative to budget.
Overall debt levels are very low at 0.74% of market value or $1,706 per capita. The county's capital improvement plan (CIP) for fiscal 2008-12 totals $1.7 billion, equal to a substantial $4,687 per capita. However, the county has historically funded a large portion of its capital needs through pay-go financing. The majority of the plan, totaling 54%, is financed through current revenues including 31.8% of total funding in previously appropriated current revenues.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings, which, if adopted, may result in an upward revision of this rating (see Fitch Research on "Exposure Draft: Reassessment of Municipal Ratings Framework"). Fitch has deferred its final determination on municipal recalibration due to market conditions and plans to revisit the recalibration in the first quarter of 2009 (see press release "Fitch Defers Final Determination on U.S. Municipal Ratings Recalibration," dated Oct. 7, 2008).
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site,
cts.businesswire.com/ct/CT?id=smartlink&url=http%3A%2F%2Fwww ... Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Rachel A. Barkley, 212-908-0514, New York
Kelly McGary, 813-224-0492, Tampa
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: mailto:cindy.stoller@fitchratings.com
