Fitch affirms polk county, fl’s rev bonds at ‘aa’; outlook stable _ business wire

NEW YORK–( BUSINESS WIRE)–Fitch Ratings has affirmed its ratings on the following Polk County, FL

(the county) outstanding bonds:

–$71.4 million public facilities revenue refunding bonds, series 2014,

at ‘AA’;

–$43.1 million transportation improvement revenue refunding bonds,

series 2010, at ‘AA’;

–$24.3 million capital improvement revenue refunding bonds, series

2010, at ‘AA’;

–$3.2 million constitutional fuel tax revenue refunding bonds, series

2006, at ‘AA’;

–Implied unlimited tax general obligation (ULTGO) rating of ‘AA’.

The Rating Outlook is Stable.

SECURITY

Transportation Improvement Bonds: Supported by a lien on and pledge of

the five-cent local option fuel tax and 2% of revenues derived from the

10% county-levied public service tax (PST). The bonds are additionally

secured by a standard-size, cash-funded DSRF.

Public Facilities Revenue Bonds: Supported by a lien on and pledge of 8%

of the 10% county-levied PST (excluding fuel oil) and 50% of the

county’s portion of the state revenue sharing trust fund received by the

county in the previous fiscal year. No debt service reserve fund (DSRF)

was established for the series 2014 bonds.

Capital Improvement Bonds: Supported by a lien on and pledge of local

government half-cent sales tax revenues. A standard-size DSRF is cash

funded.

Constitutional Fuel Tax Bonds: Supported by a lien on and pledge of the

county’s constitutional fuel tax revenues. The DSRF is funded with a

surety bond issued by National Public Finance Guarantee.

KEY RATING DRIVERS

SUFFICIENT REVENUE BOND COVERAGE: Coverage of maximum annual debt

service (MADS) for all special tax bonds is sufficient for the ‘AA’

rating level, in spite of varying degrees of volatility over the last

several years; legal provisions are sound. Additional bonds tests are

generally lenient but the county relies on a portion of the pledged

revenues for operations reducing the likelihood of full permitted

leverage.

ADEQUATE FINANCIAL FLEXIBILITY: The ‘AA’ ULTGO rating reflects the

county’s sound financial profile including solid liquidity levels.

ECONOMY AND TAX BASE EXPANSION: The economy has experienced a notable

recovery following the recession as evidenced by growth in the tax base

and an upward trend in economically sensitive tax revenues.

Additionally, unemployment rates have improved as jobs and workers have

increased.

MANAGEABLE FIXED COSTS: Debt levels should remain low given no immediate

tax-supported debt plans. Pension and other post-employment benefits

costs are manageable and do not pressure finances. Overall carrying

costs are low.

RATING SENSITIVITIES

REVENUE BOND RATINGS CAPPED BY ULTGO: A reduction in the county’s

implied ULTGO rating would result in a downgrade of the county’s

transportation improvement, public facilities and capital improvement

revenue bond ratings.

DECLINE IN DEDICATED REVENUES: A declining trend in pledged tax revenues

used to support the dedicated-tax bonds or an increase in debt resulting

in materially lower debt service coverage could pressure the ratings.

MANAGEMENT OF RESERVE LEVELS: The maintenance of adequate reserve levels

consistent with the rating category is a key rating factor.

CREDIT PROFILE

Polk County is situated near the center of Florida almost equidistant

from Orlando and Tampa and residents enjoy easy commuting access to

these growing metropolitan areas. It had an estimated 2014 population of

634,638 which is up 5.4% since 2010.

FINANCIAL RESULTS REFLECT ECONOMIC CYCLE

The county ended fiscal 2014 with a $6.1 million net operating deficit

(after transfers) resulting in an unrestricted fund balance of $55.5

million or a solid 20% of spending. Positive variances in expenditures

due to conservative budgeting resulted in the modest use of reserves.

Tax base values improved by 3.6% after declining the prior five fiscal

years, due primarily to the downturn in the housing market.

The county’s tax base grew again in fiscal 2015 by 5.5% resulting in

additional revenues of $6.8 million. Continued conservative budgeting

and growth in non-ad valorem revenues resulted in a projected $10

million surplus and increase in fund balance.

The fiscal 2016 budget is up approximately $11 million and reflects

continued growth in the tax base (up 6%) and sales tax revenues. The

budget includes an appropriation of reserves for one-time capital

projects and equipment as well as approximately $7.2 million for

recurring expenditures. Fitch expects fund balance levels to remain

sound as management continues its prudent budget practices and non-ad

valorem revenues benefit from the growing economy.

TRANSPORTATION IMPROVEMENT REVENUE BONDS

The transportation improvement revenue bonds are secured by a pledge of

the county’s five-cent local option fuel tax and 2% of the county’s 10%

PST levied on sales of electric, gas, water and fuel oil in the

unincorporated area of the county. Additional bonds are subject to a

1.5x additional bonds test (ABT).

Coverage of MADS by unaudited fiscal 2015 pledged revenues of $13.4

million is a strong 3.2x. Revenues grew 5% and 3.7% in fiscals 2014 and

2015, respectively, following modest declines of 4.2% and 2.3% in

fiscals 2011 and 2012 due to higher fuel costs and a reduction in

electricity usage. Fuel tax revenues must be used for transportation

related capital expenses while excess PST revenues may be used for

general government operations.

PUBLIC FACILITIES REVENUE BONDS

The public facilities revenue bonds are supported by a pledge of 8% of

the county’s 10% PST, excluding fuel oil, and 50% of the prior fiscal

year’s revenue the county receives from the State Revenue Sharing Trust

Fund for counties, which includes the Guaranteed Entitlement and the

Second Guaranteed Entitlement. The revenue sharing funds are distributed

to the county monthly and are composed of a portion of various state

collected taxes. Distribution to counties is based on population and

sales tax collections.

Coverage of MADS by unaudited fiscal 2015 revenues of $24.8 million is

strong at over 4.0x. Pledged revenues increased by between 3% and 5% the

past 3 fiscal years after declining a modest 2.8% and 3.8% in fiscals

2012 and 2011, respectively, due primarily to some negative volatility

in fuel costs. Additional bonds are subject to a weak 1.25x ABT, but

Fitch does not expect full leverage through additional debt as the

county relies on the excess pledged revenues for operations.

CAPITAL IMPROVEMENT BONDS

The capital improvement bonds are secured by a pledge of local

government one-half-cent sales tax (the sales tax) revenues. Under state

statute the state levies a 6% sales tax and distributes 8.814% of taxes

generated within a county to its local governments monthly. Taxes are

divided among the counties and cities pursuant to a population-based

formula that guarantees that counties will receive at least 40% of

receipts.

Coverage of MADS by unaudited fiscal 2015 revenues of $30.5 million was

over 10x. Revenues exhibited some volatility between fiscals 2007 and

2010 but have bounced back nicely with an annual average increase of

5.5% in each of the last five fiscal years.

Although coverage levels are very high, the rating is not likely to be

adjusted upward, as Fitch caps the rating at the level of the county’s

ULTGO and additional debt is permitted. Additional bonds are subject to

a 1.6x ABT.

The opening of LegoLand in October 2011 and subsequent expansions, as

well as the new Streamsong Resort have contributed to growth in tourism

and dedicated sales and fuel tax revenues. Other notable construction

projects and expansions of existing business are underway as evidenced

by growing building permits, which should fuel additional sales tax

growth.

CONSTITUTIONAL FUEL TAX BONDS

The constitutional fuel tax bonds are secured by a pledge and a lien on

the constitutional fuel tax revenue, which is a two-cent per gallon levy

on the sale of gasoline and like sources of energy to fuel motor

vehicles. Additional bonds are subject to a 1.5x ABT. Coverage of annual

debt service is expected by Fitch to exceed 2.0x as existing bonds

mature Dec. 1, 2017 and the county has no current plans for additional

leverage. Revenues were up 4% and 3.4% in fiscals 2014 and 2015

respectively, after prior years of declines (-10% from fiscal 2008 to

2011) when gas prices were much higher.

DEBT LEVELS ARE LOW

Overall debt levels, including overlapping debt, are estimated to be low

by Fitch at 1.7% of market value and $1,074 per capita. Management

re-implemented some impact fees recently, which are anticipated to help

with future infrastructure needs. A small portion of tax revenues has

been re-allocated in fiscal 2016 to help subsidize funding needs for

parks, roads and the general fund. The county has no immediate plans for

debt with the exception of water related borrowings which will be

supported by user revenues.

PENSION AND OPEB COSTS ARE MANAGEABLE

All full-time county employees participate in the well-funded state

managed Florida Retirement System. The county’s employer contribution

was $23 million in fiscal 2014, equal to a manageable 4.6% of total

governmental spending. The county’s contribution towards OPEB costs in

fiscal 2014 was $2.7 million and its unfunded liability was $193 million

as of October 2014, or a low 0.5% of the county’s $41.35 billion tax

base. Total carrying costs for debt service, pension and OPEB

pay-as-you-go equaled a low 8.6% of fiscal 2014 total governmental

spending.

DIVERSIFIED ECONOMY EXPERIENCING ECONOMIC DEVELOPMENT

Historically known for its citrus and phosphate mining industries, Polk

County’s economy has diversified in recent years into health care, light

manufacturing, distribution and tourism. Management reports numerous

commercial development projects either underway or nearing startup due

to the county’s ideal location along Interstate 4 and the opening of the

new Florida Polytechnic University campus in 2014. Additionally,

Legoland has been expanding its attractions to meet demand including a

new hotel and restaurant opened in 2015, and new retail development

nearby.

Unemployment has improved to 5.3% (preliminary) as of December 2016,

down from 6.8% as both labor and employment increased. Median household

income is below average, equal to an estimated 91% and 81% of state and

national averages, respectively.

Additional information is available at ‘ www. fitchratings. com’.

Fitch recently published exposure drafts of state and local government

tax-supported criteria (Exposure Draft: U. S. Tax-Supported Rating

Criteria, dated Sept. 10, 2015 and

Exposure Draft: Incorporating Enhanced Recovery Prospects into U. S.

Local Tax-Supported Ratings, dated Feb. 2, 2016). The drafts include a

number of proposed revisions to existing criteria. If applied in the

proposed form, Fitch estimates the revised criteria would result in

changes to less than 10% of existing tax-supported ratings. Fitch

expects that final criteria will be approved and published in the

beginning of the second quarter of 2016. Once approved, the criteria

will be applied immediately to any new issue and surveillance rating

review. Fitch anticipates the criteria to be applied to all ratings that

fall under the criteria within a 12-month period from the final approval

date.

In addition to the sources of information identified in Fitch’s

applicable criteria specified below, this action was informed by

information from CreditScope and Lumesis.

Applicable Criteria

Exposure Draft: Incorporating Enhanced Recovery Prospects into US Local

Tax-Supported Ratings (pub. 02 Feb 2016)

https://www. fitchratings. com/creditdesk/reports/report_frame. cfm? rpt_id=875108

Exposure Draft: U. S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)

https://www. fitchratings. com/creditdesk/reports/report_frame. cfm? rpt_id=869942

Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www. fitchratings. com/creditdesk/reports/report_frame. cfm? rpt_id=686015

U. S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)

https://www. fitchratings. com/creditdesk/reports/report_frame. cfm? rpt_id=685314

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www. fitchratings. com/creditdesk/press_releases/content/ridf_frame. cfm? pr_id=1001345

Solicitation Status

https://www. fitchratings. com/gws/en/disclosure/solicitation? pr_id=1001345

Endorsement Policy

https://www. fitchratings. com/jsp/creditdesk/PolicyRegulation. faces? context=2&detail=31

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