Published: May 11, 2010
Fitch Rates Broward County, FL's Sales Tax Revs 'AA+'; Outlook Stable
NEW YORK - (BUSINESS WIRE) - Fitch Ratings assigns an 'AA+' rating to the following Broward County,
Florida sales tax revenue bonds:
--$42,190,000 half-cent sales tax revenue bonds (Main Courthouse
Project), series 2010A;
--$129,175,000 half-cent sales tax revenue bonds (Main Courthouse
Project), series 2010B (Federally Taxable - Build America Bonds - Direct
Payment);
--$48,780,000 half-cent sales tax revenue bonds (Main Courthouse
Project), series 2010C (Federally Taxable - Recovery Zone Economic
Development Bonds - Direct Payment).
The bonds are expected to sell via negotiation on June 22, 2010.
In addition, Fitch upgrades approximately $9 million of outstanding
tourist development tax special revenue bonds to 'AA+' from 'AA' and
affirms the following:
--Approximately $446 million of general obligation (GO) bonds at 'AAA';
--Approximately $15 million of refunding certificates of participation,
series 2004 at 'AA+';
--Approximately $117 million of professional sports facilities tax and
refunding bonds, series 2006A and series 2006B (taxable) at 'AA';
--Approximately $5 million of gas tax revenue refunding bonds, series
1998 at 'AA+'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The 'AA+' rating assigned to Broward County's sales tax bonds reflects
the general credit characteristics of the county and strong coverage of
maximum annual debt service (MADS) with no additional leveraging plans.
--The upgrade on the tourist development tax bonds reflects the
consistent history of exceptional coverage from pledged revenues and
lack of additional leveraging plans mitigating risk to the limited
breadth and discretionary nature of the pledged revenue stream.
--The rating on the gas tax bonds reflects the sufficiency of pledged
revenues to meet debt service payments due prior to final maturity on
Sept. 1, 2010 and lack of additional leveraging plans.
The GO and related special tax ratings reflect the following:
--Financial operations remain sound. The county continues to preserve
its strong reserve levels and liquidity despite revenue pressures
related to general economic conditions and declining taxable value.
--Debt levels are expected to remain low given the fairly aggressive
amortization of outstanding principal, manageable capital demands, and
the existence of significant reserves available to support pay-go
funding in lieu of borrowing.
--Tourism and related services remain a prominent feature of the local
economy as do trade and transportation, as these sectors thrive on the
presence of international airport and seaport facilities and diverse
recreational opportunities. Unemployment remains high but lower than the
state and recent job losses have moderated.
--The certificates of participation rating incorporates annual
appropriation risk which is largely mitigated by the strong legal
features of the master lease-purchase agreement requiring the county to
surrender the majority of its leased facilities if it fails to
appropriate.
--The rating on the professional sports facilities tax and revenue
refunding bonds incorporates the county's covenant to budget and
appropriate (CB&A) non-ad valorem revenues to the bond reserve account,
if necessary, in addition to the county's ample balance sheet resources
and capacity from non-ad valorem revenues.
KEY RATING DRIVERS:
--The county's record of sound financial performance remains challenged
by expectations for additional tax base declines and continued economic
weakness in the short-term. Fitch will consider management's ability to
maintain budgetary balance without significant use of existing reserves
a key rating driver.
--For the special tax revenue bonds, material coverage dilution
resulting from the issuance of additional debt is not anticipated and
would likely carry negative rating implications.
SECURITY:
The sales tax revenue bonds are secured by receipts derived from the
Local Government Half-Cent Sales Tax (LGST). The 2010 sales tax bonds
issued as Build America Bonds are additionally secured by federal direct
payments from the U.S. Treasury.
The general obligation bonds are secured by the county's full faith and
credit and unlimited taxing authority.
The certificates of participation represent undivided proportionate
interests in basic rent payments payable solely from funds appropriated
by the county from legally available funds.
The tourist development tax special revenue bonds are secured by a 3%
tourist development tax (TDT) and by all net income or earnings derived
from the county's ownership and operation of the Greater Fort Lauderdale
Broward County Convention Center.
The professional sports facilities tax and revenue bonds are secured by
a 2% TDT, a fixed sum of $2 million in annual sales tax rebate from the
state, and certain sums paid by the operator of the Bank America Center
from facility operating revenue. In addition to the pledges defined
above, the county covenants to budget and appropriate in its annual
budget, by amendment if necessary, from non-ad valorem revenues lawfully
available in each fiscal year, amounts sufficient to satisfy the deposit
requirements for deficiency amounts in the reserve account. Because the
appropriation would only be made in the event of a shortfall in pledged
revenues rather than as a matter of course, and because the reserve is
sized at only 50% of MADS, the rating on these securities is one notch
lower than other county appropriation-backed debt.
The gas tax revenue bonds are secured by the county's share of the
six-cent-per-gallon local option gas tax levied pursuant to county
ordinance. The tax is imposed upon motor fuel or any other fuel sold in
the county.
CREDIT SUMMARY:
The 2010 sales tax revenue bonds represent the first time the county has
leveraged proceeds from the LGST. Fiscal 2009 collections totaled $59.3
million providing a strong 3.4 times (x) coverage of proposed MADS
without consideration of the BAB subsidy. LGST receipts declined 10.5%
in 2009 as Broward continued to cope with retrenchment in consumer and
business spending and confidence caused by current economic conditions,
including without limitation the diminishing wealth effect from real
estate price depreciation, curtailment of non-essential expenditures,
increasing unemployment and decreasing tourism. February 2007 was the
last month to record positive growth year-over-year. Declines appear to
be moderating as collections for the four months ended Jan. 31, 2010
were down only 3.7% from the same period a year earlier. The rating
reflects the strength of existing coverage levels, lack of additional
leveraging plans, and the general credit characteristics of the county,
including its desirability and reputation as a top destination for
leisure travelers and special events and its sizeable and diverse
economic base which promote pledged revenue stability over the
longer-term. The ratings on the county's other special tax revenue bonds
also reflect the strength of coverage from sources pledged to bond
repayment and absence of additional borrowing plans as well as the
general credit characteristics of the county.
Broward County is situated on Florida's Atlantic coast between
Miami-Dade and Palm Beach counties. Broward ranks as Florida's second
largest county with a 2009 population of 1.76 million. The county is
home to 31 incorporated municipalities including Fort Lauderdale, Coral
Springs, and Hollywood. Fort Lauderdale-Hollywood International Airport
and Port Everglades are each located within the county. Port Everglades
is considered a significant contributor to the local economy not only
from an employment and payroll standpoint, but also as it relates to TDT
and LGST activity as more than 80% of cruise related traffic is from out
of state. Significant cruise terminal investments at Port Everglades
have helped lock in long-term cruise passenger commitments expected to
generate higher annual passenger throughput. The housing market and
general economic contraction remain key credit concerns however.
Foreclosure and delinquency rates have risen year-over-year and are each
higher than the state average. Unemployment stands at 10.6% as of March
2010 which is down several tenths of a percentage point from both
January and February but higher than the 8.3% unemployment rate posted
in March 2009.
Sound historical financial operations have been marked by consistently
strong reserve levels and ample liquidity and financial flexibility.
Revenue pressures related to recent declines in taxable value and the
recession have been significant, with a cumulative budget gap totaling
$286 million from fiscal 2008 to fiscal 2010. Management has addressed
the shortfalls without increasing the millage rate, implementing
reductions in recurring costs that have preserved the county's fiscal
resources to date. The unreserved general fund balance at the close of
fiscal 2009 was $227 million or 16% of total spending. An additional
$22.1 million was reserved for emergencies. Cash and investments across
governmental fund types exceed $1.2 billion which equates to nearly 6.5
times total liabilities or nearly nine months of spending. The county
anticipates balanced operations in fiscal 2010 as well. Management is
preparing its 2011 budget and expects to make additional cuts of between
$33 million and $172 million, depending on the millage rate adopted, to
balance the fiscal 2011 budget without drawing on reserves. Officials
are hopeful for additional cooperation from the county sheriff, whose
recent budget proposals have failed to meet the level of reduction
requested by the board of commissioners. As an elected constitutional
officer the sheriff can appeal to the governor and the state cabinet if
its budget is not approved by the county commissioners.
Fitch anticipates debt levels will remain low following issuance. The
2010-2014 CIP totals $2.27 billion, 75% of which is dedicated for
projects of the self-supporting aviation (48%), port (18%), and water
and sewer (9%) enterprise funds. Significant capital reserves ($617
million at the close of fiscal 2009) will enable the county to continue
to fund a considerable portion of its capital program on a pay-as-you-go
basis. Spending pressures related to the annual required contributions
(ARC) for pension ($96 million) and OPEB ($28 million) continue to rise
and now approximate 9% of governmental fund spending. The county has met
all contribution requirements to the Florida Retirement System (FRS) as
established by state statute but does not fund the full ARC for OPEB
contributing less than $8 million in fiscal 2009. The county set aside a
reserve for future plan costs of $9.2 million in fiscal 2009 and intends
to set aside additional funds for this purpose when available in the
future. The county also continues to pursue plan changes to the
sheriff's office healthcare plan which directly subsidizes a portion of
eligible retiree and beneficiary premiums.
Applicable criteria available on Fitch's website at www.fitchratings.com:
'Tax-Supported Rating Criteria,' dated Dec. 21, 2009.
'U.S. Local Government Tax-Supported Rating Criteria', dated Dec. 21,
2009.
Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE WWW.FITCHRATINGS.COM.
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, New York
Michael Rinaldi, +1-212-908-0833
Amy
Laskey, +1-212-908-0568
or
Cindy Stoller, +1-212-908-0526
(Media Relations)
cindy.stoller@fitchratings.com
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