OREANDA-NEWS. Fitch Affirms Sarasota County, FL's IDR at 'AAA'; Outlook Stable New York Fitch Ratings has affirmed the following Sarasota County, FL ratings:

-- $94 million outstanding infrastructure sales tax bonds, series 2008A, 2008B, 2014 and 2015 at 'AA+';

-- $18 million outstanding communication services tax (CST) revenue bonds, series 2006 and series 2010 at 'AA+';

-- $17.6 million outstanding capital improvement revenue bonds, series 2010A and series 2010B (sales tax bonds) at 'AA+';

-- $16.5 million outstanding second guaranteed entitlement (SGE) revenue bonds, series 2013 at 'AA+';

-- Issuer Default Rating (IDR) at 'AAA'.

The Rating Outlook is Stable.

SECURITY

The infrastructure sales tax revenue bonds are payable from the county's portion of a one-cent infrastructure sales surtax levied by the county. Twenty five percent of the tax proceeds are distributed to the Sarasota County School Board with the remaining proceeds divided between the county and its incorporated municipalities in accordance with an interlocal agreement that allocates revenues based on population.

The CST revenue bonds are payable from revenues received by the county from the Local Communications Services Tax Clearing Trust Fund created with the Florida Department of Revenue pursuant to Section 202.193, Florida Statutes ("communication services tax revenues"). According to the statute, local governments are allowed to levy a tax on the sale of communications services within the entity.

The sales tax bonds are payable from the county's receipts from a portion of the statewide sales tax distributed to counties based on taxable sales. The county shares the proceeds with its incorporated municipalities according to a population-based formula.

The SGE bonds are payable solely from Sarasota County's SGE portion of the Florida Revenue Sharing Trust Fund for Counties. The monthly payments aggregate to $1.15 million annually and are comprised of state cigarette and sales and use taxes.

KEY RATING DRIVERS

The county's 'AAA' IDR reflects ample revenue and expenditure control and sound financial operations. Low long-term liabilities relative to the county's resource base and a high general fund balance provide additional stability.

Economic Resource Base

The population of the 563 square mile county in the southwest of Florida is older and more affluent than the nation and has experienced solid and continued growth in the past several decades.

Revenue Framework: 'aa' factor assessment

Property taxes make up the largest source of general fund revenues and are projected to grow at a moderate pace as a result of population and assessed valuation gains. Management has significant legal revenue raising capabilities under the 10 mill property tax millage cap.

Expenditure Framework: 'aa' factor assessment

Fitch expects expenditures to increase in line with revenues as growth in population-related needs match growth in the county's revenue base. Carrying costs are manageable.

Long-Term Liability Burden: 'aaa' factor assessment

Combined debt and pension liabilities are expected to remain modest relative to personal income given the county's rapid amortization of direct debt and modest liability of the state-run pension plan.

Operating Performance: 'aaa' factor assessment

The county actively manages expenditures and prudently plans for out years. The high general fund balance is well above the level Fitch considers consistent with the current rating as well as above management's policy goals even after recent drawdowns.

RATING SENSITIVITIES

REDUCTION OF FINANCIAL FLEXIBILITY: Reduction in fund balance to levels below what Fitch believes are sufficient for the rating level given inherent budget flexibility could pressure the IDR.

DEDICATED TAX BOND DETERIORATION: Sharp and sustained declines in pledged revenues or leveraging of revenue streams beyond Fitch's expectations could lead to negative action on the dedicated tax bonds. The ratings are capped at the county's IDR.

EROSION OF STATE CREDIT QUALITY: The SGE revenue bonds are capped at the lower of the county's IDR or one notch below the state IDR.

CREDIT PROFILE

The economy is anchored by medical and tourist industries and unemployment trends now mirror state and national figures after slightly exceeding those same indicators throughout the recession. Assessed value has increased in the past three years after precipitous declines in the five years prior. The state estimates greater than 7% assessed value growth for the county in fiscal 2017.

Revenue Framework

Property taxes are the largest source of general fund revenues. Taxable assessed value declined between fiscal 2007 and 2012 and then increased in each year since, but not yet to pre-recession levels. Other major sources of revenue are intergovernmental transfers, including sales and utility taxes, and charges for services.

Despite sluggish revenue growth relative to GDP and inflation over the past 10 years, Fitch expects revenue going forward to grow at a pace closer to GDP. Steady population gains, considerable development, and a healthy expansion of assessed value through new construction and appreciation should readily expand the county's resource base and consequently increase property tax revenue.

The county's property tax rate of 3.4 mills is below the statutory 10 mill limit, affording the county ample ability to generate substantial additional revenues, if needed. The county also has independent authority to levy additional taxes, such as a public services tax and a food and beverage tax, which adds to overall legal revenue raising capacity.

Expenditure Framework

Public safety spending represents nearly 48% of general fund spending and increased 4.1% from fiscal 2014 to 2015, compared to a 2% increase in non-public safety expenditures in the same period.

The pressures of continued population growth are expected to drive a portion of expenditure needs. The corresponding increase in the tax base should accommodate any increase in natural spending growth.

The county actively monitors expenditures throughout the year and has the ability to cut where needed. Management's contracts with their three unions typically last three years and include annual wage reopeners so the county can react relatively quickly during a downturn. In addition, although not utilized recently, management retains the right to adjust headcount in times of budgetary constraints. Carrying costs are moderate at 12.7% of government spending, with debt service making up more than half of that figure.

Long-Term Liability Burden

The long-term liability burden is very affordable at 4.2% of personal income. The county's largest capital needs and borrowing plans pertain to the county utilities, which have historically been soundly self-supporting.

County employees participate in the state-administered Florida Retirement System (FRS). FRS actions taken in 2011 to require employee contributions and reduced benefits for new employees should mitigate required increases in employer contributions in the future. The county's share of FRS net pension liability of approximately $187 million represents less than 2% of personal income. The county's other post-employment benefits (OPEB) liability is also low at less than 1% of personal income.

Operating Performance

Over the last several years, the county has spent down a portion of its high general fund balance, which reached 61% of spending in fiscal 2009. Recent draws on reserves were smaller than budgeted and reflect management's decision to use reserves to support operations rather than increase property tax rates. Reserves were still a healthy 42% of spending at the end of fiscal 2015, well above the county's policy of 75 days of spending, or roughly 20%. Fitch believes that the county retains ample gap closing ability to offset a moderate economic downturn. The minimum cushion consistent with the 'AAA' rating is well below the current level.

The county has not deferred capital spending and has consistently funded pension obligations.

Revenue Stream Analytical Conclusion

Dedicated Tax Bond Analysis

To evaluate the sensitivity of the dedicated revenue streams to cyclical decline, Fitch considers both revenue sensitivity results (using the same 1% decline in national GDP scenario that supports assessments in the IDR framework) and the largest decline in revenues over the period covered by the revenue sensitivity analysis.

The SGE revenues are distributed to the county prior to payment of debt service and thus the rating is capped at the lower of the county's IDR or one notch below the state's IDR ('AAA'/Outlook Stable). Fitch does not believe a dedicated tax bond analysis is relevant for this security.

Half-cent Sales Tax Bonds

The half-cent sales tax has no sunset provision on the tax. Revenues grew over 8% in fiscal 2015 and are projected to grow roughly 6% in fiscal 2016. Fiscal 2015 coverage was 11.7x maximum annual debt service (MADS).

The pledged revenues are sensitive to local economic trends. Based upon revenue history back to fiscal 1999, Fitch's Analytical Sensitivity Tool (FAST) generates a high 8% decline in pledged revenues in a 1% GDP decline scenario. Pledged revenues could withstand 7.6x this decline and still cover MADS. The largest cumulative year decline was a steep 30% from fiscal 2007 through 2009. The decline could recur 3.0x before revenues become insufficient to cover MADS. Given the outsized impact of the housing market collapse on the Florida economy, the rating incorporates Fitch's expectation that such a drastic decline in pledged revenues would not reoccur in future economic downturns. The additional bonds test is liberal, allowing for issuance if MADS is covered by pledged revenues at least 1.3x. Fitch's rating assumes additional leverage will be limited as the county relies on sales tax revenues in excess of debt service for general government operations.

Communication Services Tax Bonds

Communication services tax (CST) revenues have been on a flat to declining trend since fiscal 2008. Fiscal 2015 MADs coverage was 2.1x. FAST generates a 5% revenue decline, which could be sustained 11.4x and still cover MADS. The largest cumulative decline (7% in fiscal 2003) could recur 7.5x and continue to cover MADS.

Fiscal 2016 year-to-date revenues are in line with fiscal 2015 revenues. The rating assumes a continuation of a mildly declining revenue trend and the county's stated expectation that there are no further debt plans for the CST despite a liberal ABT of 1.35x. Debt service declines significantly in fiscal 2026 and again in fiscal 2027.

Infrastructure Sales Tax Bonds

Voters originally authorized the infrastructure sales tax in 1989 and its current reauthorization extends through December 2024. Fiscal 2015 MADS coverage was 2.6x. The FAST scenario decline in revenues of 5% can be sustained 7.6x and cover MADS. The largest cumulative year decline (28% between fiscal 2007 and 2010) could occur 2.2x and revenues will continue to cover MADS. Similar to the decline in the half-cent sales tax, Fitch does not expect as severe of a decline in future economic downturns. Given the expiration of the tax in 2024 and the use of the infrastructure sales tax for transportation spending, Fitch does not expect this revenue stream to be leveraged further.