OREANDA-NEWS. Fitch Ratings assigns the following ratings to Tampa, Florida obligations:

--$35.7 million non-ad valorem (NAV) refunding and revenue bonds, series 2016 'AA';

--$51.2 million sales tax refunding (sales tax) and improvement revenue bonds, series 2016 'AA'.

Proceeds of the NAV bonds will be used to currently refund the city's callable utilities tax refunding revenue bonds, series 2006 and to fund approximately $32.7 million in new projects. Proceeds of the sales tax bonds will refund the city's callable sales tax refunding revenue bonds, series 2006 and fund approximately $50 million in new projects.

Fitch affirms the following ratings:

--$41.9 million outstanding sales tax revenue bonds at 'AA'.

In addition, Fitch upgrades the ratings on the following bonds:

--$136.5 outstanding utilities tax revenue bonds to 'AA+ from 'AA-';

--$53.7 million outstanding non-ad valorem revenue bonds to 'AA' from 'AA-';

--$45.7 million outstanding occupational license tax refunding bonds, series 2007 to 'AA' from 'AA-';

--City of Tampa's Issuer Default Rating (IDR) to 'AA+' from 'AA'.

The Rating Outlook is Stable.

SECURITY

The NAV revenue bonds and the occupational license tax (OLT) revenue bonds are backed by the city's covenant to budget and appropriate NAV revenues sufficient to pay debt service. The NAV covenant shall be cumulative to the extent not paid and shall continue until such NAV revenues or other legally available funds are sufficient to make all such required payments under the bond resolution. The OLT revenue bonds are initially secured by a pledge of the city's OLT revenue, derived from a business tax imposed throughout the city.

The sales tax bonds are payable by the city's share of a voter-approved one-half-cent sales tax called the local option community investment tax (CIT).

The utilities tax bonds are secured by a lien and pledge of the utilities services tax.

KEY RATING DRIVERS

The upgrade of the city's IDR to 'AA+' is based on a combination of positive credit trends and application of Fitch's revised criteria for U. S. state and local governments, which were released on April 18th. The 'AA+' rating reflects the city's flexibility to adjust spending or to generate additional revenues in response to economic downturns, low long-term debt and pension liability burden, and generally solid operating performance, despite recent deficits. Fitch expects that the city will maintain reserves at or above its minimum policy target of 20% of combined general fund and utilities services tax fund spending throughout the economic cycle, providing a high level of financial flexibility in the context of the city's strong control over revenues and spending despite the revenue systems' sensitivity to economic downturns.

The rating upgrade on the NAV and OLT bonds to 'AA' reflects the upgrade of the city's IDR. Fitch rates NAV and OLT bonds one notch below the city's IDR based on the requirement for appropriation for debt service. Available NAV revenues are large and diverse, but there is no requirement for the city to raise revenues to pay debt service, and essential services and any debt secured by specific NAV revenue must be paid before debt service on the NAV bonds. OLT bonds have an initial pledge of OLT revenues, which historically has been sufficient to pay OLT debt service costs.

The upgrade of the utilities tax bond rating is based on improved coverage levels following the bond's ascension to senior lien status due to the final maturity of senior lien utilities tax bonds as well as the upgrade of the city's IDR, which serves as a rating cap.

The 'AA' rating on the sales tax bonds reflects solid growth prospects and strong protection against cyclical declines. While the sales tax debt to be added with this transaction trims coverage of maximum annual debt service (MADS) from over 3.0x to 1.6x, even the lower overall coverage level is able to withstand a relatively severe downturn.

Economic Resource Base

Tampa is situated on the west coast of Florida in Hillsborough County and serves as the county seat. Encompassing 116 square miles, the city is one of the largest in the state by population, with about 369,000 residents, and is mostly built out, resulting in modest but steady population growth.

The city serves as the economic hub of the region which encompasses a broad mix of activity, including government, with the county school board and MacDill Air Force Base, health and education, and leisure and hospitality. The port of Tampa and Tampa International Airport boost the area's trade, transportation and utilities sector. Business and finance are also significant economic factors.

Revenue Framework: 'aa' factor assessment

The assessment of 'aa' reflects Fitch's expectations of slow but steady revenue growth in line with inflation supplemented by the city's ample revenue generating capacity.

Expenditure Framework: 'aa' factor assessment

Fitch expects that spending will grow in line with projected revenue growth. Despite previous budget cuts, the city retains significant ability to reduce expenditures through potential reductions in non-essential services and capital spending and some flexibility on labor agreements.

Long-Term Liability Burden: 'aaa' factor assessment

The city's combined debt and net pension liability (NPL) burden is low at 8% of personal income. The burden is expected to remain modest as debt plans of the city as well as the overlapping county and county school board are limited and pension funding is satisfactory.

Operating Performance: 'aaa' factor assessment

Despite several consecutive years of planned fund balance drawdowns to offset recessionary revenue declines, the city's reserves remain significant. Fitch expects management to maintain a high level of fundamental financial flexibility throughout the economic cycle by utilizing its healthy expenditure flexibility and, if necessary, ample revenue raising capacity.

RATING SENSITIVITIES

MAINTENANCE OF FINANCIAL FLEXIBILITY: The IDR is sensitive to Fitch's expectation that the city will maintain a high level of fundamental financial flexibility throughout the economic cycle through a combination of revenue and spending control and reserve funding.

LOW LIABILITY BURDEN: A significant increase in liability levels could put pressure on the city's IDR.

DEDICATED TAX BONDS: Dedicated tax ratings are sensitive to maintenance of sound financial cushion against cyclical downturns. Fitch's expectations are for solid growth prospects for the revenue streams. The ratings on the revenue bonds are capped at the city's IDR.

CREDIT PROFILE

The local economy, hit hard by the recession, continues its brisk expansion. Since 2009, employment within the city has grown by 22%, exceeding both the state and national trends. While employment growth rates have moderated recently, job expansion continues. Job growth has pushed unemployment rates down.

Housing is also experiencing a sustained recovery. June 2016 housing values are up 11.6% over prior year values according to the Zillow Group. Since November 2011, housing values have grown by 75% but remain well below pre-recession peak valuations.

The growth in housing and other favorable economic trends is reflected in recent movements of taxable assessed values. Fiscal 2016 valuations represent the third consecutive year of tax base growth, reversing a five-year decline in taxable values totaling a cumulative 28%. Recent gains were driven almost exclusively by the rising level of residential valuations, which represent almost half of all values. Sizable residential and commercial activity, including six large residential projects and several new hotels, signal vigorous local economic activity for the near - and medium-term.

Revenue Framework

Property taxes constitute the largest source of general fund revenue, accounting for nearly 50% in fiscal 2015. Property tax revenues declined steadily between fiscals 2007 and 2013 due to a reduction in property tax rates in fiscals 2007 and 2008 and declining assessed values. With the upturn in assessments, property tax revenues have resumed their growth trend. Other significant sources of revenue include service charges, licenses and permits, utility service taxes, and intergovernmental revenues (about 18% of total general fund revenues) consisting primarily of a half-cent sales tax and municipal revenue sharing.

Revenue growth over the past 10 years has been slow, affected by the severe recession and downturn in taxable values, as well as a property tax reform-induced 14% reduction in property tax rates between fiscals 2006 and 2008. Fitch expects the pace of revenue growth to at least match inflation going forward due to solid employment gains and the large number of projects planned or in development which will further broaden and diversify the city's economic base.

The city has a very strong legal ability to generate additional revenues, as the current property tax rate of 5.73 mills is well below the statutory 10-mill cap. Fitch estimates that the city could generate approximately $92 million in additional revenues if it chose to utilize the remaining property tax margin or about 26% of the fiscal 2016 general fund budget.

Annual changes in the property tax rate are determined using a roll-back or revenue-neutral rate, which is then adjusted for changes in the Florida per capita personal income. However, this limitation may be overridden by vote of the city council and is therefore in the city's independent legal control. The city also has the ability to increase various license and permit revenues and service charges that make up a smaller but still notable portion of its revenue base.

The city's NAV revenue base is broad and diverse, including locally sourced sales-based revenues, state revenue-sharing funds, service charges and license and permit fees. In fiscal 2015, no individual revenue source constituted more than 16% of total NAV revenues. Total receipts have fluctuated in recent years, with NAV revenues growing by 4.6% in fiscal 2016 primarily due to higher service charge revenues. Projected fiscal 2016 legally available NAV revenues are up 2.2% over the prior year as capital asset sales offset declines in net insurance proceeds. Fiscal 2015 NAV revenues are more than ample to cover NAV-secured obligations, including the additional bonds.

Expenditure Framework

The city provides a broad array of public services. Public safety, consisting mostly of police and fire fighting services, is the largest general fund spending item. Public safety accounted for about two-thirds of general fund expenditures in fiscal 2015. Public safety spending was relatively stable through the recession and has recently grown with the rise in general fund revenues. General government and culture and recreation spending are also significant expenditure items.

The natural pace of spending growth is expected to generally align with revenue growth over time. The city plans to address some deferred maintenance needs over the next two or three years, taking advantage of current positive revenue performance.

Although the city has instituted significant spending reductions to cope with revenue shortfalls both during and after the recession, solid spending flexibility remains. Across-the-board spending cuts to non-essential service areas could yield significant savings. Labor contracts are typically no longer than three years with annual wage openers. Moderate carrying costs of debt, pension requirements and OPEB contributions (14.5% of governmental expenditures) provide additional flexibility.

Long-Term Liability Burden

Direct debt of about $382 million consists primarily of revenue bonds and bonds payable from the city's covenant to budget and appropriate legally available NAV revenues. Overall debt levels ($907 million) are moderate at 2.7% of market value or 5.2% of personal income. Principal amortization is rapid with 69% of principal scheduled for retirement within the next 10 years. The city's capital needs are affordable totaling $116 million for non-enterprise projects for fiscal years 2016 through 2020 and bond issuance plans are limited.

City employees participate in one of two city-sponsored pension plans: the general employees retirement fund, which includes most employees, and the firefighters and police officers pension fund. According to recent valuations, funding levels were adequate at 89.6% for the general employees plan and 82.4% for the firefighters and police officers plan under Fitch's more conservative discount rate assumption of 7%. A combined NPL of approximately $488 million under Fitch's assumption represents 2.9% of personal income.

The city's combined debt and NPL burden is low at 8% of personal income. The burden is expected to remain modest, since debt plans of both the city and overlapping county and county school board are limited while pension funding levels are satisfactory.

Operating Performance

Since fiscal 2010, the city has been using its sizable reserves to offset declines in property tax revenues and ongoing spending pressures. Fitch views the city's general fund and utilities services tax fund as its two major operating funds. Combined general fund and utilities tax fund deficits have been reported in every fiscal year between 2010 and 2015, although the deficit narrowed considerably in fiscal 2015. The deficits have reduced available general fund and utilities tax balance from 48% of expenditures in fiscal 2010 to a still significant 29% ($108 million) at year-end fiscal 2015. Balances in the utilities tax fund are restricted but are available for use for general government purposes.

In response to a moderate downturn in revenues, Fitch expects management to use a combination of budget cuts and some use of fund balance to maintain operations while keeping available reserves above its minimum target of 20% of general fund and utilities tax fund spending.

While Fitch does not expect the city to build up such a high level of reserves as it did during the period before the last recession, some addition to reserves is expected over the next few fiscal years given expected tax base growth and the city's ability to control spending.

Sales Tax Bonds Analysis

The sales tax consists of a 0.5% discretionary tax on all sales in Hillsborough County. The sales tax was approved by voters in 1996 to be used to acquire and construct public safety, transportation and educational infrastructure and a community stadium (Raymond James Stadium). The sales tax is collected by the Florida Department of Revenue and distributed back to the county.

From proceeds of the sales tax, 25% is taken off the top for the Hillsborough County School Board, then a designated amount for Tampa Sports Authority, and the rest is divided between the county, Tampa and two other municipalities based on population. Tampa's distributive share constitutes the pledged revenues for the bonds. The sales tax goes out for 30 years, expiring in 2026.

Until this proposed issue, debt service coverage had topped 3.0x MADS. However, with the $40 million new money piece of the series 2016 bonds, debt service will be more than doubled, bringing down coverage to a still-healthy 1.6x, just above the 1.5x additional bonds test (ABT).

To evaluate the sensitivity of the dedicated revenue stream to cyclical decline, Fitch considers both revenue sensitivity results (using a 1% decline in national GDP scenario) and the largest decline in revenues over the period covered by the revenue sensitivity analysis. Based on a 15-year pledged revenue history, Fitch's analytical sensitivity tool (FAST) generates a 5% scenario decline in sales tax revenues. The largest actual cumulative decline in historical revenues is a 19% decline from fiscal 2006-2010, reflecting sensitivity of sales tax revenues to the economic downturn and the historic bust in Florida.

Assuming issuance up to the 1.5x ABT, debt service would be covered with a 33% drop from fiscal 2015 revenues, 6.7x the scenario results and 1.7x the largest actual revenue decline in the review period. Although the coverage of the largest historical decline is low for the rating category, Fitch notes that fiscal 2016 revenues are trending to realize significant year-over-year growth (9.6% year-to-date). As the city is experiencing significant growth in employment and up-tempo development activity despite generally flat population trends, pledged revenue growth prospects are solid. Moreover, the historical results incorporate a housing bust that disproportionately affected the Florida economy to an extent that Fitch believes is less likely to be repeated in the future.

Sales tax distributions to the city have increased in each of the past five fiscal years following four years of decline between fiscals 2006 and 2010. Fiscal 2015 distributions of $16.6 million represent peak collections.

Utilities Tax Bonds Analysis

With the retirement of the senior lien utility tax bonds, outstanding utility tax bonds move up to senior lien. As the taxed utilities include essential services such as electricity, telecommunications and water, collections are subject to changes in demand or rates charged for those services. Revenues declined by 2.9% in fiscal 2015 primarily due to lower communications service tax revenues but were up 1.7% for the first nine months of fiscal 2016. Coverage of MADS is ample at 2.65x based on fiscal 2015 revenues.

FAST results indicate a 4% revenue scenario decline with the largest cumulative decline of 6.3% in fiscal 2011. The structure could withstand a 62% decline in utility tax revenues, or 15.6x the scenario output and 9.9x the largest decline. Fitch does not expect the city to leverage to the 1.25x ABT as utility tax revenues in excess of debt service are used to fund general operations; therefore, the rating assumes maintenance of coverage at well above the ABT level. The rating is capped at the city's IDR rating of 'AA+'.

Issuing Entity Exposure

Sales tax revenues and utility tax revenues are specifically excluded from the definition of 'special revenues' under the bankruptcy code. As such, the ratings on the sales tax and utility tax revenue bonds are capped at the 'AA+' IDR on Tampa.