Fitch Affirms Leon County-Tallahassee, FL Blueprint 2000 Sales Tax Revs at 'AA'; Outlook Stable
--\\$51.9 million sales tax revenue refunding bonds, series 2007 and 2011.
The Rating Outlook is Stable.
The bonds are secured by a pledge of 80% of the one-cent local option infrastructure sales tax received by the county and the city.
KEY RATING DRIVERS
SOLID DEBT SERVICE COVERAGE: Sales tax collections have grown steadily since fiscal 2010, increasing by over 14% through fiscal 2014. Coverage is robust, exceeding 2.1x for Fitch-rated senior debt and approaching 1.7x for all debt. The agency does not have plans for future leveraging of the current security. There is no cross-default between the senior bonds and subordinate obligations.
ECONOMIC STABILITY: Revenues are generated from a mature area dominated by government and higher education employers which provide a deep and stable economic base which serves to mitigate potential volatility in sales tax revenues.
TIES TO CITY AND COUNTY: The agency's operations are limited almost entirely to managing its capital program, supported by the city and county. Fitch views the credit quality of the city and county as indicators of the agency's overall operating risk.
LOW OVERALL DEBT: Overall debt levels are expected to remain low. Agency carrying costs are somewhat high due to the capital intensive nature of the operations and rapid debt amortization. Pension and other post-employment benefit (OPEB) costs for the agency are minimal.
STRONG CREDIT RATINGS OF THE CITY AND COUNTY: The rating on the sales tax bonds is capped at the lower of Fitch's implied unlimited general obligation (GO) bond ratings for the county and city, as pledged revenue is derived from sources received by each entity. The county's and city's current GO ratings are 'AA+ and 'AA', respectively, with a Stable Outlook.
CONTINUED SOLID COVERAGE: The rating is sensitive to shifts in fundamental credit characteristics including overall sales tax revenues and continued solid debt service coverage.
CITY/COUNTY RATING DECLINES: A downgrade of the city's rating or a more than one notch downgrade of the county's rating would result in negative rating action on agency bonds.
The agency was created by an interlocal agreement between the City of Tallahassee and Leon County to provide the project management structure for a 15-year capital improvement program known as Blueprint 2000. The city serves as the state capital of Florida in the north western part of the state. City and county population have grown at a rate slightly above national averages with 2014 city population of 186,498 and county at 283,988.
SOUND GOVERNANCE STRUCTURE
The agency is governed by a board of directors consisting of seven county commissioners (each having five votes) and five city commissioners (each having seven votes). The agency has limited operations, comprised of planning, constructing, and financing the Blueprint 2000 program, which includes projects for transportation and stormwater improvements. The interlocal agreement does not terminate until the bonds fully mature.
The sales tax revenue bonds are payable from a first lien on the agency's share of the one-cent local option infrastructure sales tax levied in the county. Pursuant to the interlocal agreement, the city and county have pledged 80% of their 50% shares of the tax proceeds to the agency to repay the bonds and pay the costs of the Blueprint 2000 projects.
The sales tax has been levied since 1989 and was extended by referendum in November 2000 through 2019, a few months past final maturity of the bonds. Last November, voters approved a further extension of the sales tax to 2039 with 65% voting for the extension. Any bonds repaid from the extended sales tax would not be on parity with the series 2007 and 2011 bonds.
LEGAL PROVISIONS SOMEWHAT WEAK
The additional bonds test is weak, requiring that pledged sales tax revenue during any 12 consecutive months of the 24 months immediately preceding the issuance of additional bonds must equal 1.25 times (x) maximum annual debt service (MADS) for all outstanding bonds and the additional bonds proposed to be issued. The debt service reserve account equals to the least of 10% of bond proceeds, MADS, or 125% of average annual debt service. The series 2011 bonds include a surety of approximately \\$4.1 million and the series 2007 bonds have a cash funded reserve of approximately \\$7.9 million.
SOLID DEBT SERVICE COVERAGE
Senior coverage of MADS in fiscal 2014 jumped to 2.11x from nearly 2.0x in fiscal 2013. The rise in coverage is attributable to a combination of increased sales tax collections and lower debt service as a result of a refunding in 2011.
Overall, revenue growth has been resilient, increasing an average of 2.6% annually since fiscal 1998, despite a 14% revenue decline from fiscal 2006-2010.Following economic driven declines in fiscal years 2007-2010, sales tax collections have experienced four consecutive years of growth aggregating to an increase of over 14% between fiscals 2010 and 2014. The pace of gains during this period has accelerated with fiscal 2014 sales tax collections up nearly 5% from the prior year.
Sales tax revenues for fiscal 2015 are projected to increase 4.8% based on five months of actual year-to-date collections. Several new development projects including redevelopment of the Tallahassee Mall property and expansion of the Bradfordville commercial area are expected to further boost sales tax growth over the next few years.
In addition to the outstanding bonds which have a senior lien on pledged sales tax revenues, the agency has three subordinate lien state infrastructure bank loans outstanding. All-in coverage for fiscal 2015 is projected at a sound 1.70x.
The agency has no plans to further leverage the security and as the current tax expires in four years, additional leverage is highly unlikely. Coverage also holds up well to Fitch's stress tests showing 1.5x senior MADS coverage were fiscal 2014 sales tax levels to decline an additional 29%.
MINIMAL OPERATING RISK
Fitch believes the agency's operating risk is minimal, and focuses its analysis on the operating risk of the city and county as recipients of the pledged revenue. Agency operating expenses are minimal, totaling \\$1.3 million in fiscal 2014, allowing in Fitch's view the maintenance of reserves at modest levels. The agency reported only seven full time equivalent employees in fiscal 2014.
The county's credit profile is characterized by strong financial management demonstrated by large reserves and ample liquidity, a stable economic base, low debt levels and manageable pension costs (see 'Fitch Affirms Leon County, FL's Capital Improvement Revenue Bonds at 'AA'; Outlook Stable' dated Aug. 28, 2014). The city's 'AA' rating reflects an improved financial position supported by utility transfers, moderate debt and the steadying economic presence of the state capitol (see 'Fitch Rates Tallahassee, FL's Capital Bonds at 'AA'; Outlook Stable' dated May 14, 2014).
LOW DEBT; MANAGEABLE CARRYING COSTS
Overall debt is low at \\$1,526 per capita and 1.6% of market value with minimal new debt issuances expected. Agency carrying costs for debt, pensions and other post-employment benefit (OPEB) are high at 36% of total governmental expenditures, reflecting its limited operations. Pension and OPEB costs are only 1% of that figure.
STABLE REGIONAL ECONOMY
Leon County is located in the northwest Florida Panhandle. The county is home to the capital complex in Tallahassee and three public institutions of higher education: Florida State University, Florida Agricultural & Mechanical University, and Tallahassee Community College. A significant public sector presence provides stability to the regional economy which modulated some of the worst effects of the economic downturn. The outlook for the regional economy is modestly positive.
County unemployment rates historically have trended below the state and national averages. After five consecutive years of employment growth, employment levels were flat in 2015. However, the June 2015 county unemployment rate of 5.3% compares favorably with the state (5.6%) averages and matched the national benchmark (5.3%). The local housing market, while adversely affected during the past recession, did not experience the same degree of stress as did many other Florida communities. Median home values declined peak to trough by 26%, which was just over half of the 51% drop experienced statewide, according to the Zillow Group. Home values as of the end of August 2015 were up 1.5% year over year.
County taxable values fell by 18.4% between fiscals 2008 and 2014 before a modest rise in fiscal 2015. Management projects further tax base growth over the next few years as projects either planned or under construction come on line. Wealth levels are equivalent to the state average but lower than national levels. This is reflective of the dominance of government employment and a large student population. Since 2009, county median household income growth rates have exceeded those of both the state and nation.