Fitch Affirms Nassau County, FL's Non Ad Valorem Revenue Bonds at 'A '; Outlook Stable
--\\$26.3 million in outstanding public improvement revenue and refunding bonds, series 2007.
In addition, Fitch affirms the county's implied general obligation (GO) rating at 'AA-'.
The Rating Outlook is Stable
The bonds are secured by the county's covenant to budget and appropriate (CB&A), by amendment if necessary, legally available non ad valorem (NAV) revenues sufficient to pay debt service. The availability of NAV revenues to pay debt service is subject to the funding of essential government services and obligations with a specific lien on NAV revenues. Such a covenant shall be cumulative to the extent not paid, and shall continue until all required amounts payable under the indenture have been paid.
KEY RATING DRIVERS
RESERVES LOWER, STILL SOUND: Finances are characterized by satisfactory reserves and ample liquidity, despite recent draws on fund balance to cover operating and capital expenditures.
UNMET CAPITAL NEEDS: Capital needs have been pay-go funded, but allocated resources appear inadequate to meet the needs beyond fiscal 2016.
MANAGEABLE LONG-TERM LIABILITIES: Overall county debt levels and carrying costs, including debt service and OPEB/pension contributions, are low.
IMPROVING, SOMEWHAT LIMITED ECONOMY: The county's tourist-based economy continues to recover as demonstrated by growth in visitor counts and tourist-related spending. Further indicators of economic improvement are modest tax base growth in fiscal 2015 after six years of decline and total employment reaching a new high in 2014.
ONE NOTCH RATING DIFFERENTIAL: The rating on the CB&A bonds is one notch below the implied GO rating due to the absence of a pledge of specific revenue and an inability to compel an increase of revenues to pay bondholders.
ONGOING FUND BALANCE DRAWS: Continued use of the fund balance with no solid plan to address potential structural imbalance could result in negative rating action.
Nassau County is the northeastern-most county in Florida. Located just north of the city of Jacksonville ('AA'; Outlook Stable) on the Atlantic coastline, the county had a population of 76,619 as of 2014.
ONGOING RESERVE DRAWDOWN
The county's general fund, county transportation fund, municipal services fund and one-cent small county surtax fund combined unrestricted balance fell by \\$8.3 million to \\$28 million between fiscal 2012 and fiscal 2014, equivalent to a reduction in combined reserve level from 62% to 46% of spending. The drawdown was due to a combination of operating deficits and cash funding for capital projects.
Fiscal 2015 general fund operation is estimated to be close to break-even, helped by an increase in property tax millage rate. However, pay-go capital funding and use of reserves from four main taxing funds are expected to continue in fiscal 2015 and 2016. After fiscal 2016, in the absence of additional revenues or significant cost cutting measures, the county currently projects further reduction in reserves down to its policy minimum of two months of operating expenditures (17%) in all three main taxing funds (the general fund, transportation, and municipal services fund. At this level, reserves are deemed to be consistent with the current rating level. However, Fitch recognizes that continuation of this downward trend would weaken the county's overall financial cushion. Drawing down reserves beyond current policy minimum levels would likely lead to a negative rating action.
INCREASED REVENUE; CONTAINED COSTS
The county's tax base grew 4.4% in fiscal 2015 after a cumulative 24% decrease over the prior five fiscal years. Coupled with a one mill increase in general fund property tax millage, general fund property tax revenues are expected to grow a substantial 24% in fiscal 2015, reversing a prior declining trend. Property tax revenues now account for over 80% of total general fund revenues, and are projected to increase again in fiscal 2016 due to an expected 5.5% increase in taxable assessed values.
The county has been successful in reining in expenditures since the recession. General fund expenditures in fiscal 2014 were only 3% higher than in 2009, while the number of employees was down 19%. Capital maintenance has been deferred and some capital needs remain unfunded, notably on roads. Limited operating expenditure flexibility remains without affecting service levels or deferring maintenance further.
IMPROVING OVERALL ECONOMY
The county's location along the Atlantic Ocean, directly north of Jacksonville has fostered a significant tourism industry. Amelia Island and Fernandina Beach tourist counts and spending continue to record double-digit growth year-over-year.
Inland, the county's economy is focused mainly on healthcare and paper manufacturing. Additionally, many of the county's residents commute to other employment opportunities throughout the Jacksonville MSA.
Countywide income levels are comparable to state and national averages. Population, labor force, and employment are all growing swiftly. Unemployment trends within the county are cyclical, which is typical of a tourism-based economy, but consistently remains below average. The county's unemployment rate was 5.2% as of July 2015.
MANAGEABLE LONG-TERM LIABILITIES
County debt levels are very low at \\$411 per capita and 0.3% of market value in fiscal 2015 with no overlapping debt and no plans for new debt.
The county fully funds the actuarially required contribution annually to the adequately funded Florida Retirement System for all employees. The county funds other post-employment benefits (OPEB) on a pay-go basis and the OPEB liability is a small .2% of the county's market value. Total carrying costs, representing debt service, pension contributions, and OPEB pay-go, were affordable at 12% of governmental spending in fiscal 2014.
CB&A-BACKED BONDS PAYABLE FROM NAV REVENUES
The bonds are secured by the county's covenant to budget and appropriate available NAV revenues for debt service. NAV revenues include non-property tax general and municipal services fund revenues, and are estimated to be sufficient to cover debt service and a proportionate share of essential government services.