Fitch Affirms Coral Springs, FL's GOs and Revs; Outlook Stable
OREANDA-NEWS. Fitch Ratings affirms the following Coral Springs, FL's bonds:
--Approximately $2.0 million unlimited tax general obligation bonds (ULTGO) outstanding (series 2005B) at 'AAA';
--Approximately $1.3 million outstanding capital revenue refunding bonds, series 2008 at 'AA+'.
The Rating Outlook is Stable.
The ULTGO bonds are secured by an ad valorem tax, unlimited as to rate or amount.
The capital improvement revenue refunding bonds are backed by the city's covenant to annually budget and appropriate sufficient revenues derived from non-ad valorem (NAV) sources to pay debt service. Such covenant to budget and appropriate NAV revenue is subject to the availability of NAV revenues after satisfying obligations with a specific lien on such revenue and the funding of essential government services.
KEY RATING DRIVERS
SOUND RESERVES: Financial operations remain sound despite prior years' revenue volatility and spending pressures. The city estimates a significant surplus for fiscal 2015 and balanced operations for fiscal 2016. Stabilized reserves are an important credit strength given the city's potentially volatile, yet diverse revenue base.
ECONOMIC STABILIZATION: The city's taxable assessed valuation (TAV) took a hit, with peak to trough declines totaling 29% from fiscal 2008 to fiscal 2012. TAV returned to growth in fiscal 2013, with continued growth in subsequent years. Employment trends have been positive and unemployment is below state and national levels. City income levels are above state and national averages.
LOW BUT INCREASING DEBT; MANAGEABLE CARRYING COSTS: Debt levels will increase, as additional issuance is planned, but should remain moderate. Carrying costs, including required pension payments, other post-employment benefits (OPEB) and debt service are manageable.
STRONG DEBT SERVICE MARGIN: Available revenue for capital improvement revenue bond debt service remains strong. A one-notch distinction between the revenue bond rating and the ULTGO rating reflects the absence of a pledge of specific revenue and the inability to compel the city to raise non-ad valorem revenue sufficient to pay debt service.
MAINTENANCE OF STABLE FINANCIAL AND DEBT POSITION: The ratings assume maintenance of solid reserves, balanced budget operations, and a manageable debt position. A return to reserve draws for budget balance and/or significant additional debt beyond what is currently contemplated could pressure the ratings.
Coral Springs is located in south Florida in the northern part of Broward County (GO bonds rated 'AAA' by Fitch). Strong population and economic growth over the past two decades slowed over the past few years with the city population totaling about 127,952 in 2014.
The city's economy is bolstered by its proximity to the sizable Ft. Lauderdale and Palm Beach County employment centers. City unemployment rates have generally been below state and national levels. The city's August 2015 unemployment rate of 4.7%, down from 5.8% a year prior, remains lower than the state (5.6%) and national (5.2%) rates. City income levels are above average and poverty levels are well below state and national averages.
Significant weakening in the local real estate market beginning in 2008 decreased the city's TAV by about $3 billion or 29% to a still sizable $7.4 billion in 2012. After consecutive annual declines, TAV returned to annual growth in fiscal 2013 (about 1%), with 4 - 5% annual growth in subsequent years. Management forecasts on-going growth reflecting an improving economy and planned development projects. These include over 650 new residential units at the former Broken Woods Golf Club and the Coral Springs Country Club, and commercial expansions at Hoerbiger Corp., Lupin Pharmaceuticals, the Cleveland Clinic, and Broward Health Coral Springs. Fitch views the city's expectation for growth as reasonable despite apparent recent softening of home prices. The city's tax base is not concentrated. The top 10 taxpayers, a mix of retail and commercial properties, a utility, and a bank comprise about 6% of total TAV.
The city's millage rate remains well below the 10 mill cap and lower than nearby cities, despite recent increases. The city increased operating millage to $4.7982 per $1,000 from $4.5697 for fiscal 2016. The increase will result in about $1.9 million in additional revenues required for increased operating and capital needs. Including debt service millage, ($0.2933) the city's total rate for fiscal 2016 is $5.0915.
Financial operations and reserve levels remain sound despite economic pressure that led to reserve draws in prior years. The fiscal 2014 unrestricted general fund balance was $20.0 million or 19.9% of spending. The fiscal 2015 budget is projected to end with an operating surplus of about $1.5 million which, together with an additional $2.8 million in non-recurring revenues, will be added to fund balance. The fiscal 2016 budget is balanced without the use of reserves.
General fund revenues are a diverse mix of largely property (34% in fiscal 2014), franchise and utility taxes (21%), intergovernmental revenues including sales and communications services taxes (22%) and charges for services (13%). Revenues saw declines in prior years as economic weakness affected the city's tax base and demand driven revenues such as sales and gas taxes. More recently, total general fund revenues grew by about 4% in fiscal 2014, with similar growth estimated for fiscal 2015 and budgeted for fiscal 2016. Expenditures are led by public safety at 54% of total expenditures and transfers out.
LOW BUT INCREASING DEBT; MANAGEABLE CARRYING COSTS
Overall city debt levels (estimated at $1,563 per capita and 1.6% of market value) and direct debt service as a percentage of governmental spending (3.4% in fiscal 2014) are low. Principal amortization is rapid at about 89% repaid within 10 years. Additional near-term issuance of about $32 million in NAV backed revenue bonds and about $8 to $18 million in GO bonds is planned, as compared to a fiscal 2015 estimated base of about $66 million in direct debt. Planned NAV backed bonds will fund construction related to the new municipal complex and additional general capital needs. GO issuance, which will fund public safety capital needs, will depend on the outcome of an election to be held at the earliest in March 2016. With planned additional issuance, the city's debt burden will increase significantly from prior low levels, but should remain low to moderate.
The city's employee retirement plans include three separate single-employer defined benefit plans for police, fire fighters, and general employees, and eight defined contribution plans for general employees and management. As of October 1, 2013, pension funded levels were 77.6%, 66.8%, and 86.2% for the general, police, and fire fighter plans, respectively or an estimated 73.5%, 63.8%, and 81.3%, respectively, using a more conservative 7% discount rate. The city has historically averaged annual full funding of required pension payments when factoring in state contributions and slight over and underfunding in some years. Fiscal 2014 city pension costs were about 7% of governmental spending. Other post-employment benefit (OPEB) contributions are on a pay go basis, and represent a modest percentage (less than 1%) of governmental spending.
Total fiscal 2014 carrying costs, including debt service, OPEB payments and required pension payments, were manageable at about 11% of governmental spending. The city's annual pension payments have benefitted from recent year negotiated adjustments to labor contracts, including adjustments to compensation calculations, cost of living adjustments, and the retirement age.
STRONG CAPITAL IMPROVEMENT REVENUE BOND COVERAGE
The 'AA+' rating for the capital improvement revenue refunding bonds incorporates the city's general creditworthiness and covenant to budget and appropriate (CB&A), by amendment if necessary, sufficient legally available NAV revenues to pay debt service. Such covenant is cumulative and shall continue until all payments of principal and interest on the bonds shall have been budgeted, appropriated, and actually paid.
Major NAV revenues available for the city to annually appropriate to pay principal and interest on the capital revenue bonds totaled approximately $54 million in fiscal 2014. After declines and flat performance, NAV revenues returned to annual growth in fiscal years 2012 and 2013 (about 1% and 2%, respectively) with continued growth in fiscal 2014, estimated for fiscal 2015, and budgeted for fiscal 2016 (about 7% , 4%, and 2% respectively). Available NAV revenue for capital improvement revenue bond debt service remains strong, with fiscal 2014 net revenue (net of payable essential expenditures) at about 5 times projected future maximum annual debt service (MADS). A portion of the NAV revenues is pledged to outstanding franchise fee revenue debt.