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Fitch Affirms Clay County, FL's $48MM Infrastructure Sales Tax Revs at 'AA-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed the following ratings for Clay County, Florida (the county):

--$47.8 million infrastructure sales tax revenue bonds, series 2009 at 'AA-';

--Implied general obligation (GO) rating at 'AA'.

The Rating Outlook is Stable.

SECURITY

The infrastructure sales tax revenue bonds are secured by a pledge and lien upon the county's local government infrastructure sales surtax, a one-cent sales tax levied by the county.

KEY RATING DRIVERS

LIMITED ECONOMY BOLSTERED BY PROXIMITY TO JACKSONVILLE: The county continues to benefit from its proximity to the broad and diverse economy of Jacksonville. The unemployment rate has improved, and population growth remains healthy.

SOUND RESERVES: General fund reserves are consistently ample. Conservative financial management and planning allows the county to regularly outperform budget.

FAVORABLE DEBT BURDEN: The county's overall debt burden is low, strengthened by rapid amortization, manageable capital needs, and affordable long-term liabilities.

ADEQUATE INFRASTRUCTURE SALES-TAX DEBT SERVICE COVERAGE: Debt service coverage remains adequate for the rating level. Coverage remained flat in fiscal 2011 compared to the prior year, and coverage is projected to remain level for fiscal 2012.

CREDIT PROFILE

LIMITED ECONOMY BENEFITING FROM PROXIMITY TO JACKSONVILLE

Located in the northeastern part of Florida, the county is mainly residential. It benefits from its proximity to Jacksonville (Fitch implied GO rating AA+; Outlook Stable), which serves as the economic anchor for northeastern Florida. Approximately 60% of residents commute into the city. The county's economy is somewhat limited, with a historical base in mining and dairy-based agriculture; however, more recent activity is in real estate, wholesale and retail trade and light industrial firms.

County wealth levels are mixed, with per capita personal income 86% and 83% of the state and national medians, respectively; on a median household income basis, county indicators are well above state and national averages at 128% and 118%, respectively. Unemployment continues to recover, with the 8.1% July 2012 rate well below the 9.5% rate of the prior July and lower than the state rate of 8.6%. Employment increased 1.7% during that period, slightly below the state's increase.

Fitch is optimistic about the county's long-term prospects for tax base growth. The county has experienced steady population growth over the past decade, increasing 37% since 2000, although growth has tailed off in recent years. The economy is slowly expanding to meet the needs of residents. St. Vincent's Hospital recently broke ground, and the hospital is expected to be operational in the summer of 2013, providing over 500 jobs to the community. Construction of the first part of the First Coast Outer Beltway, a proposed four-lane roadway, is expected to commence in late 2012. The Outer Beltway will pass through the county, and management believes it will improve economic development in the county and northeast Florida when complete.

The county has been experiencing steady declines in assessed value (AV) since the peak in fiscal 2008, decreasing 24% between fiscals 2009 and 2012. The 2.7% decrease in fiscal 2013 has moderated from that of the past two fiscal years. The county has moderate revenue raising ability, with a 7.851 millage rate below the 10 mill cap.

AMPLE RESERVE LEVELS DESPITE DECLINING REVENUES

Consistent and healthy reserves are a hallmark of the county's sound financial management. The general fund unrestricted fund balance levels have consistently been higher than 20% of spending. Liquidity levels are solid.

Fitch notes some pressure from pattern of reduced revenues. Revenue declines have been consistent over the past several years, due to the economic downturn and housing correction. After declining 11% between fiscals 2009 and 2012 (estimated actual for fiscal 2012), property taxes across the general, fine and forfeiture, and sheriff MSTU funds are budgeted to drop 2.5% in fiscal 2013. County management did not indicate when draws on reserves will cease; however, management has stated they intend to continue to keep fund balances consistent with past levels. Fitch believes this is feasible given their track record and recent stabilizing actions. In fiscal 2011, the county eliminated 41 FTEs, and continued the elimination of the COLA, resulting in expenditures coming in under budget across the three major funds.

With a minimal general fund deficit in fiscal 2011, unrestricted reserves equaled a sizable 24% of general fund spending, which captures operating expenditures previously recorded in the sheriff special revenue fund. The county has maintained positive operations by proactively reducing spending to compensate for lower revenues.

After budgeting for the use of over $6.5 million (13.2% of spending) in the general fund in fiscal 2012, the county estimates using a much lower $1.5 million, to conclude the fiscal year with a general fund unrestricted balance of $19.4 million, consistent with fiscal 2011 reserve levels. Similar to fiscal 2012, the county's fiscal 2013 budget calls for the use of roughly $6.4 million in reserves, but management expects the actual drawdown to be less.

Traditionally, the county budgets the use of a significant amount of reserves, as according to state law, reserves cannot exceed 10% of budget, and the county is required to budget revenues at 95% of expected collections. Fitch notes that the county has either used a portion or none of the planned drawdown due to conservative budgeting and on-going monitoring throughout the year. Fitch believes the county retains a fair amount of expenditure flexibility allowing it to reduce spending further if needed.

WELL-MANAGED LONG-TERM OBLIGATIONS

Overall debt equals a low 1.4% of taxable assessed value (TAV) and $601 per capita. Amortization is exceptionally rapid, driven by the upcoming final maturity in fiscal 2018 of the infrastructure sales surtax revenue bonds which make up the majority of the county's debt. Fitch notes that the county has no exposure to variable rate debt or derivatives.

The county's fiscal 2013-2017 capital improvement plan (CIP) totals a modest $46 million, excluding debt service payments. The CIP is fully funded through prior year carry-over balances and sales tax revenues. The county has indicated they do not have plans for additional debt issuance. The one-cent sales tax expires on Dec. 31, 2019, at which time the county may need to find alternative sources of revenue for capital funding.

Pension and OPEB obligations do not pressure the credit. Employees participate in the state administered Florida Retirement System, and the county contributes 100% of its required contribution annually. The county's fiscal 2011 contribution equaled 8.7% of combined general fund, fine and forfeiture and sheriff MSTU spending. The county administers a single-employer defined benefit OPEB plan, and continues to fund it on a pay-as-you-go basis, contributing approximately $880,000, equal to 48.3% of the ARC in fiscal 2011; the unfunded accrued actuarial liability was $20 million or 0.2% of TAV. Management has no plans to develop a trust at this time, and will continue to fund the OPEB plan on a pay-as-you-go basis.

DEBT SERVICE COVERAGE REMAINS SUFFICIENT

Infrastructure sales tax revenues provide adequate maximum annual debt service (MADS) coverage given the rating level, at 1.45x in fiscal 2011 and 1.43x in fiscal 2010. Sales tax revenues through the first 10 months of fiscal 2012 are up 3.8% from the prior year, and are estimated to provide 1.49x debt service coverage at the end of fiscal 2012. Fitch believes debt service coverage levels will remain stable because of the county's lack of additional debt plans.

Legal provisions are sound. The additional bonds test requires a satisfactory 1.35x MADS coverage to issue additional debt. Fitch believes additional issuance is highly unlikely, since the tax expires in 2019. The debt service reserve fund is standard and cash funded.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from CreditScope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and the National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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Fitch Ratings
Elizabeth Fogerty, +1-212-908-0526
Media Relations, New York
elizabeth.fogerty@fitchratings.com
or
Primary Analyst:
Nicole Wood, +1-212-908-0735
Associate Director
Fitch, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst:
Barbara Ruth Rosenberg, +1-212-908-0731
Director
or
Committee Chairperson:
Amy Laskey, +1-212-908-0568
Managing Director

Source: Fitch Ratings