Fitch Ratings affirms the ratings on the following bonds of the city of --
--Implied general obligation at 'AA-'.
The Rating Outlook for the implied GO and improvement revenue bonds is Negative.
The Rating Outlook for the gas tax revenue bonds is Stable.
The improvement revenue bonds are secured by a pledge of utilities tax, communication services tax, franchise fees, and occupational taxes imposed by the city, guaranteed entitlement revenues received from the state revenue sharing trust fund, and the city's share of local government half cent sales tax revenues collected within the county and shared with its municipalities pursuant to a population based formula. The bonds are also secured by a surety funded reserve account.
The gas tax revenue bonds are secured by a pledge of local option gas taxes levied by
Key Rating Drivers
Shift In Financial Performance: The Negative Outlook on the implied GO reflects Fitch's concern about the city's financial profile and the pressures posed by rising pension costs.
Pension Burden a Concern: The city's pension liability is expected to remain very large despite recent efforts to curb employee benefits.
Moderate Debt Load: The city's pension problem is somewhat tempered by its moderate debt burden, rapid amortization of principal, and absence of major capital needs and borrowing plans.
Limited Tax Rate Margin: The city's tax rate is relatively close to the statutory cap, although efforts are underway to add non-ad valorem revenues.
Tourism Dependent Economy: Economic activity is mainly driven by tourism activity, retail, and real estate; the city therefore is exposed to variability of economic cycles over the long term.
Strong Revenue Bond Coverage: Both revenue bond securities exhibit coverage of maximum annual debt service of 2.4 times. The one-notch rating differential reflects the different pledged revenue sources. The implied GO rating serves as the ceiling for the improvement bonds and as a result, the Outlook on the improvement bonds is also Negative.
Improvement in Financial Profile: Rating stability is predicated on further steps by the city in fiscal 2015 to restore structural budgetary balance and the maintenance of adequate reserve levels. Failure to restore structural balance to ensure maintenance of these reserves will lead to negative rating action.
Coverage Maintenance: The revenue bond ratings are subject to leveraging risk and revenue volatility linked to general economic conditions. The latter risk is considered more probable but is adequately tempered by the strong debt service coverage.
Weak Pension Funding
Of paramount concern to Fitch is the city's very weak pension funding levels. The firefighter, police, and general employee plans funding levels (unadjusted) as of
On a positive note, the city continues to fully fund the actuarial required contribution, but the growing burden placed on the budget by pensions is a concern. Pension contributions have more than doubled from
The city is undertaking pension reform efforts that are designed to generate near-term spending relief and reduce the benefit burden over time. Modifications to the general employees' pension plan were adopted in
Narrowing General Fund Reserves
Fiscal 2012 results included a
Unaudited results for fiscal 2013 indicate a
The fiscal 2014 general fund budget appropriates about
Transfers to the general fund from the risk management fund are budgeted to draw down the balance in that fund to
General Fund expenditures are budgeted at
The further narrowing of reserves expected in fiscal 2014 heightens the need for the city to close its budgetary gap. The recurrent use of reserves and other one-time sources to balance the budget is unsustainable and a serious credit concern. To address the imbalance, the city is pursuing a fire assessment fee for fiscal 2015 to be billed with property taxes; the fee would generate approximately
Adequate reserves are a key mitigant to concerns regarding the city's limited, tourist based economy and growing fixed cost burden. Failure to restore structural balance to ensure maintenance of these reserves will lead to negative rating action.
Improved Employment and Tax Base Performance
Economic indicators are showing signs of a moderate recovery. The economic base is dependent on tourism, and passenger traffic at
Coverage Remains Strong
Unaudited fiscal 2013 coverage of MADS on both the gas tax and improvement revenue bonds remains sound at 2.4x. Pledged gas tax revenues were essentially unchanged in the most recent year and pledged improvement revenues showed modest growth. Additional leveraging is not expected.
Additional information is available at fitchratings.com.
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Fitch Ratings affirms the ratings on the following bonds of the city of