The Rating Outlook remains Negative.
Bonds are secured by net revenues of the county's solid waste system (the system). The additional bonds test and rate covenant are both 1.20 times (x) and allow the use of a portion of the rate stabilization fund to be included in meeting these thresholds. A reserve fund is funded with surety bonds equal to maximum annual debt service.
KEY RATING DRIVERS
WEAKENED OPERATIONS DRIVE OUTLOOK: The Negative Outlook reflects the county's reduction in net revenues leading to projected fiscal 2014 debt service coverage (DSC, excluding rate stabilization fund) inconsistent with the current rating. The county's fiscal 2015 projections assume an increase in net revenues as a result of growth in waste tonnage levels and higher overall revenues leading to stronger projected DSC levels. If these projections are not realized DSC levels will remain low and pressure the rating.
HISTORICALLY FAVORABLE PLEDGED REVENUES: Pledged net revenues from the county's well established solid waste system have historically provided solid DSC from operations.
HOUSEHOLD COLLECTION FEES COLLECTED ON TAX BILL: Residential solid waste fees collected from over 324,000 households are charged on the property tax bill. This provides strong incentive for payment. Revenues from tax bills represent a strong 57% of total projected fiscal 2014 revenues providing some stability. The county board of commissioners retains ability to raise these fees.
STRONG LIQUIDITY POSITION: The county has maintained strong system cash balances helping support capital expenditures and offsets the projected decline in DSC levels to some extent.
CAPITAL NEEDS ARE MANAGEABLE: The system's capital plan for the next five years is manageable and relies on a modest amount of new system-supported debt. This should not affect operations due to the rapid amortization rate of current debt.
MODEST ECONOMIC RECOVERY OCCURRING: The local economy continues to experience improvement. Unemployment rates have improved and rising home values are indicative of an improved housing market.
ADEQUATE DEBT SERVICE COVERAGE LEVELS: Projections for fiscal 2014 show DSC (excluding rate stabilization funds) declining to below-average levels. Budget projections for fiscal 2015 show growth in DSC to more adequate levels. Maintenance of DSC at more adequate levels consistent with the rating category is key to maintaining the current rating.
The fully integrated solid waste system operates as a self-supporting enterprise fund of
The system includes the county owned waste-to-energy Resources Recovery Facility (RRF), three landfills (one of which is for the disposal of ash byproducts), three transfer stations, 13 neighborhood trash and recycling centers, and contract disposal capacity at two alternative private facilities. The county provided waste collection to approximately 324,400 residential units in 2013.
NET REVENUES DECLINE IN FISCAL 2013
Operating revenues declined in fiscal 2013 to
Fiscal 2013 expenditures increased 3.8% (or
FISCAL 2014 NET REVENUE PROJECTIONS SHOW PRESSURE
County projections for fiscal 2014 show an additional drop in operating net revenues of approximately
Offsetting the decline in electric revenues is the reduction in contractual payments to Covanta, the resource recovery plant operator. The contract requires the county to share sales revenues with Covanta, which are expensed by the county. Other positive variances include higher projected tonnages coming into the system, and higher collection fees due to growth in the number of household/commercial units.
Operating expenses are projected to be higher than budget by
PRELIMINARY BUDGET PROJECTS RETURN TO HIGHER COVERAGE
The preliminary fiscal 2015 budget includes a 2% increase in operating revenues with a conservative figure for projected tonnage. Utility service fees and energy revenues are expected to rise moderately. Tipping fees and surcharges will rise by 2.3% based on the increase in the Consumer Price Index (CPI). Management has not raised the household collection fee which remains
Fitch notes that while system net revenues have resulted in historically sufficient debt coverage above required levels, there is a downward trend in coverage. Continued operations at coverage levels close to or below the required 1.2x rate covenant (excluding rate stabilization funds) expose the system to a greater risk of even lower coverage due to unexpected increases in expenses or reductions in revenues. Failure to develop a financial plan that addresses these risks and provides for adequate tipping and household collection fees that preserve higher DSC commensurate with the current rating level could lead to downward rating pressure.
STRONG LIQUIDITY LEVELS
Reserve levels remain strong as of
BULK OF REVENUES DERIVED FROM TAX BILL
System revenues are primarily derived from a household collection fee charged to the residential property tax bill and constituted a high 52% of the system's
Residents are currently being charged
INTERLOCAL CITY AGREEMENTS AND ENERGY CONTRACTS SUPPORT REVENUES
The county has long-term interlocal agreements with 18 of the largest cities in the county for solid waste disposal. Fees charged to contracted municipalities are subject to annual changes based on CPI.
A majority of the interlocal agreements expire in 2015, but six of the 18 have been recently renewed through 2025 or longer. These six represent approximately 60% of waste tonnage collected and include
There is currently no local flow control ordinance in place for these municipalities, although newly incorporated municipalities are required to remain in the county's collection system. That said, the county board of commissioners could decide to enact such an ordinance if necessary.
MODERATE CAPITAL NEEDS
The county does not anticipate any additional debt until fiscal 2016 when it will consider the issuance of approximately
The county has approved a plan to move to natural gas operated vehicles on a county-wide departmental basis. Such plan is expected to provide substantial fuel costs savings for the system. The plan is expected to be fully implemented over the next three years. Other efforts to reduce costs include the recent implementation of an automated garbage collection program and use of route automation software to help reduce the number of collection routes and associated fleet and overtime costs.
DIVERSE ECONOMY EXPERIENCING SIGNS OF TURNAROUND
The area economy is diverse with a large international component. The presence of healthcare, higher education, and professional and business services balance the tourism component of the county's economy for which it is so well known. Wealth levels for the county are below average and the county's unemployment rate of 7.3% for June remains above state and U.S. averages. The rate has improved from 9.2% for the prior year as both employment and labor have increased. Home prices continue to rebound strongly. According to Zillow.com, housing values have improved 16.1% year over year countywide through July.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria and Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, S&P/Case-Shiller Home Price Index,
--'Solid Waste Revenue Bond Rating Criteria' (
--'Revenue-Supported Rating Criteria' (
--'Tax-Supported Rating Criteria' (
Solid Waste Revenue Bond Rating Criteria
Revenue-Supported Rating Criteria
Tax-Supported Rating Criteria
Source: Fitch Ratings
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