--Implied unlimited tax general obligation (ULTGO) to 'AA' from 'AA-'.
The Rating Outlook is Stable.
The TCIR bonds are secured by
The bonds are additionally secured by a cash-funded debt service reserve fund (DSRF) equal to maximum annual debt service (MADS) on the bonds. The city covenants to budget and appropriate (CB&A), by amendment if necessary, a sufficient amount of non-ad valorem revenue to make up any deficiency in the DSRF.
Appropriation is mandatory subject to the availability of non-ad valorem revenues, after funding essential government services and obligations with a specific lien on non-ad valorem revenues. The city's covenant obligation is cumulative and continues until the bonds have been fully paid.
KEY RATING DRIVERS
STRONG FISCAL TRACK RECORD: The rating upgrade is based on the city's sustained and continuing prudent management of financial operations, positive general fund results maintained amidst the recent recession, and adherence to strong reserve policies.
FAVORABLE DEBT PROFILE: The overall debt burden is low to moderate and future financing requirements are manageable. Pension and other post-employment benefit (OPEB) liabilities are not significant. The cost of funding debt and retiree benefit liabilities consume a modest share of the operating budget.
LIMITED ECONOMY WITH SIGNS OF IMPROVEMENT: Proximity to regional job markets somewhat offsets the limited nature of economic activity within the city. After several years of steep declines, assessed value (AV) has returned to moderate growth. Unemployment continues to recover and is now only slightly above state and national averages.
RESERVE COVENANT AS BASIS FOR RATING: The rating on the TCIR bonds is based on the city's reserve fund deficiency covenant, which is notched down from the city's implied ULTGO rating. Pledged revenues (gas taxes, interest earnings, and impact fees) more than sufficiently covers MADS at 1.5 times (x) in fiscal 2013.
CONTINUED SOUND FINANCIAL OPERATIONS: The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices, conservative budgeting, and ample reserves.
The city is a predominately residential community located in the southwest corner of Volusia County, in the east central part of the
VERY STRONG RESERVES PROVIDES SIGNIFICANT FLEXIBILITY
The rating upgrade recognizes that the city has maintained a high level of reserves and balance sheet liquidity for an extended period of time. Unrestricted general fund reserves totaled
Fitch expects the city to maintain compliance with its reserve policies and a high level of reserves given its history of conservative budgeting. Additionally, the city retains ample financial flexibility as management has made minimal spending reductions to date, instead controlling expenditure growth by delaying planned capital projects and implementing a hiring freeze.
TREND OF POSITIVE OPERATIONS
The city's consistently well managed finances is another positive rating consideration with operating surpluses (after transfers) recorded in five straight years since fiscal 2009 (including a
The fiscal 2015 proposed general fund budget is balanced. General fund expenditures are budgeted to increase by
The budget allocates
LIMITED BUT IMPROVING ECONOMY
The city is a largely residential and mostly built-out community with only a small commercial sector.
The city's unemployment rate continues to improve, dropping from a peak of 12% in 2010 to the
RECOVERY IN TAX BASE
The city's tax base is predominantly residential and volatile historically. AV fell 61% from fiscal 2007 through fiscal 2012, followed by growth of 4.9% and 8.1% in fiscal years 2013 and 2014, respectively. Current home prices are up close to 20% on the year according to Zillow and Trulia, but median sales prices (roughly
Concerns associated with tax base volatility are somewhat tempered by the city's historical practice of increasing the millage rate to stabilize property tax revenues, which account for approximately 36% of general fund revenues. The city did reduce the tax rate to 7.9 mills from 8.3 mills in fiscal 2012, and it has remained at that level since, preserving some cushion within the statutory 10 mill limitation. The proposed fiscal 2015 budget keeps the tax rate flat again, despite the increase in AV, generating an additional
AFFORDABLE DEBT BURDEN
Overall debt on a per capita basis is low at
Future capital needs are manageable. The fiscal 2015-2019 capital improvement plan (CIP) totals
LIMITED PRESSURE FROM OTHER LONG-TERM LIABILITIES
The city participates in the Florida Retirement System (FRS) and manages two single-employer pension plans (a defined benefit plan for firefighters and a defined contribution plan for general employees). The majority of city employees participate in the FRS plan as the city's defined contribution plan was closed to new hires as of
The city provides an implicit subsidy for its OPEB plan, and funds this liability on a pay-as-you-go basis. As of
SOUND COVERAGE FOR TCIR BONDS; CB&A PROVIDES SUPPORT
The city's non-ad valorem revenues returned to growth in fiscal 2013, increasing
Coverage of MADS on the TCIR bonds (
Both portions of the gas tax revenue are distributed between
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from CreditScope,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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