Fitch Ratings has affirmed the following Martin County, Florida (the county) ratings:
--$28.17 million gas tax revenue bonds series 2006 at 'AA-';
--Implied unlimited tax general obligation (ULTGO) bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The gas tax revenue bonds are payable from a first lien on revenues derived from a basket of state and locally imposed gas taxes. The bonds are additionally secured by a debt service reserve fund (DSRF) surety provided by Ambac.
KEY RATING DRIVERS
LIMITED LEGAL PROTECTIONS: The 'AA-'rating for the gas tax bonds reflects the relatively narrow and passive revenue pledge and fairly weak legal structure which includes an additional bonds test (ABT) of 1.35x and a surety-funded DSRF.
STRONG DEBT SERVICE COVERAGE: Debt service coverage on the gas tax revenue bonds has continued to improve to a strong 3.1x in fiscal 2014 (unaudited). No senior, subordinate, or parity debt exists and the county currently has no plans to further leverage the gas tax revenue stream.
SOUND FISCAL MANAGEMENT: The county's history of prudent financial stewardship is marked by annual additions to ample reserves despite the use of general fund resources for capital.
LIMITED LOCAL ECONOMY: The local economy is primarily residential and somewhat limited. Wealth levels are modestly above average, and unemployment rates have fallen in line with both the state and national levels.
LOW DEBT AND CARRYING COSTS: The county's overall debt levels are below average and carrying costs including debt service, pension, and other post-employment (OPEB) benefits are affordable.
RATING SENSITIVITIES
DIMINISHED FINANCIAL PERFORMANCE: Maintenance of adequate reserves and balanced operations will be instrumental in preserving the current implied ULTGO rating level given the county's limited economic base.
ADEQUATE PLEDGED REVENUES: The rating on the county's gas tax bonds is sensitive to pledged revenue coverage. A significant decline in gas tax receipts or excessive leverage of the revenue stream would lead to a downgrade of the gas tax bond rating.
CREDIT PROFILE
Martin County is located on the eastern coast of Florida approximately 45 miles north of Palm Beach. The county covers 556 square miles with a 2013 population of approximately 151,000, which has experienced strong growth of 19.4% since 2000. The county includes the cities of Palm City and Stuart, the county seat. The area is primarily residential with a somewhat limited economy concentrated in agriculture, health care and tourism.
IMPROVING FUEL TAX REVENUES
Pledged gas tax revenues have recovered following several years of modest declines. Some volatility is to be expected with regard to local economic factors and longer-term population and consumption trends; however, the essential nature of the commodity and the statutory distribution of certain gas tax revenues partially mitigate this concern. Gas tax collections are based on a fixed number of cents per gallon sold, and are therefore, only indirectly affected by fuel price fluctuations which may influence consumption. Fiscal 2014 revenues increased by 4.6% from a year prior, reaching a strong 3.1x maximum annual debt service (MADS) on an unaudited basis.
Management has conservatively budgeted for revenues to remain essentially flat in fiscal 2015, given moderate growth in recent years. A somewhat weak additional bonds test (ABT) of 1.35x coverage is required to further leverage the county's gas tax revenues; the county does not have plans for additional gas tax debt.
LIMITED LOCAL ECONOMY
The local economy is based mainly in agriculture, health care and tourism. The largest private sector employers in the county are primarily health care institutions and suppliers. The 6% unemployment rate in October 2014 was down from 7.3% a year prior due to strong employment growth, bringing local unemployment in line with state (5.8%) and national (5.5%) averages for the same period.
A wealthier retiree population accounts for per capita income metrics approximately 20%-35% above state and national averages. Population growth has moderated after experiencing large gains in the earlier part of the prior decade.
The county experienced large declines in assessed values (AV) in fiscals 2009 through 2011, like much of the state, and posted more moderate declines of 2% and 1.2% in fiscal 2012 and 2013, respectively. Fiscal 2014 marked the first year of post-recessionary stabilization with total AV growth of 1.5%, and further growth of 2.9% expected in fiscal 2015.
AMPLE FINANCIAL FLEXIBILITY
The county's general credit quality is characterized by strong financial operations, highlighted by conservative budgeting policies, generally positive year-end results, and healthy reserves. The county's fiscal policy establishes an emergency reserve equal to 10% of the general fund operating budget and the county has consistently exceeded this benchmark in recent years.
Conservative budgeting resulted in a net operating surplus (after transfers) of $2.9 million in fiscal 2013, increasing the unrestricted general fund balance to a robust $34 million or 28% of total general fund spending. The fiscal 2014 budget is balanced without the appropriation of reserves and management expects unrestricted general fund balance to remain essentially flat in fiscal 2014, which Fitch considers reasonable given the county's historically strong performance relative to budget.
The fiscal 2015 budget is balanced without the use of reserves and includes property tax growth of approximately 2%, marking the first year of expected growth since the recession. Fitch considers this expectation reasonable given the county's history of conservative budgeting and recent tax base growth.
MANAGEABLE LONG-TERM LIABILITIES
The county's overall debt burden is low at $928 per capita and 0.6% of full market value. Amortization is very rapid with 85% of principal retired within 10 years, and the county has minimal plans for additional debt in the near future as management indicates that near-term capital needs will be funded from current resources.
Pension benefits are provided through the Florida Retirement System (FRS), which covers nearly all employees of the county with a reported funded ratio of 85.4%. Fitch estimates FRS to have a funded ratio of 78.9% using the 7% investment rate of return used by Fitch. The county's annually required contribution (ARC) has declined in recent years to $9.9 million in fiscal 2013, representing an affordable 7% of governmental fund expenditures.
Other post-employment benefits (OPEB) are provided by the county on a pay-go basis and the unfunded liability is a low 0.6% of market value. Total carrying costs including debt service, pension, and OPEB contributions are a modest 13% of governmental fund expenditures.
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, University Financial Associates.
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=964696
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