Fitch Rts Sebastian, FL's Stormwater Revs 'A'; Stable Rtg Outlook

Business Wire, Oct 21, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 21, 2003

Fitch Ratings assigns an underlying 'A' rating to the City of Sebastian, Florida's (the city) approximately $5.65 million stormwater utility revenue bonds, series 2003. The bonds, expected to be insured, are scheduled to price on or about Nov. 5 through negotiation with Kirkpatrick Pettis. Bonds mature Nov. 1, 2004-2023. Proceeds will be used to fund various projects to improve capital infrastructure and water quality dispensed into the Sebastian River. The Rating Outlook is Stable.

The 'A' rating on the stormwater revenue bonds is based on the stormwater fee's minimal impact on the city's overall annual tax bill and strong collection method, given it benefits from the enforcement procedures applied to the collection of city and county ad valorem taxes. The city's conservative fiscal management practices marked by the city's adoption of formal financial and debt management policies is also a favorable credit factor. Furthermore, the rating incorporates the average legal covenants, adequate debt service coverage for the category, and future moderate capital needs that are planned to be financed with a phased in assessment program.

Sebastian, with a 2001 estimated population of 17,425, is a predominantly residential community located in Indian River County (rated 'AA' by Fitch), 25 miles south of Melbourne and 75 miles north of West Palm Beach. Population grew nearly 60% during the past decade and is projected to increase by 40% over the next 10 years, as people reportedly relocate from more developed areas both north and south of the city. By 2005, Sebastian is projected to be the largest city in the county. The area economy is narrowly focused on citrus and tourism. Wealth levels are below average, and the regional unemployment rate has typically been higher than the state and nation due to the strong agricultural component of the economy.

This issuance is secured by a monthly stormwater fee of $4 per ERU (equivalent residential unit) adopted by ordinance in September 2001. While the service area is mostly residential, the city also serves a smaller commercial component whose rate is adjusted for land size. Since 2002, the fee has been billed along with the other ad valorem taxes and collected by the Indian River County tax collector's office; thereby holding a lien against property until the entire bill is paid in full. The collection enforcement method applied to the stormwater fee, as part of the ad valorem tax bill, mitigates the limited collection history. As per the fee ordinance, the city is required to allocate a minimum of 80% of stormwater revenue receipts to the stormwater system's capital projects, including debt service, with the remaining 20% for operating expenses of the system.

Following two years of collection, the city's stormwater fund is expected to provide adequate coverage. Fiscal 2003 unaudited year-end results show a $1.3 million reserved fund balance, $450,000 of which is designated as a supplemental reserve and slightly above maximum annual debt service (MADS). The remaining fund balance is designated for capital projects and grant matching. According to city officials, fiscal 2003 unaudited gross revenues provides 1.7 times (x) coverage of MADS, above its 1.35x legal requirement. Net of operating expenses, coverage lowers to 1.3x in 2003 and is projected to range from 1.4x-1.6x through its maturity. The city's conservative projections include a .05% annual growth rate in fees although building permits have been growing at an annual average rate of 4.6%. The projections also assume that customer credits, given mostly to commercial users, have been adjusted and settled after re-evaluating their on-site detention capacity. While the stormwater fee is expected to provide sufficient coverage, the city also covenants to budget and appropriate from non-ad valorem revenues, albeit subordinate to other senior non-ad valorem debt service, to make up any deficiencies in the reserve account. This additional revenue stream is withdrawn after two years of maintaining 1.5x coverage.

This issuance is expected to finance all of the recommended projects in the city's stormwater management system conceptual master plan, totaling an estimated $3.9 million. Primary projects include the construction of several wet detention ponds and replacement of culverts throughout the service area to improve drainage flowing into the Sebastian River and then the Indian River Lagoon. City officials are also considering the installation of a curb and gutter system and plan to potentially finance it through a property assessment program beginning in 2004-2005. The city does not plan to secure any future debt with stormwater fees.