Fitch Rates Polk County, FL $15.1MM Capital Improvement Revs Und 'AA-'

Business Wire, Oct 28, 2004

NEW YORK -- Fitch Ratings has assigned an underlying 'AA-' rating to Polk County (the county), Florida's approximately $15.1 million capital improvement refunding revenue bonds, series 2004A. The bonds, expected to be insured, are scheduled to price via negotiation on or about Nov. 17 through a syndicate led by Morgan Stanley. Dated the date of delivery, the bonds mature Dec. 1 2005-2011. Bond proceeds will refund the county's outstanding capital improvement revenue bonds, series 1994, for an estimated net present value savings of 3.9% of the refunded par. In addition, Fitch affirms the 'AA-' rating on the county's approximately $58.6 million in outstanding capital improvement revenue bonds and the 'AA-' rating on approximately $19.2 million in outstanding constitutional fuel tax revenue bonds. The county's implied general obligation bond rating is 'AA-'. The Rating Outlook is Negative.

The underlying 'AA-' rating on the capital improvement bonds is based on solid coverage by pledged revenues and satisfactory legal protections for bondholders. In addition, the rating incorporates the county's general credit characteristics, including the strong tax base growth and a somewhat limited but diversifying economic base, as well as tax base concentration and volatile financial results in recent fiscal years. The Negative Rating Outlook reflects a trend of general fund deficits and a significant reduction in reserve levels over the past five fiscal years. Maintenance of the current rating level is contingent upon a stabilization of reserve levels and a return to structurally balanced operations over the next several fiscal years.

The capital improvement bonds are secured by a pledge of local government one-half-cent sales tax (the sales tax) revenues. The sales tax revenue is remitted monthly by the state to the county and its incorporated municipalities based on a formula that is sensitive to shifts in the unincorporated area population. Coverage of MADS on all debt backed by the sales tax is a sound 2 times (x) by fiscal 2003 revenues, adjusted for a reduction in the portion of the sales tax remitted to counties, beginning July 1, 2004.

The area economy is somewhat limited, with the citrus and phosphate mining industries being important components of the county's economic base. However, some economic diversification has occurred. Benefiting from its location between the rapidly growing Tampa and Orlando areas and good transportation links, the county is increasingly attractive as a light manufacturing and distribution center. Tax base growth has been strong, averaging 5.5% annually over the past five fiscal years. The increases are largely driven by residential development in the western portion of the county, closest to Tampa. Per capita income is below average, equal to approximately 85% of state and national averages. The unemployment rate has historically been above state and national levels and generally peaks in the summer months due to the seasonal nature of the agricultural component of the county's economy.

Despite a trend of general fund deficits, the county maintains adequate reserve levels. Significant general fund deficits in fiscal years 2000-2002 led to a reduction in total fund balance from $89.2 million at the end of fiscal 1999 to $44.4 million at the end of fiscal 2003. A small operating surplus in fiscal 2003, leading to an undesignated general fund balance of $38.9 million (a healthy 17.7% of spending and transfers out) was attributable to one-time revenue sources. The county is predicting a small general fund deficit of $1.5 million for fiscal 2004. Additional financial flexibility should be realized in fiscal 2005 due to a full fiscal year's impact of a January 2004 increase in the public service tax rate to 8% from 2%, as well as the January 2005 implementation of a one-half-cent sales tax approved by voters to fund indigent health care costs. The county estimates that costs related to hurricane damage during fiscal 2004 will total approximately $40 million, 95% of which will eventually be reimbursed by federal and state sources.

Debt levels are low on a direct basis at 0.98% of market value. Overall debt levels, taking into account debt of the school direct, are moderate at 3.3% of market value. The county maintains a five-year capital improvement plan for which the first two years of funding are identified. The fiscal years 2005-2009 capital plan totals $397 million, the majority of which is for improvements to the water and sewer utility (revenue bonds rated 'A+' by Fitch) and transportation capital improvements. The only debt issuance currently anticipated is approximately $40 million of utility revenue bonds at the end of the 2004 calendar year.