Fitch Affirms Hollywood, Florida's GOs at 'A'; Outlook Stable

Business Wire, March 19, 2008

NEW YORK -- In the course of routine surveillance, Fitch Ratings affirms the 'A' rating on the Hollywood, Florida's (the city) approximately $53.4 million in outstanding general obligation (GO) bonds. The Rating Outlook is Stable.

The 'A' rating reflects the city's low overall debt levels, limited capital needs, and conservative budgeting practices. The rating also considers the city's somewhat narrowly focused economy and limited reserve levels. Further credit concerns stem from budgetary pressures that may arise as a result of recently enacted property tax reform, passage of Amendment 1 (a charter amendment limiting assessed valuation and future growth), and a distressed housing market.

The city's direct debt levels are currently low at 1.19% of TAV and $1,146 per capita, although the city is considering issuing pension obligation bonds that would bring the debt burden into the moderate range. The city's original three-year budget forecast for fiscal 2006-2008 showed increasing general fund deficits, of $9.3 million to $17.5 million. As a result of conservative budgeting practices and stronger than expected revenue growth, the city ran surpluses of $3.99 million in 2006 and an estimated $2.5 million in 2007.

The city experienced strong growth in property values in previous years. However, due to the slowing of the housing market, the city's appraisers estimate property values are down 3% for fiscal 2009. The city has also experienced declines in housing starts and a decrease in building permits of 30% for fiscal 2008. Foreclosure and delinquency rates have increased in the past year, and are expected to rise further. The weakening housing market, coupled with the city's restraints on increasing the millage rate, could inhibit property tax revenue growth.

The Florida Legislature passed the Property Tax Relief and Reform package in June of 2007 last year, which required most counties and cities to reduce their fiscal 2008 tax levies. For Hollywood, the levy was reduced by 9% from the fiscal 2007 level. The provisions of Florida's Amendment 1, which was approved by voters in January, 2008, are estimated to result in an $11 million reduction of property tax revenues and could put additional strain on the city's budget when implemented in fiscal 2009.

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