Fitch Ratings affirms the following ratings to the Lee County, Florida
Tourist Development Tax (TDT) revenue bonds:
--$42.4 million series 2010A Build America Bonds (BABs) at 'AA-';
--$37.4 million series 2010B BABs, Zone Economic Development Bonds at
--$1.0 million series 2010C bonds at 'AA-';
--$4.0 million series 2004 bonds at 'AA-'.
In addition, Fitch affirms the following rating:
--Implied general obligation (GO) at 'AA'.
The Rating Outlook is Stable.
The bonds are secured by a pledge and lien upon the pledged revenues
including the five cent Tourist Development Tax Revenues (TDT), gross
revenues, consisting of lease payments from the Minnesota Twins and
Boston Red Sox, and federal interest subsidy payments related to the
outstanding 2010 series A and B BABs TDT revenue bonds.
The bonds are also secured by a cash-funded debt service reserve fund
KEY RATING DRIVERS
TDT REBOUND: TDT collections have made a strong recovery following a
sharp decline in fiscal 2009. Fiscals 2010 and 2011 TDT revenues
experienced annual increases of 4.2% and 5.3%, respectively. This trend
accelerated in fiscal 2012 with nine month year-to-date TDT revenues up
by 11.2% over the same period in fiscal 2011.
AMPLE DEBT SERVICE COVERAGE: Fiscal 2011 TDT revenues alone provide wide
coverage of both annual debt service and maximum annual debt service
(MADS) of 4.9x and 3.8x, respectively. The county is expected to
maintain elevated coverage levels, despite a planned future TDT bond
issue, due to a strong additional bonds test (ABT) and the county's
policy of limiting debt service to 20% of total TDT revenues.
SUPERIOR ALTHOUGH WEAKENING FINANCIAL POSITION: Financial reserves
remain strong after three successive years of drawdowns. Projected
unrestricted general fund balance for fiscal 2012 of $136 million
represents a still-robust 38% of expenditures, down from 57% in fiscal
2010. Absent a strong revenue recovery, finances may be further
pressured over the next two or three years given the county's reluctance
to raise property tax rates or institute deeper service cuts.
MODERATE DEBT LOAD: The county's debt burden is below average as
indicated by a direct and overlapping debt to full value ratio of 1.7%.
Fiscal 2011 debt service constituted a moderate 9% of general fund and
debt service expenditures.
STRENGTHENING ECONOMIC PROFILE: County employment exhibited steady and
significant growth in 2011 and 2012 year to date after steep declines
during the past recession.
Located along the Gulf Coast, the county encompasses approximately 811
square miles in southwest Florida. Major cities include Fort Myers
(Fitch implied GO rating of 'AA-') and Cape Coral (Fitch 'A+' rating on
non-ad valorem bonds).
Population increased rapidly during the early and mid-2000s but leveled
off during the latter part of the decade. Prime economic sectors include
health care, higher education and tourism.
ACCELERATING TDT GROWTH TRENDS
TDT has experienced brisk growth since falling by 8% in fiscal 2009,
with year-over-year increases of 4.2% and 5.3%, in fiscals 2010 and
2011, respectively. This trend accelerated dramatically in fiscal 2012
with nine month year to date TDT collections up over 11% from the same
period in fiscal 2011. According to information provided by the County
Visitor and Convention Bureau, hotel occupancy and room rates are both
significantly higher for the first five months of calendar 2012 than
during the same time frame in 2011 and 2010. A stronger regional and
national economy, an increase in international visitors who tend to stay
longer and the opening of JetBlue Park, the spring training facility of
the Boston Red Sox financed with the series 2010 TDT bonds, have all
contributed to the positive results.
HIGH COVERAGE LEVELS WHICH ARE EXPECTED TO BE SUSTAINED
Fiscal 2011 TDT revenues provide a hefty 3.9x coverage of current debt
service requirements and 3.82x coverage of MADS. These coverage ratios
do not include the 35% federal subsidy for interest on outstanding TDT
BABs issue. MADS coverage increases only marginally to 3.95x when lease
payments from the Boston Red Sox and Minnesota Twins for the use of
county-owned spring training facilities are included. Debt service
coverage is expected to remain wide due to a strong 1.75x MADS
additional bonds test and the county's policy targeting no more than 20%
of total TDT collections for debt service while allocating the rest of
the TDT to fund other tourist-related projects. While all five cents of
the TDT are pledged to and available for debt service, the bonds were
structured under conservative assumptions to utilize 20% or less of TDT
collections. Debt service is on an ascending scale which assumes
marginal annual TDT growth of less than 0.2% through 2041 in order to
stay within the county's 20% TDT target.
The county recently signed a conditional agreement with the Minnesota
Twins which would extend their stadium lease with the county by an
additional 30 years, subject to a number of conditions. The most
important conditions are the award of a state stadium grant and the
county securing adequate financing to fund mutually agreed upon
improvements to the existing facility. As part of that financing,
officials are considering the issuance of additional TDT bonds in 2013,
which could potentially total about $30 million. However, the final size
of the issue is dependent upon the outcome of further negotiations
between the county and the Twins.
AREA ECONOMY SHOWS SIGNS OF GROWTH
The area was hit hard by the recession as evidenced by substantial
employment losses and very high rates of foreclosures. County employment
levels declined by 13% between 2007 and 2010 and the unemployment rate
approached 13%. Jobs rebounded in 2011 increasing by 3.4% and growth has
continued into 2012. May 2012 employment was up 2.3% over the same month
in 2011. Foreclosure activity, once among the highest in the nation, has
declined considerably since 2008. Foreclosures ticked up during the
first half of 2012, most likely due to the resolution of legal issues
related to the robo-signing controversy, but remain well below the high
levels of 2008 and 2009. Wealth levels are generally above average,
although since 2006 they have declined relative to state and national
TAXABLE VALUES CONTINUE TO PLUMMET, ALTHOUGH AT A SLOWER RATE
Speculative building contributed to unsustainable past growth in the
county's mostly residential assessed value (AV) including a 40% tax base
increase in 2007. Since fiscal 2008, the combination of the housing
collapse and state property tax reform has had a magnified effect upon
AV, which has declined for four consecutive years losing 45% of value
during this period. Officials project a modest drop in values for fiscal
2013 before finally stabilizing in fiscal 2014.
ROBUST RESERVE LEVELS CHALLENGED BY SHRINKING REVENUE BASE
Financial operations remain solid, despite successive drawdowns of the
county's once-extensive reserve balances. Property taxes, the general
fund's largest revenue source accounting for two-thirds of total
revenues, declined by 45% between fiscals 2008 and 2012 as a result of
the precipitous drop in AV and the county's decision to not raise
property tax rates. While officials have implemented sizable spending
reductions, they have also made substantial draws from general fund
balance to avoid even harsher operational cuts. Between fiscals 2009 and
2011, general fund balance declined from approximately $278 million to
$202 million, a 27% decrease. Officials project a further drawdown of
about $35 million for fiscal 2012. However, the projected fiscal 2012
undesignated general fund balance of $136 million still represents a
substantial 38% of general fund expenditures. Out-year projections show
general fund unreserved balances declining to $65 million or a still
adequate 19% of expenditures by fiscal 2017, assuming 2% annual AV
growth beginning in fiscal 2014 and $4 million of annual spending
reductions. The projected balance remains within the county's target
fund balance policy of 15% to 20% of expenditures.
LOW DEBT BURDEN
Debt levels are low with an overall debt to market value ratio of 1.7%.
Direct debt of the county consists primarily of bonds secured by the
county's covenant to budget and appropriate pledge and TDT bonds.
Amortization is average with 46% of principal retired within 10 years.
The county's ten year capital plan is manageable at $2.5 billion.
Capital needs for the next five years are fully funded with the only
scheduled debt consisting of $53 million of utility-backed bonds for
expansion of a water treatment plant. As discussed previously, the
county is also considering an additional TDT issue in the range of $30
million for 2013.
MANAGEABLE RETIREMENT LIABILITIES
The county participates in the Florida Retirement System (FRS), a
cost-sharing, multiple employer retirement system, to provide pension
benefits for its employees. The plan is adequately funded with a funding
ratio of approximately 80%, according to Fitch's more conservative 7%
discount rate assumptions. Fiscal 2011 pension contributions by the
county of $31 million accounted for a manageable 8% of spending. The
county maintains two other post-employment benefit (OPEB) plans; a group
health plan for most county employees (general employee plan) and a
separate health care plan for employees in the sheriff's office
(sheriff's office plan). The county has set up a trust for the general
employee plan while the sheriff's office plan is funded on a pay as you
go basis. The general employee plan is 18% funded due to a one-time
deposit of $43 million. However, officials do not expect to make
additional deposits until the economy picks up. The county modified the
general employee plan in January 2008 to eliminate health insurance
subsidies for employees hired after that date, which will limit future
liabilities. The combined UAAL of the county's OPEB plans of $407
million represents a modest 0.6% of market value.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in the
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com,
National Association of Realtors
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
U.S. Local Government Tax-Supported Rating Criteria
Tax-Supported Rating Criteria
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