NEW YORK--(BUSINESS WIRE)--Fitch Ratings takes the following rating actions on Coral Springs, FL's bonds:
--Approximately $4 million unlimited tax general obligation bonds (ULTGO) outstanding (series 2005A and 2005B) affirmed at 'AAA';
--Approximately $10.7 million outstanding franchise fee revenue refunding bonds, series 2004 affirmed at 'AAA';
--Approximately $11.3 million outstanding capital revenue refunding bonds, series 2008 affirmed at 'AA+'.
Fitch has withdrawn its ratings for the following Coral Springs (FL) bond due to prerefunding activity:
--GO bonds series 2006 (all maturities).
The Rating Outlook is Stable.
SECURITY
The ULTGO bonds are secured by an ad valorem tax, unlimited as to rate or amount.
The franchise fee revenue refunding bonds are secured by a first lien on and pledge of communications service tax (CST), public service tax (PST) and franchise revenues.
The capital improvement revenue refunding bonds are secured by the city's covenant to annually budget and appropriate sufficient revenues derived from non-ad valorem (NAV) sources to pay debt service. Such covenant to budget and appropriate NAV revenue is subject to the availability of NAV revenues after satisfying obligations with a specific lien on such revenue and the funding of essential government services.
KEY RATING DRIVERS
SOUND RESERVES DESPITE RECENT DRAW-DOWNS: Financial operations remain sound despite revenue volatility and spending pressures. Following recent year general fund operating deficits, the city estimates a significant surplus for fiscal year 2013 and balanced operations for fiscal year 2014. Stabilized reserves at projected robust levels are an important credit strength given the city's volatile, yet diverse revenue base.
ECONOMIC STABILIZATION: The city's taxable assessed valuation (TAV) took a hit, with peak to trough declines totaling 29% from fiscal year 2008 to fiscal year 2012. TAV returned to growth in fiscal years 2013 and 2014. Employment trends have been positive and unemployment is below state and national levels. City income levels are above state and national averages.
LOW DEBT; MANAGEABLE CARRYING COSTS: Overall debt is low and carrying costs, including required pension payments, other post-employment benefits (OPEB) and debt service are manageable. Debt levels should remain moderate, even with planned near-term debt issuance.
STRONG DEBT SERVICE COVERAGE: Franchise fee and capital improvement revenue bond debt service coverage from pledged/available revenues remains strong despite recent modest economic driven revenue declines.
COVENANT DEBT NOTCHING: A one-notch distinction between the capital revenue bond rating and the ULTGO rating reflects the absence of a pledge of specific revenue and the inability to compel the city to raise non-ad valorem revenue sufficient to pay debt service.
RATING SENSITIVITIES
MAINTENANCE OF ROBUST RESERVES: The city's history of maintaining solid reserves while addressing operating and capital needs indicates continued rating stability. A return to reserve draws for budget balance would pressure the ratings.
CREDIT PROFILE
Coral Springs is located in south Florida in the northern part of Broward County (GO bonds rated 'AAA'). Strong population and economic growth over the past two decades slowed over the past few years with the city population totaling about 125,287 in 2012.
ECONOMIC STABILIZATION
The city's economy is bolstered by its proximity to the sizable Ft. Lauderdale and Palm Beach County employment centers. City unemployment rates have historically been below state and national levels. The city's August 2013 unemployment rate of 5.5%, down from 6.7% a year prior, remains lower than the state (7.1%) and national (7.3%) rates. City income levels are above average and poverty levels are well below state and national averages.
Significant weakening in the local real estate market since 2008 decreased the city's TAV by about $3 billion or 29% to a still sizable $7.4 billion in 2012. After consecutive annual declines, TAV returned to growth in fiscal year 2013 (1.3%) and grew by 4.1% in fiscal year 2014. Management forecasts on-going annual increase of about 3.5% to 4.5% through fiscal year 2019 annually which Fitch views cautiously. The city's tax base is not concentrated. The top 10 taxpayers, a mix of retail and commercial properties, a utility, and a bank comprise about 6% of total TAV.
The city's millage rate remains well below the 10 mill cap and lower than nearby cities, despite recent increases. The city increased operating millage 4% to $4.5697 in fiscal year 2013 from a year prior. It was maintained at the same level for fiscal year 2014, but will generate more revenues due to the increase in TAV. Including debt service millage (.2033) the city's total rate for fiscal year 2014 is still low at 4.8.
SOUND RESERVES DESPITE DRAW-DOWNS
Financial operations and reserve levels remain sound despite recent economic pressure that led to reserve draws. The fiscal year 2012 unrestricted general fund balance was $18.7 million or 19.5% of spending. This represented a decrease from the fiscal year 2011 unrestricted balance of $23.5 million (24.4%).
The city is projecting a sizable operating surplus after transfers for fiscal year 2013 of about $6.6 million, which would bring the total ending balance to 31% of spending. The bulk of the surplus results from one-time revenues including cellular tower leases, a distribution of Resource Recovery Board reserves held under an interlocal agreement that expired, and a transfer of surplus funds from the closed volunteer fire fighter pension. Absent these non-recurring revenues, the city is still estimating a modest operating surplus after transfers of about $685 thousand (about 1% of spending). The fiscal year 2014 budget is balanced without the use of reserves.
General fund revenues are a diverse mix of largely property (33.9% in fiscal year 2012), franchise and utility taxes (21.5%), intergovernmental revenues including sales and communications services taxes (22.5%) and charges for services (13.6%). Demand driven revenues such as sales and gas taxes have seen declines over the past few years due to the slowed local economy offset in part by fee and tax revenue increases. Expenditures are led by public safety at 57% of total expenditures and transfers out.
LOW DEBT; MANAGEABLE CARRYING COSTS
Overall city debt levels ($1,386 per capita and 1.5% of market value in fiscal year 2012) and debt service as a percentage of governmental spending (4.4%) are low. Principal amortization is rapid at about 79% repaid within 10 years. Debt levels should remain moderate, even with planned issuance of up to $35 million in NAV backed revenue bonds and GO bonds in the next 12 to 24 months, off of the current base of about $53 million direct debt. Planned NAV backed bonds will fund the construction of a new municipal complex. GO bond issuance will fund emergency and fire services projects.
The city's employee retirement plans include three separate single-employer defined benefit plans for police, fire fighters, and general employees, and nine defined contribution plans for general employees and management. Pension funded levels are generally low at 65.9%, 58%, and 75.9% for the general, police, and fire fighter plans, respectively or 62.5%, 52.3%, and 68.4%, respectively, using Fitch's more conservative 7% discount rate.
The city averages annual full funding of required pension payments when factoring in state contributions and slight over and underfunding in some years. Fiscal year 2012 pension costs were about 11.5% of governmental operational spending. Other post-employment benefit (OPEB) contributions are on a pay go basis, and represent a modest percentage (0.6%) of governmental spending.
Total fiscal year 2012 carrying costs, including debt service, OPEB payments and required pension payments, as a percentage of governmental spending were manageable at 16.5% of governmental spending. The city's annual pension payment stands to benefit from a renegotiated police labor contract that includes adjustments to compensation calculations, cost of living, and the retirement age.
STRONG FRANCHISE FEE AND CAPITAL IMPROVEMENT REVENUE BOND COVERAGE
The 'AAA' rating on the franchise fee revenue refunding bonds reflects the city's general creditworthiness and strong annual debt service coverage. Pledged revenues of $25.3 million in fiscal year 2012 covered maximum annual debt service (MADS; $1.8 million) 14.4x. Coverage increases to 15x based on estimated fiscal year 2013 pledged revenues. The additional bonds test requires a lenient 1.4x coverage of MADS to issue additional debt, but coverage is expected to remain well above the 1.4x level as excess pledged revenues are used to support the city's general government operations.
The 'AA+' rating for the capital improvement revenue refunding bonds incorporates the city's general creditworthiness and covenant to budget and appropriate (CB&A) legally available NAV revenues to pay debt service. The capital improvement revenue bonds are secured by the city's CB&A, by amendment if necessary, sufficient amounts of NAV revenues for the payment of debt service on the bonds. Such covenant is cumulative and shall continue until all payments of principal and interest on the bonds shall have been budgeted, appropriated, and actually paid.
The total NAV revenues available for the city to annually appropriate to pay principal and interest on the capital revenue bonds totaled approximately $49 million in fiscal year 2012. After recent year flat performance, strong growth of 4% and 7% is expected for fiscal years 2013 and 2014, respectively, reflecting improved economic conditions. A portion of the NAV revenues is pledged to the franchise fee revenue bonds.
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, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.
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=808594
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