Fitch Rates Hillsborough County, FL's Bank Bonds 'AA+'; Outlook Stable

Fitch Ratings has assigned an 'AA+' rating to bank bonds associated with the following county capital improvement program commercial paper notes:

--$275.5 million series A, series B (AMT) and series C (Taxable) (collectively, the bonds).

The rating is being assigned in conjunction with execution of a letter of credit and reimbursement agreement dated as of April 1, 2014 between the county and the Bank of Tokyo-Mitsubishi UFJ, LTD (rated 'A/F1' with a Stable Outlook by Fitch) for the notes. Based on a review of the terms governing bank bonds specified in the agreement, it is Fitch's opinion that the incremental risk associated with bank bonds does not have a material impact on the long-term credit rating.

In addition, Fitch affirms the following ratings on the county's outstanding obligations:

--$249.5 million community investment tax (CIT) revenue bonds at 'AA';

--$68 million general obligation (GO) bonds, series 2002, 2009A and 2009B at 'AAA';

--$104.1 million non-ad valorem (non-AV) revenue bonds at 'AA+';

--$68.8 million capital improvement revenue bonds, series 2012 at 'AA+';

--$30.6 million court facilities refunding revenue bonds, series 2005 at 'A+'.

The Rating Outlook is Stable.

SECURITY

The bank bonds are equally secured with the county's non-AV revenue bonds by a covenant to budget and appropriate (CB&A), by amendment if necessary, sufficient amounts of non-AV revenues for the payment of debt service on the bonds. Appropriation is mandatory subject to the availability of non-AV revenues, after funding essential government services and obligations with a specific lien on non-AV revenues. The county's CB&A obligation is cumulative and continues until the bonds have been fully paid.

The GO bonds are secured by the county's full faith, credit and taxing power.

The capital improvement bonds (sales tax bonds) are secured by the county's share of the proceeds of the local government half-cent sales tax on parity with outstanding series 2006 bonds.

The CIT bonds are secured by the county's share of revenues derived from the community investment tax (CIT).

The court facilities bonds are secured by court surcharge revenues and a lien on CIT revenues on parity with the CIT bonds. The CIT revenues are available to cover any shortfalls in traffic surcharge fees and may be released under certain conditions.

KEY RATING DRIVERS

NON-AV PLEDGE SUPPORTS STRONG SECURITY: The 'AA+' rating on the bank bonds and non-AV bonds reflects a broad and diverse revenue base, relatively strong coverage of CB&A debt service, and substantial reserves available to cover any potential revenue shortfalls.

TOP-LINE CREDIT STRENGTH: The 'AAA' GO rating reflects the county's broad-based and diverse economy, strong management team, consistently healthy financial position, and manageable debt levels.

SIGNIFICANT CIT GROWTH BOOSTS COVERAGE: Fiscal 2013 CIT revenues have increased by over 16% over the past three fiscal years and now cover combined CIT and court facilities bond MADS by nearly 1.7x.

CIT SUBJECT TO RELEASE ON COURT BONDS: The 'A+' rating on the court facilities bonds incorporates the potential release of the CIT revenues if court facilities revenues maintain 1.5x debt service coverage, a situation which appears unlikely for the foreseeable future.

HALF-CENT SALES TAX COVERAGE WIDENS: Debt service coverage of half-cent sales tax bonds increased to over 8.0x MADS as of fiscal 2013 after three consecutive years of expansion.

RATING SENSITIVITIES

DETERIORATION OF RESERVES: Ratings on the revenue bonds are capped by the GO rating. Significant operating deficits leading to declines in reserves could lead to downgrades in the GO rating as well as revenue bond ratings.

PLEDGED REVENUE DOWNTURN: Sustained reductions in pledged revenues which narrow debt service coverage would be viewed as a negative credit development.

CREDIT PROFILE

Located midway down the western coast of Florida, Hillsborough County encompasses 1,266 square miles. The city of Tampa is the county seat and largest city. The 2013 county population estimate of 1.28 million represents a 4.2% increase from 2010. This is consistent with population trends during the 2000 to 2010 decade when population growth averaged 2.1% annually.

BROAD-BASED ECONOMY EXHIBITING A STRONG RECOVERY

The county serves as the economic center for Florida's Gulf Coast with major sectors in business services, government, health care, education and tourism. MacDill Air Force Base and the Tampa Port are major economic engines.

Following a severe recession, the county has been experiencing a sustained and vigorous recovery. Employment growth has been robust and levels now exceed pre-recession highs. Since 2009, the county has gained 62,000 jobs for a 12% gain, among the highest in the state. The unemployment rate of 6.0% as of November 2013 represents a 22% drop from the year prior and is lower than both the state (6.3%) and national averages (6.6%).

The housing market is also on the upswing with home prices as of March 2014 up 17% year over year, according to Zillow.com. Home sales had accelerated during 2013, but slowed near the end of the year due to higher mortgage rates and monetary policy uncertainty, according to the county. Rising sales and tourist taxes are also indicative of the county's emerging recovery.

The uplift in housing values has had a positive effect upon the county's tax base. Taxable values grew by 5.4% in fiscal 2014, the first increase in six years. Officials expect further growth of 5.6% in fiscal 2015 followed by additional expansion at least through fiscal 2017. The tax base is not concentrated as the top ten taxpayers account for only 7% of total valuations.

Wealth levels hover around regional and national averages with poverty rates slightly above those of the state and nation. The planned expansion of insurer USAA, a large upgrade at Tampa International Airport, and siting of a major Amazon distribution facility within the county are expected to further bolster jobs growth. Fitch believes that underlying economic characteristics of the county point to favorable prospects for long-term economic growth and strength.

FINANCES EXHIBIT SOLID RESERVES AND HIGH LIQUIDITY

County financial operations have been consistently sound as evidenced by sizable reserves and strong liquidity. Management has been proactive in reducing spending in response to planned sizable declines in property taxes, the major source of general fund revenues. Property tax revenues declined at an average annual rate of 8% over the past five years due to falling valuations and the county's long-term policy of reducing tax rates every year. Cost cutting measures included personnel reductions, operating efficiencies, lowered capital spending and programmatic changes to trim costs. The county has been shrinking its staff, eliminating about 1,500 or 15% of full-time positions between fiscals 2008 and 2012.

The county budgeted a $24 million general fund drawdown for fiscal 2012, but actual results reported only a slight deficit of $1 million. Unrestricted general fund reserves total $247 million or a sizable 20% of spending. A modest decline in property tax revenues was offset by higher than budgeted half-cent sales taxes and discretionary sales tax receipts. In addition to personnel cuts, employees received no salary increases for the fourth straight year in order to control costs.

The county reported an $18 million general fund operating surplus for fiscal 2013, boosting unrestricted general fund balance to a notable 22% of spending. Expenditures included a $1,500 one-time salary adjustment for employees resulting in $2.5 million of added spending. Higher sales tax and service charge revenues offset increased costs for public safety and capital outlay. Results for the past two fiscal years have enabled the county to maintain general fund balance modestly above the county's target of 15% to 20% of expenditures. Elevated levels of liquidity are consistently maintained with the ratio of available cash and investments to liabilities at well over 2.0x, providing additional financial flexibility.

The fiscal 2014 budget proposed a $14 million general fund drawdown due to a number of capital or one-time spending items. Employees received a 3.5% wage increase funded in part from higher property tax and sales tax revenues. Officials project a small fund balance drawdown by the end of the year. Long-term forecasts by the county show successive small operating surpluses through fiscal 2019.

MODEST DEBT LOAD

Debt levels are manageable as indicated by a debt burden of 2.5%. Over half of the debt burden is attributable to the underlying debt of the Hillsborough County School District and the city of Tampa. The majority of the county's debt consists of sales tax-secured bonds, either with the CIT or the half-cent sales tax. Approximately $68 million of GO bonds remain outstanding. Principal amortization rates are average with 58% of principal retired within the next 10 years. Officials plan on issuing approximately $30 million of bonds for a new emergency operations center secured by communications service taxes near the end of 2014.

RETIREMENT COSTS DO NOT PRESSURE FINANCES

The county participates in the Florida Retirement System (FRS) pension plan, a state-run multiple employer plan for virtually all of its employees. Pension costs have not been a burden for the county, constituting a manageable 3.0% of general government expenditures in fiscal 2012. The FRS is relatively well-funded compared to most state pension systems. Retiree healthcare benefits are funded on a pay-go basis. The county does set aside funds for future other post-employment benefit (OPEB) costs in an internal service fund which totals about $11 million, but has elected not to establish a dedicated trust fund in order to retain future flexibility.

NON-AV REVENUES AMPLY COVER DEBT SERVICE

Available non-AV revenues encompass a wide variety of the county's non-property tax revenues, including sales taxes, impact fees and charges for numerous government services. Overall available non-AV revenues fell by 1.4% in fiscal 2013 from fiscal 2012 levels. Increases in major revenue sources, half-cent sales taxes, service charges, and state revenue sharing monies were offset by declines in interest income, fines and forfeits and miscellaneous revenues such as rental income and asset sales.

Despite the slight downturn in revenues, coverage of CB&A MADS from fiscal 2013 non-AV revenues net of current debt secured by specific non-AV revenues and essential services is wide at nearly 6.0x. Even when taking into account a maximum annual term-out obligation on the bank bonds, coverage of MADS is sufficient at 1.5x. In addition, substantial county reserves, including $265 million of unrestricted general fund reserves, can also be used for CB&A debt service. An anti-dilution test requiring average non-AV revenues for the two preceding years to cover MADS on all non-AV-secured debt by at least 1.5x restricts additional issuance.

CIT REVENUE GROWTH BOOSTS COVERAGE

CIT revenues, derived from a discretionary 0.5% sales tax, have increased in each of the last three years, growing by over 13% over this period. This positive trend has continued into fiscal 2014 with four-month year-to-date CIT revenues up by over 5% from same period in fiscal 2013. Debt service coverage remains strong at over 1.8x MADS. A 1.35x MADS additional bonds test (ABT) provides some protection against over-issuance. Fitch believes that the absence of a debt service reserve fund for the series 2012 CIT bonds does not significantly detract from credit quality given the solid coverage and breadth and diversity of the underlying economy.

The CIT also secures the county's court facilities bonds as backup revenues in case pledged court surcharge revenues are insufficient. Bond provisions allow for the release of the CIT revenues if court surcharge revenues cover court facilities bond MADS by at least 1.5x for three consecutive years. Court surcharge revenues provide only marginal coverage of debt service (fiscal 2013 coverage was only 1.1x), and have failed to meet the 1.5x coverage test. However, CIT revenue coverage of combined CIT and court facilities bond MADS is much heftier at almost 1.7x, assuming no court fee revenues. In addition, approximately $9 million of restricted reserves are available to redeem court facilities bonds as well as cover any shortfalls in court surcharge revenues.

HIGH DEBT-SERVICE COVERAGE LEVELS DESPITE STATE DEDUCTIONS

Half-cent sales tax collections have historically supported wide coverage of debt service Fiscal 2013 sales cover MADS by over 8.0x. Following a cumulative 22% decline over fiscals 2007 through fiscal 2010, half-cent sales taxes have risen in each of the past three fiscal years, increasing by an annual average of 4.7%. Regardless, fiscal 2013 collections are still well below pre-recession levels. Year-to-date collections are up by nearly 5.5% over prior years for the same period. A 1.35x MADS ABT and lack of a debt service reserve fund for the series 2012 capital improvement revenue bonds are offset by ample coverage. Additional issuance is also restricted by use of excess half-cent sales tax revenues to fund county operations.

Additional information is available at 'www.fitchratings.com'

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. 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=827212

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