Fitch Affirms Hillsborough County, FL's Revenue Bonds; Outlook Stable

Fitch Ratings has affirmed the following ratings on Hillsborough County, Florida's (the county) outstanding revenue bonds:

--$63.3 million in outstanding special assessment revenue bonds, series 2006 at 'A';

--$15.1 million in outstanding 4th cent tourist development tax (TDT) revenue bonds at 'AA-';

--$25.2 million in outstanding 5th cent TDT revenue bonds at 'AA-'.

In addition, Fitch affirms the following ratings:

--$65.9 million in outstanding general obligation (GO) bonds at 'AAA';

--$83.9 million in outstanding Tampa Sports Authority (TSA) local option sales tax revenue bonds at 'AA+'.

The Rating Outlook is Stable

SECURITY

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

The 4th cent TDT revenue bonds are secured by the county's 4th cent tourist development tax, part of a 5% tax levied on hotel and motel charges. The 5th cent TDT revenue bonds are secured by the county's 5th cent TDT.

The special assessment revenue bonds are secured by a senior lien on all capacity assessment fees levied and collected from 34,681 residential and commercial parcels included in the bond resolution.

The TSA local option sales tax bonds (LOST) are limited obligations payable solely from the portion of the community investment tax (CIT), a 0.5% discretionary sales tax levied countywide, dedicated to TSA for debt service and capital expenditures according to an interlocal agreement between TSA and the county.

KEY RATING DRIVERS

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

SOLID FINANCIAL MANAGEMENT: County officials have been able to restore fiscal balance through a concerted effort to reduce spending. Despite a modest projected general fund drawdown in fiscal 2014, reserve levels remain healthy.

STRONG COVERAGE OF TDT BONDS OFFSETS VOLATILITY: Debt service coverage of both the 4th cent and 5th cent TDT bonds is robust at 3.6x and 2.4x, respectively, which offsets the inherent volatility of the pledged revenues.

SPECIAL ASSESSMENT LIEN ON-PARITY WITH PROPERTY TAXES: Capacity assessments securing the special assessment revenue bonds are levied on the property tax bill and carry the same lien as property taxes. The assessments are derived from a broad residential and commercial base of nearly 35,000 units. The strength of the lien and historically high collection rates balance concerns regarding planned narrow levels of coverage.

VERY STRONG COVERAGE OF TSA LOST BONDS: CIT collections, net of a 25% distribution to the county school system, provide over 8.0x coverage of TSA LOST MADS debt service.

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 and resulting narrowed debt service coverage could apply downward pressure to the revenue bond ratings.

CREDIT PROFILE

Located midway down the western coast of Florida, Hillsborough County encompasses 1,266 square miles and features Tampa as the county seat and largest city. The 2013 county population estimate of 1.29 million represents a 5.1% 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 of 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 55,500 jobs for a 10.4% gain, among the highest in the state. The unemployment rate of 5.6% as of April 2014 represents a 19% drop from the year prior and is lower than both the state (5.7%) and national averages (5.9%).

The housing market is also on the upswing with home prices as of July 2014 up 9% year over year, according to Zillow.com. Home sales had accelerated during 2013, but slowed near the end of the year and into 2014. Rising sales and tourist taxes are also indicative of the county's economic recovery.

The gain in housing values has had a positive effect on the county's tax base. Taxable values grew by 5.4% in fiscal 2014, the first increase in six years, followed by an additional 5.6% increase in fiscal 2015. Officials expect additional expansion of taxable assessed values at least through fiscal 2017. The tax base is not concentrated, with the top ten taxpayers accounting 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 is projected to add 1,200 new jobs, and a large upgrade at Tampa International Airport and a new Amazon distribution facility in the county are expected to further bolster job growth. Fitch believes that underlying economic characteristics of the county point to favorable prospects for continued economic expansion.

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. The county reduced its staff, eliminating about 1,500 or 15% of full-time positions between fiscals 2008 and 2012 (although staff levels increased in fiscal 2013).

The county reported a better than expected $18 million general fund operating surplus for fiscal 2013, boosting unrestricted general fund balance to a notable 22% of spending; all of the balance was unassigned. Higher sales tax and service charge revenues offset increased salary costs and additional spending for public safety and capital outlay. Reserve levels relative to spending are actually understated, as transfers out include substantial transfers among different departments within the general fund. When these intra-fund transfers are netted out, unrestricted general fund balance is equivalent to about 35% of net spending.

Over the past two fiscal years management has kept the general fund balance modestly above the county's informal target of 15% to 20% of expenditures. Liquidity is healthy and provides additional financial flexibility, with the ratio of available cash and investments to liabilities at well over 2.0x.

The fiscal 2014 budget proposed a $14 million general fund drawdown due to a number of capital or other 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 year-end unassigned general fund balance drawdown of $26 million mostly attributable non-recurring spending. Despite the contraction, unassigned fund balance remains substantial at more than 30% of estimated net expenditures. Long-term forecasts by the county show successive small operating surpluses through fiscal 2019.

MODEST DEBT LOAD

Debt levels are manageable, as indicated by an overall debt burden of 2.3% of fiscal 2014 market value. More than half of the debt burden is attributable to 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 $66 million of GO bonds remain outstanding. Principal amortization rates are relatively aggressive, with 64% of principal retired within the next 10 years.

Near term debt plans include $29 million of bonds for a new emergency operations center (secured by communications service taxes), and a like amount of revenue bonds for public safety facilities (secured by the half cent sales tax). Officials are also considering financing about $15 million of improvements to Raymond James Stadium, as well as a refunding of outstanding Tampa Sports Authority bonds.

RETIREMENT COSTS DO NOT PRESSURE FINANCES

The county participates in the Florida Retirement System (FRS), a state-run multiple employer pension plan for virtually all of its employees. Pension costs have not been a burden for the county, constituting a manageable 3.7% of general government expenditures in fiscal 2013. 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 (currently about $14.5 million), but has elected not to establish a dedicated trust in order to retain future flexibility.

4TH AND 5TH CENT TDT BOND COVERAGE REMAINS AMPLE

Pledged 4th and 5th cent TDT revenues have displayed significant volatility since the recession. Collections fell by nearly 20% between fiscals 2007 and 2010 as the recession tamped down tourist activity but showed a strong recovery in fiscals 2011 and 2012 as tourism rebounded, increasing by nearly 9% and 10%, respectively. TDT growth slowed to less than 1% in fiscal 2013, but jumped sharply for ten months of fiscal 2014 through July with a gain of 7.3% over the same period the year before.

Maximum annual debt service (MADS) coverage of the 4th cent TDT bonds is very strong at over 3.6x in fiscal 2013. MADS coverage on the 5th cent TDT bonds for fiscal 2013 is lower but still adequate at 2.4x; the 5th cent TDT secures a larger amount of debt. A 1.50x MADS additional bonds test (ABT) for each of the TDT issues is somewhat weak given the volatility of the revenue streams, but the county reports no plans for additional TDT borrowing.

PLEDGED ASSESSMENT FEES ON PARITY LIEN WITH PROPERTY TAXES

Capacity assessment fees securing the series 2006 special assessment revenue bonds are imposed on property to fund additional water and wastewater capacity projects. Approximately 35,000 residential and commercial units within the unincorporated areas of the county are subject to the assessments, which are levied on the property tax bill.

Taxpayers are required to pay all property taxes and assessments without preference for any particular tax or fee amount, largely mitigating the risk of non-payment. Coverage was structured to be thin and remains at about 1.1x. Total property tax collections for at least the past five years have averaged over 100%.

Additionally, the county has $5.7 million in residual revenues -- equal to nearly two thirds of MADs -- which although not pledged, is reserved in addition to the debt service reserve fund (DSRF) and may be used for debt service if current revenues are insufficient.

HEALTHY TSA LOST TAX BOND COVERAGE

According to an interlocal agreement between the county and TSA, CIT revenues are distributed to the TSA for debt service after 25% of the CIT is first allocated to the Hillsborough County School District. Once these required allotments are made, remaining CIT is allocated among the county and incorporated municipalities.

MADS coverage of TSA obligations by net CIT LOST revenues is very healthy at 8.4x despite a significant decline in CIT revenues between fiscals 2007 and 2010. Since fiscal 2010, CIT revenues have grown by over 13% and year to date fiscal 2014 collections are up a healthy 5.5%. A DSRF cash-funded at MADS and an additional bonds test provide added security.

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:

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=861434

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