Fitch Affirms Miami-Dade County, FL's Solid Waste Revs at 'A+'; Outlook Remains Negative

Fitch Ratings has affirmed its 'A+' rating on the following outstanding Miami-Dade County, FL's (the county) revenue bonds:

--$121.6 million solid waste revenue bonds, series 1998, 2001 and 2005.

The Rating Outlook remains Negative.

SECURITY

Bonds are secured by net revenues of the county's solid waste system (the system). The additional bonds test and rate covenant are both 1.20 times (x) and allow the use of a portion of the rate stabilization fund to be included in meeting these thresholds. A reserve fund is funded with surety bonds equal to maximum annual debt service.

KEY RATING DRIVERS

WEAKENED OPERATIONS DRIVE OUTLOOK: The Negative Outlook reflects the county's reduction in net revenues leading to projected fiscal 2014 debt service coverage (DSC, excluding rate stabilization fund) inconsistent with the current rating. The county's fiscal 2015 projections assume an increase in net revenues as a result of growth in waste tonnage levels and higher overall revenues leading to stronger projected DSC levels. If these projections are not realized DSC levels will remain low and pressure the rating.

HISTORICALLY FAVORABLE PLEDGED REVENUES: Pledged net revenues from the county's well established solid waste system have historically provided solid DSC from operations.

HOUSEHOLD COLLECTION FEES COLLECTED ON TAX BILL: Residential solid waste fees collected from over 324,000 households are charged on the property tax bill. This provides strong incentive for payment. Revenues from tax bills represent a strong 57% of total projected fiscal 2014 revenues providing some stability. The county board of commissioners retains ability to raise these fees.

STRONG LIQUIDITY POSITION: The county has maintained strong system cash balances helping support capital expenditures and offsets the projected decline in DSC levels to some extent.

CAPITAL NEEDS ARE MANAGEABLE: The system's capital plan for the next five years is manageable and relies on a modest amount of new system-supported debt. This should not affect operations due to the rapid amortization rate of current debt.

MODEST ECONOMIC RECOVERY OCCURRING: The local economy continues to experience improvement. Unemployment rates have improved and rising home values are indicative of an improved housing market.

RATING SENSITIVITIES

ADEQUATE DEBT SERVICE COVERAGE LEVELS: Projections for fiscal 2014 show DSC (excluding rate stabilization funds) declining to below-average levels. Budget projections for fiscal 2015 show growth in DSC to more adequate levels. Maintenance of DSC at more adequate levels consistent with the rating category is key to maintaining the current rating.

CREDIT PROFILE

The fully integrated solid waste system operates as a self-supporting enterprise fund of Miami-Dade County (general obligation bonds rated 'AA' with a Stable Outlook by Fitch). The county department provides solid waste collection, recycling and disposal services. Collection service is provided to all single family and small multi-family residences and a small number of commercial and multi-family accounts in the unincorporated portions of the county and certain municipalities. The county has entered into long-term interlocal agreements with 18 municipalities to provide solid waste disposal services and 12 municipalities to provide curbside recycling.

The system includes the county owned waste-to-energy Resources Recovery Facility (RRF), three landfills (one of which is for the disposal of ash byproducts), three transfer stations, 13 neighborhood trash and recycling centers, and contract disposal capacity at two alternative private facilities. The county provided waste collection to approximately 324,400 residential units in 2013.

NET REVENUES DECLINE IN FISCAL 2013

Operating revenues declined in fiscal 2013 to $262.9 million from $266.2 million in fiscal 2013. The decline was mostly due to an adjustment by the county tax collector for $7.9 million to address a one-time excess distribution made to the department in a prior fiscal year. Prior to this adjustment, fiscal 2013 revenues reflected an increase of $4.6 million over fiscal 2012 as a result of a slightly higher number of residential units, higher disposal tipping fees combined with higher equivalent revenue tons (up 1%), and minor increases in electricity and utility service fee revenues.

Fiscal 2013 expenditures increased 3.8% (or $8.8 million) over fiscal 2012 levels due mostly to a $6.8 million increase in general and administrative expenses. This increase reflected higher personnel, other contractual services, insurance and county services costs experienced during the fiscal year. Net operating revenues declined to $30.8 million from $43.3 million the prior year resulting in a drop in DSC to a still sound 1.64x (without rate stabilization funds) compared to 2.31x in fiscal 2012.

FISCAL 2014 NET REVENUE PROJECTIONS SHOW PRESSURE

County projections for fiscal 2014 show an additional drop in operating net revenues of approximately $10 million due primarily to a projected decline in energy sales revenues. The county's energy sales contract with Florida Power and Light expired Nov. 30, 2013. The county no longer is receiving its contracted $85 per megawatt hour. Instead, the county has been forced to sell energy at the 'as available' market rate or spot market rates which are currently significantly lower at $27-$28 per megawatt hour as competition has increased. The use of a power broker during the fiscal year helped the county achieve higher rates but still much lower than under its previous contract.

Offsetting the decline in electric revenues is the reduction in contractual payments to Covanta, the resource recovery plant operator. The contract requires the county to share sales revenues with Covanta, which are expensed by the county. Other positive variances include higher projected tonnages coming into the system, and higher collection fees due to growth in the number of household/commercial units.

Operating expenses are projected to be higher than budget by $3.24 million (or 1.4% of projected operating expenses) mainly due to higher disposal costs due in part to the higher than expected waste disposed. DSC, based on these preliminary projections, plus interest income, would decline to a very modest 1.15x. Coverage improves to 1.60x using a portion of rate stabilization funds whereby rate stabilization funds account for up to 20% of net operating revenues as permitted by the bond ordinance.

PRELIMINARY BUDGET PROJECTS RETURN TO HIGHER COVERAGE

The preliminary fiscal 2015 budget includes a 2% increase in operating revenues with a conservative figure for projected tonnage. Utility service fees and energy revenues are expected to rise moderately. Tipping fees and surcharges will rise by 2.3% based on the increase in the Consumer Price Index (CPI). Management has not raised the household collection fee which remains $439 per year. Net revenues are projected to provide DSC of 1.56x.

Fitch notes that while system net revenues have resulted in historically sufficient debt coverage above required levels, there is a downward trend in coverage. Continued operations at coverage levels close to or below the required 1.2x rate covenant (excluding rate stabilization funds) expose the system to a greater risk of even lower coverage due to unexpected increases in expenses or reductions in revenues. Failure to develop a financial plan that addresses these risks and provides for adequate tipping and household collection fees that preserve higher DSC commensurate with the current rating level could lead to downward rating pressure.

STRONG LIQUIDITY LEVELS

Reserve levels remain strong as of Sept. 30, 2013, with unrestricted cash and investments of $168 million in the solid waste enterprise fund equal to 72% of fiscal 2013 operating expenses. Restricted assets comprised of the rate stabilization fund ($20.7 million) and operating expense reserve ($39.7 million) bring total cash available for operations to $228.9 million, a strong 360 days cash on hand. The system has maintained its rate stabilization fund at $20.7 million for the last seven years.

BULK OF REVENUES DERIVED FROM TAX BILL

System revenues are primarily derived from a household collection fee charged to the residential property tax bill and constituted a high 52% of the system's $263 million operating revenues for fiscal 2013. This stable revenue source strongly supports the 'A+' rating on the bonds.

Residents are currently being charged $439 in fiscal 2014 and such fee is subject to annual adjustments approved by the county board of commissioners but such rate has not changed since Oct. 1, 2006. Other revenues include tipping fees derived from municipal interlocal agreements and private haulers (22% of revenues), proceeds from waste to energy sales (12%), and a utility service fee charged to county water and sewer users (9%). Disposal fee charges were up 1.7% for fiscal 2013 and 1.9% for fiscal 2014, based on the increase in local CPI.

INTERLOCAL CITY AGREEMENTS AND ENERGY CONTRACTS SUPPORT REVENUES

The county has long-term interlocal agreements with 18 of the largest cities in the county for solid waste disposal. Fees charged to contracted municipalities are subject to annual changes based on CPI.

A majority of the interlocal agreements expire in 2015, but six of the 18 have been recently renewed through 2025 or longer. These six represent approximately 60% of waste tonnage collected and include Miami, the largest municipal revenue producer. Fitch views management's assumption as reasonable that the remaining agreements will be renewed due to its competitive pricing and conveniently located transfer stations.

There is currently no local flow control ordinance in place for these municipalities, although newly incorporated municipalities are required to remain in the county's collection system. That said, the county board of commissioners could decide to enact such an ordinance if necessary.

MODERATE CAPITAL NEEDS

The county does not anticipate any additional debt until fiscal 2016 when it will consider the issuance of approximately $40 million for system maintenance and landfill costs. Additional borrowing may be incurred for future fleet replacements. Debt amortization of outstanding bonds is rapid at 78% in 10 years. This helps mitigate the risk of operational pressure from future additional debt service.

The county has approved a plan to move to natural gas operated vehicles on a county-wide departmental basis. Such plan is expected to provide substantial fuel costs savings for the system. The plan is expected to be fully implemented over the next three years. Other efforts to reduce costs include the recent implementation of an automated garbage collection program and use of route automation software to help reduce the number of collection routes and associated fleet and overtime costs.

DIVERSE ECONOMY EXPERIENCING SIGNS OF TURNAROUND

The area economy is diverse with a large international component. The presence of healthcare, higher education, and professional and business services balance the tourism component of the county's economy for which it is so well known. Wealth levels for the county are below average and the county's unemployment rate of 7.3% for June remains above state and U.S. averages. The rate has improved from 9.2% for the prior year as both employment and labor have increased. Home prices continue to rebound strongly. According to Zillow.com, housing values have improved 16.1% year over year countywide through July.

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

In addition to the sources of information identified in Fitch's Revenue-Supported Rating Criteria and Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, and ARCADIS U.S., Inc., bond engineer and consultants to the county's solid waste system.

Applicable Criteria and Related Research:

--'Solid Waste Revenue Bond Rating Criteria' (June 2014);

--'Revenue-Supported Rating Criteria' (June 2014);

--'Tax-Supported Rating Criteria' (August 2012).

Applicable Criteria and Related Research:

Solid Waste Revenue Bond Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750529

Revenue-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=750012

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=860434

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