Fitch Downgrades Gulf County, FL's Gas Tax Bonds to 'A-'; Outlook Stable

Fitch Ratings downgrades the following Gulf County, FL (the county) gas tax revenue bonds:

--$12.1 million gas tax revenue refunding bonds series 2006 to 'A-' from 'A'.

The Rating Outlook is Stable.

SECURITY

The gas tax revenue bonds are secured by a lien and pledge of the local option gas tax, the county gas tax, and the constitutional gas tax received by the county. The bonds are additionally secured by a standard debt service reserve fund (DSRF) funded with cash. The additional bonds test requires pledged revenue for the preceding fiscal year to equal 1.4X maximum annual debt service (MADS) for the issuance of parity obligations.

KEY RATING DRIVERS

SLIM COVERAGE; INHERENT VOLATILITY: The 'A-' rating and Stable Rating Outlook reflect Fitch's expectation for continued revenue volatility, consistent with historic performance, and resultant slim MADS coverage within the current tight band.

SLIGHT GAS TAX GROWTH: Gas tax revenue collections showed slight growth in fiscal 2013 following a trend of negative results. Coverage of MADS remains slim at 1.23x but improving year-to-date collections may indicate a potential upward trend over the near term.

BELOW AVERAGE ECONOMY: The county is largely rural with limited economic activity. The employment base remains well below peak levels. Low wealth and subpar educational attainment levels constrain future economic prospects.

MODEST DEBT LEVELS: Debt levels are expected to remain below average due to affordable capital needs and the absence of additional borrowing plans.

RATING SENSITIVITIES

UNANTICIPATED REVENUE TRENDS: Upward or downward movement of gas tax revenues which lead to sustained MADS coverage outside of Fitch's expected range of 1.2x to 1.4x could result in a change in the rating.

CREDIT PROFILE

The county is located on the Gulf of Mexico in Florida's panhandle between Tallahassee and Panama City. Encompassing 559 square miles, the county is rural and largely undeveloped. Population is sparse with approximately 15,829 residents as of 2013.

GAS TAX COVERAGE REMAINS SLIM

Gas tax revenues stabilized in fiscal 2013 increasing by a slight 0.39% over the prior year. Despite the gains, coverage of MADS remains slim at 1.23x. Fitch expects debt service coverage to stay within its demonstrated range of 1.2x - 1.4x of MADS which are more in line with the revised rating, especially given the historic and expected volatility of the revenue stream.

Gas tax revenues have fallen 13.3% since reaching their peak in fiscal 2007, with four years of decline within the past six years. Eight-month gas tax receipts for fiscal 2014 are up 4.7% from equivalent period receipts in fiscal 2013, possibly signaling an upward near term trend. State gas tax revenue projections show an increase of 7.4% over fiscal 2013 results.

Fiscal 2013 gas tax revenues can withstand a 19% decline and still cover MADS by 1.0x, which compares favorably with the largest two year cumulative gas tax decline of 13.6%. Debt service is level and MADS occurs in 2015. The county has completed funding the DSRF with cash, necessitated by the prior downgrade of the surety provider.

Pledged gas tax revenues consist of the local option gas tax (LOGT), county gas tax and the constitutional gas tax. LOGT revenues are based on motor fuel taxes collected within the county and are thus more subject to local economic conditions than county and constitutional gas taxes, which are derived from statewide motor fuel levies distributed back to counties.

Most of the decline in gas tax revenues since fiscal 2007 is attributable to the LOGT, which has fallen by 25.7%. The county and constitutional gas tax revenues have also contracted during this period but only by 8.6% and 7.5% respectively. These shifts reflect less volatile fuel sales statewide and the county's land area, population and retail sales activity, per the distribution formula. The LOGT constituted roughly one quarter of total gas tax revenues in fiscal 2013.

LIMITED ECONOMIC OPPORTUNITY

The county's economy is limited with the largest employer being the Gulf Correctional Institute, a large state-run prison with over 300 employees. Tourism and port operations are an additional source of economic activity for the county. The state has committed $20 million in grants to dredge Port St. Joe which could create additional shipping opportunities. The dredging project is expected to be completed in the next two years.

The county has begun to see an increase in employment following six consecutive years of declines, although the employment base remains well below the peak level in 2006. The June 2014 unemployment rate of 6.1% is below the state and the nation, although much of the improvement since the recession is tied to a declining labor force.

Income indicators are much lower than the state and national averages. Per capita income levels for the county are approximately two-thirds of the state and national benchmarks. The county's substandard wealth levels and low percentage of high school and college graduates hinder its future economic prospects.

MODEST DEBT LEVELS

The county's debt load is affordable with debt to market value of 0.9% and debt per capita of $764. The only bond issue outstanding is the series 2006 gas tax revenue bonds. Principal amortization is below average with about 42.5% of principal retired within the next 10 years. The county currently has no additional debt plans.

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, Underwriter, Bond Counsel, Underwriter Counsel, Trustee.

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=861674

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