Fitch Rates Sumter County, FL's Capital Improvement Revs 'A'; Outlook Stable

Fitch Ratings has assigned an 'A' rating to the following Sumter County, Florida (the county) bonds:

--$24.065 million capital improvement revenue bonds, series 2015B.

The bonds are scheduled for a negotiated sale on June 3. Proceeds will fund the construction of two public safety facilities within the county.

The Rating Outlook for the capital improvement revenue bonds is Stable.

In addition, Fitch affirms the county's implied unlimited tax general obligation (GO) rating at 'AA-'.

The Rating Outlook for the implied GO rating is revised to Positive from Stable.

SECURITY

The capital improvement revenue bonds are supported by an irrevocable pledge of Sumter County's share of the one-half cent sales tax remitted to localities, the county's share of pari-mutuel distribution replacement revenues, and revenues received from the State Revenue Sharing Trust Fund (the trust fund) in an amount equal to 50% of state revenue sharing moneys received by the county in the immediately preceding year.

KEY RATING DRIVERS

SOLID COVERAGE: Pledged revenues are derived primarily from state sales taxes distributed to the county under three separate programs. Revenues have exhibited healthy growth recently, resulting in debt service coverage at satisfactory levels.

OUTLOOK REVISION TO POSITIVE: The revision of the implied GO rating Outlook to Positive from Stable reflects the area economy's continued growth and diversification and maintenance of robust financial operations.

STRONG FINANCIAL PERFORMANCE: Strong, consistent general fund operating results has provided the county with a robust general fund balance and ample financial flexibility.

EXPANDING LOCAL ECONOMY: The local economy has been rapidly expanding due to ongoing development at The Villages (a planned retirement community). New residential and commercial ventures outside of The Villages are expected to drive future expansion although at a slower pace with build-out of The Villages in the next year.

MODEST LONG-TERM LIABILITIES: Debt burden and carrying costs of debt service, pension, and other post-employment benefits (OPEB) are low.

RATING SENSITIVITIES

POSITIVE ECONOMIC AND FINANCIAL TRENDS: Ongoing maintenance of strong financial performance despite the expectation of a slowdown in economic growth due to final build-out of The Villages would likely lead to upward rating movement for the implied GO rating.

DECREASED DEBT SERVICE: A significant decline in pledged revenues narrowing debt service coverage for the capital improvement bonds would be considered a negative credit development.

CREDIT PROFILE

Located in the center of the state, Sumter County encompasses 561 square miles. The county's population (estimated at 114,250) has more than doubled since 2000 fueled by growth in The Villages, a popular retirement community that spans three counties in central Florida.

EXPANDED PLEDGED REVENUE BASE/ADEQUATE COVERAGE

The bonds are being issued under a new indenture and have a parity lien on pledged revenues with two privately placed bond issues. All pledged revenues are sourced from state sales taxes distributed to the county under three separate programs with the exception of a small portion of funding for the state revenue sharing trust fund that is derived from net cigarette tax receipts.

Pledged revenues have demonstrated healthy growth since fiscal 2010 averaging 6.6% annually through fiscal 2014. The half-cent sales tax, comprising over 80% of pledged revenues, drove this growth increasing by 31% over this period. Pari-mutuel replacement revenues are a fixed annual distribution but represent only a small part of the overall revenue base. Year-to-date pro forma revenues for fiscal 2015 are up 5.7% year over year.

Pro forma debt service coverage is satisfactory at 1.5x maximum annual debt service (MADS) from fiscal 2014 pledged revenues. Legal provisions include a debt service reserve fund which is likely to be fulfilled with a surety and a weak 1.3x MADS additional bonds test.

ECONOMIC GROWTH SPURRED BY VILLAGES EXPANSION

The county's economic base has been dominated by The Villages, one of the fastest growing retirement communities in the nation. Nearly 52% of the county's population is over 65 years of age compared with the Florida average of 19%, according to the U.S. census. The rapid expansion of The Villages has spurred the county's economic growth, particularly in the construction, health services and accommodations and food services sectors. Despite the recent growth in the local economy, leading employers are still composed of institutions with longstanding presence in the county including two correctional facilities, a concrete manufacturer and the school district.

The county is one of the few in Florida that did not experience a tax base decline during and immediately after the recent recession. Between fiscals 2008 and 2014, taxable values increased by 33%. Fiscal 2015 valuations are up nearly 16% from the prior year reflecting the Villages' continued expansion. Building permit valuations, while not as substantial as in prior years, remain robust supported by a number of new businesses and expansions combined with planned or ongoing residential developments. Fitch believes that these developments should provide the impetus for future economic growth and diversification.

Employment metrics are mixed with gains outpacing those of the state and nation since 2009. However, unemployment rates trend well above the state and national averages. The county's February 2015 unemployment rate of 7.6% exceeded state and national unemployment rates of 5.6% and 5.5%, respectively. Wealth indicators have risen steadily relative to state and national benchmarks since 2009 and now exceed the state income levels but remain below the national average.

ROBUST GENERAL FUND RESERVES

County financial operations are consistent and strong, as evidenced by positive operating margins and ample liquidity levels. Property taxes comprised 60-65% of revenues over the past few years and have proven to be a reliable revenue source, consistently increasing due to tax base growth.

The county has generated four general fund surpluses in the past six fiscal years, with modest deficits in fiscals 2011 and 2013. Management has reduced expenditures through the extensive use of outsourcing and privatization of government services. Fiscal 2014 results for the general fund yielded an operating surplus of $2.5 million, raising the unrestricted general fund balance to $24.5 million or a robust 33.6% of spending.

Management is projecting balanced or surplus operations in fiscal 2015, although a modest use of general fund reserves had been budgeted. The budget included increased spending for fire and emergency medical services (EMS) due to expanded service responsibilities as well as a cost of living adjustment for employees. The additional costs are partly funded from higher property and sales tax receipts. Fitch expects the county to maintain reserve levels above its minimum reserve to spending target of 21.7% consisting of a 5% contingency reserve and a 16.7% cash balance reserve.

LOW CARRYING COSTS

Overall debt levels for the county are low at 1% of market value and $804 on a per capita basis. The slow amortization, at 32.6% of principal scheduled to retire within the next 10 years, somewhat diminishes the otherwise favorable debt profile. Debt indices are expected to remain manageable given the absence of future debt plans and modest capital needs. Debt service costs were a low 4% of governmental fund spending in fiscal 2014 and are expected to remain below average with the addition of the current offering.

RETIREMENT LIABILITIES NOT A COST PRESSURE

County employees participate in the Florida Retirement System. Florida's (FRS) pensions which was funded at approximately 80.1% as of July 1, 2014 using Fitch's more conservative 7% discount rate assumption. The county's contribution requirement increased by $900,000 or 32% in fiscal 2014 but remains affordable at only 3.4% of spending.

OPEBs are funded on a pay-go basis. The county eliminated subsidies to employees hired after 2009, which is expected to trim the growth in the actuarial accrued unfunded liability which totaled $15.6 million as of fiscal 2012, the latest valuation date. Total carrying costs including debt service, pensions, and OPEB was a low 8% of government spending in fiscal 2014.

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:

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=985279

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