Fitch Affirms Florida Municipal Loan Council's 2011B Rev Rfdg Bonds at 'AA'; Outlook Stable

Fitch Ratings affirms the following Florida Municipal Loan Council's (FMLC) revenue refunding bonds at 'AA':

--$4 million series 2011B (Village of Pinecrest series).

In addition, Fitch affirms Pinecrest, Florida's (the village) implied unlimited tax general obligation (ULTGO) rating at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The bonds are limited obligations of the FMLC, payable solely from loan payments made by the village in an amount equal to debt service on the FMLC revenue bonds to the FMLC. Pursuant to the loan agreement, the village covenants to budget and appropriate (CB&A) in its annual budget, by amendment if necessary, an amount of legally available non-ad valorem revenue, subject to the provision of essential services and restricted funds, sufficient to satisfy its loan agreement.

KEY RATING DRIVERS

COVENANT DEBT NOTCHING: A one-notch distinction in the rating of the FLMC bonds and the implied ULTGO reflects a more limited revenue stream, the potential for further leveraging on a priority basis of non-ad valorem revenues, and the inability of bondholders to compel the village to generate non-ad valorem revenues sufficient to pay debt service.

STRONG FINANCIAL FLEXIBILITY: Fund balance levels are strong, and ample flexibility remains both to raise revenues and cut expenditures. Management adheres to prudent fiscal policies.

DEPENDENCE ON REGIONAL LABOR MARKET: The village serves an affluent bedroom community for nearby Miami. While county unemployment remains above the nation, strong job growth in the region over the past several years continues to lower this metric. Wealth indicators for the village exceed the national average by a factor of two.

FAVORABLE DEBT BURDEN: The overall debt burden is low and future financing requirements are manageable. Pension and other post-employment benefit (OPEB) obligations do not pressure the credit.

RATING SENSITIVITIES

CONTINUED SOUND FINANCIAL OPERATIONS: The rating is sensitive to shifts in fundamental credit characteristics including the village's strong financial management practices and ample reserves. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The Village of Pinecrest is an affluent residential community that is located 15 miles south of downtown Miami. The village has a 2013 population of 19,046 which has demonstrated flat growth since 2000.

BROAD REVENUE BASE AVAILABLE FOR CB&A COVERAGE

The FMLC bonds have no direct lien on any specific revenue stream. Non-ad valorem revenue grew by 10% in fiscal 2013 relative to the prior year which kept pace with the growth in expenditures related to essential services. Essential services include general government and public safety, and these expenditures are required to be paid before debt service. Consequently, coverage of maximum annual debt service (MADS) net of essential expenditures decreased from 2.9x in fiscal 2012 to a still strong 2.7x in fiscal 2013.

MADS of debt supported by non-ad valorem revenue is $1.6 million and occurs in 2019, after which debt service will decline precipitously. Fitch takes comfort in the diverse nature of revenues available for debt service and notes that robust general fund reserves provide further debt service cushion for these bonds.

The anti-dilution test requires that the average of non-ad valorem revenues for the prior two fiscal years cover MADS by at least 1.5x and that projected MADS for all debt secured or payable from non-ad valorem revenues must not exceed 20% of governmental fund revenues. Fitch considers this test to be weak as it does not include essential expenditures.

MAINTENANCE OF AMPLE RESERVES

The village's maintenance of healthy reserves continued in fiscal 2013. The minor general fund deficit of $104,329 (0.6% of spending) was slightly higher than the budgeted amount and dropped the unrestricted general fund balance to $7.9 million, equal to a very strong 43% of spending. As a prudent cushion against potential natural disaster, the village has maintained unreserved/unassigned fund balance levels at least $1 million above the target level of 10% of spending. In fiscal 2014, the village increased the natural disaster set-aside to $2 million.

Management projects another slight decrease in general fund balance levels at the end of fiscal 2014, maintaining expected reserves at a high 40% of spending. The total general fund balance is projected to be closer to $8 million, compared to $8.1 million in fiscal 2013.

The fiscal 2015 general fund budget shows moderate growth (2.1% relative to the fiscal 2014 budget) and a marginal use of reserves ($90,340 or 0.4% of spending). General fund revenue is projected to increase by 3% ($602,146) over the prior year, primarily driven by growth in property tax revenue. Expenditures (including transfers out) increased 2.1% ($435,625), with growth stemming from a 2.5% salary increase ($236,199) for union employees as well as an increase in pension contributions to the Florida Retirement System (FRS).

An additional $5.9 million of debt is slated for early 2015 and the village increased the tax rate in fiscal 2015 to generate additional revenue to cover it.

The village's five-year (fiscal 2015 through fiscal 2019) pro forma projections call for moderate use of fund balance through fiscal 2017, although management stated they intend to keep the fund balance consistent with past levels. Fitch views this as feasible, given the village's history of conservative budgeting and maintenance of a reserve balance of 40% or higher of spending since fiscal 2009.

LARGELY RESIDENTIAL COMMUNITY, RESILIENT TAX BASE

The village's local economy is heavily dependent on the city of Miami (ULTGO rated 'A-', Stable Outlook), and has a limited commercial presence focused on retail; mid-level retail centers account for eight out of 10 of the village's top taxpayers, and retailers Home Depot and Kendall Imports are two of the village's largest private employers with over 600 employees in aggregate.

Taxable values fared relatively well for this hard-hit region, falling approximately 10% during the housing crisis. Taxable values have shown good growth over the past several years, increasing 4.7% and 2.7% in fiscals 2014 and 2013, respectively.

Economic indicators for Miami-Dade County (ULTGO rated 'AA', Stable Outlook) continue to show improvement. Though the county's unemployment rate (7.3% as of June 2014) remains above state and national averages, it has declined relative to the prior year (9.2%) due to employment gains of 1.2%.

Wealth levels for the village are double the national average, while market value per capita is an impressive $207,000.

LOW DEBT PROFILE

Overall debt levels are low at $1,036 per capita and 0.5% of market value. Amortization of outstanding principal is rapid, with 92% retired in 10 years.

Capital needs are manageable based on the village's fiscal 2015-2019 capital improvement plan (CIP). Totaling $10.6 million, the CIP is devoted largely to transportation ($6.8 million), and drainage ($1.2 million) projects. Funding is derived through a local option gas tax, a half-cent sales tax and a storm water fee.

Fitch expects overall debt levels to remain low based on rapid amortization of existing debt and reasonable future debt issuance of $5.9 million in 2015 to fund the community center expansion and various upgrades to Coral Pines Park.

MAGAGEABLE LONG-TERM OBLIGATIONS

Employee benefits represent an affordable percentage of spending and do not pressure financial flexibility. The village participates in the state-administered FRS, which has a funded ratio of 78.9% at June 30, 2013, using a 7% discount rate assumption. The annual required contribution (ARC) of $578,797 represents less than 3% of spending.

The village provides an implicit subsidy for its OPEB benefits and funds this liability on a pay-as-you-go basis. As of Jan. 1, 2012, the unfunded liability of $529,000 represented a negligible 0.01% of market value. Total carrying costs, including debt service, OPEB payments, and the pension actuarially required contribution, are manageable at 10.7% of governmental spending.

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, and the 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=912054

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