Fitch Rates Brevard County, Florida's $48MM Local Option Fuel Tax Rev Bonds 'A'.

NEW YORK -- Fitch Ratings has assigned an underlying 'A' rating to Brevard County, Florida's $48 million local option fuel tax revenue bonds, series 2005. The bonds are expected to be insured and are scheduled to sell competitively on Nov. 15. The series 2005 bonds will mature each Aug. 1, 2006-2026. Bond proceeds will be used to finance certain transportation projects within the county. The Rating Outlook is Stable.

The 'A' rating reflects the stability of pledged fuel taxes and adequate coverage of maximum annual debt service (MADS), which equaled 2.1 times (x) in fiscal 2004. The rating also considers the general credit characteristics of the county, which include a large economic base concentrated in aerospace research and related industries, strong tax base growth, and low debt levels. Further consideration is also given to the pledged fuel taxes' limited base and a large unfunded amount of the county's sizable capital improvement program. While coverage is currently strong and the additional bond test is generally adequate at 1.25x MADS, management reports that leveraging this revenue source further remains a possibility given the sizable capital needs on transportation.

The bonds are backed by a pledge of the local option fuel tax revenue received by the county. The fuel tax is six cents per net gallon on motor fuel sold in the county with proceeds collected by the state and remitted to participating counties. Revenue from the tax is shared among the county and its municipalities according to an interlocal agreement enacted in 1988 and scheduled to expire in 2021. Management expects the agreement to be extended to match the legal maturity of the bonds. The interlocal agreement requires 50% of the proceeds to be allocated based on a formula that weights each municipality's proportionate share of total county population. The remaining 50% of the proceeds are allocated based on the county's transportation expenditures made over the preceding five year period relative to the aggregate transportation expenditures made by the county and all municipalities. Also pursuant to the interlocal agreement, the county's share of annual proceeds cannot fall below 47.14%. Growth in the fuel tax received by the county has averaged 1.3% over the last nine fiscal years, and officials project modest growth going forward.

Located along Florida's eastern seaboard, Brevard County is best known as the location of Cape Canaveral. The economy is focused on the federal government's space program, and various defense and aerospace contractors play a significant role in the economy. The county's proximity to Orlando and good transportation access, along with the presence of the Kennedy Space Center and numerous beaches, help to spur tourism activity, bolstering sales tax and gas tax revenue. Income levels are slightly below average. The unemployment rate has historically been below that of the state and nation and registered a low 4.4% in 2004.

After several years of general fund deficits between fiscals 2000-2003 leading to a reduction in reserve levels, financial performance improved in fiscal 2004 with a $2.9 million operating surplus. The unreserved general fund balance increased to $10.2 million at the end of fiscal 2004, representing 5.2% of spending and transfers out. The county has committed to rebuilding reserves in accordance with a reserve policy that requires the maintenance of an unreserved general fund balance equal to at least 5% of budgeted revenues. The county expects to exceed the $1.5 million operating surplus budgeted for fiscal 2005 as general fund revenue has been significantly stronger than anticipated.

In part due to charter restrictions on debt issuance, debt levels are low. Direct debt equals 1.3% of market value and $609 per capita. Debt levels are expected to remain low given limited future borrowing plans, an average amortization rate, and rapid tax base growth. The fiscal years 2006-2010 capital improvement plan (CIP) totals $874.5 million, of which only 30% has identifiable funding sources. Approximately 35% of the plan is for parks and recreation improvements, which will mostly be funded through debt issuance approved by voter referendum. Transportation-related needs account for 23% of the CIP, and projects will mostly be funded by bond proceeds. Plans for additional general government debt issuance are limited.

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