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Fitch raises bond rating for Tampa, but $8.4 million shortfall looms

TAMPA — The credit analysis agency Fitch Ratings gave City Hall a vote of confidence this week, raising its rating on Tampa's water and sewer bonds.

The boost from "AA+"' to "AAA" is the second since 2011. A higher rating allows the city to hold down costs by borrowing money at lower interest rates.

Mayor Bob Buckhorn welcomed the upgrade, saying economic stability at City Hall helps the local business climate.

"We have worked hard to continue making strategic investments while balancing the budget," Buckhorn said Friday. "A ratings increase is a big deal and affirms the choices we've made."

Although Fitch's decision is good news, the city has more tough choices ahead.

The city runs the water and wastewater departments as stand-alone funds, with customers paying for operations.

The $354 million general fund is a different story.

Its money comes largely from property taxes, fees for city services, sales taxes, and franchise fees and taxes on telecommunications and electric services. Those revenues pay for police, fire, parks and recreation, code enforcement and general government services.

Trouble is, general fund revenues haven't covered expenses for several years, forcing Buckhorn's administration to dip into city reserves to fill the gap.

Looking ahead to the 2015 fiscal year, which starts on Oct. 1, the city needs to cover a general revenue shortfall estimated at $8.4 million.

If the city filled its budget gap only with money from reserves — unlikely — it would take the reserve fund down to about $86 million, or 22 percent of expenses.

At 20 percent, municipal bond rating agencies start to look at the city with a "jaundiced eye" unless there's a plan to replenish reserves, chief financial officer Sonya Little told the City Council recently.

Buckhorn is scheduled to submit his proposed 2015 budget to the council on July 24. He said Friday that he was trying to avoid tapping reserves.

"We're not entirely there yet," he said, "but it's in the realm of possibility."

The Fitch opinion

When it comes to the water and wastewater departments, Fitch said the city's "conservative financial and debt-management" approach was key to the ratings upgrade.

The systems' "operating profile remains strong," Fitch said in a statement outlining the reasons for the upgrade.

The city is paying off about $290 million in water and sewer bonds, and it has taken on "only a small amount of new debt over the past five years."

It also helps that the systems are not too dependent on any one customer, Fitch said.

The city's customer base is about 90 percent residential, serving about 500,000 men, women and children through 127,000 water connections and 105,000 sewer connections.

The top 10 commercial customers, led by the Hard Rock Hotel, account for only 5.8 percent of total revenues. The single biggest customer is the city of Temple Terrace, which generates 2 percent of revenues.

Tampa officials plan to spend $218 million through 2018 on water and sewer improvements like new pipes, force mains and gravity sewer lines. They plan to pay for those improvements not by borrowing more money from the bond market, but by drawing on the systems' cash and annual revenues, which Fitch said is feasible.

"Liquidity" — the city's ability to pay its bills from current assets — "is strong despite (the city's) judicious pay-as-you-go capital funding," the agency said.

Also important, Fitch said, is that the Tampa Bay area appears to be continuing to recover from the recession.

"Tampa remains the economic anchor for the region with a diverse and improving employment base," the agency concluded, with an unemployment rate that dropped from 8.6 percent in April 2012 to 5.9 percent in April 2014.

Fitch raises bond rating for Tampa, but $8.4 million shortfall looms 07/11/14 [Last modified: Friday, July 11, 2014 10:45pm]
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