ATLANTA -- The recent "tremendous growth" of Florida special tax bonds will continue, according to a report published today by Moody's Investors Service.
Moody's said that these securities, which are defined by their limited revenue pledge, now outnumber general obligation bonds in the state and are 14 times more prevalent in Florida than nationwide.
The ratings agency said that 28.6% of the unenhanced Florida debt issues it currently rates are special tax bonds. This compares with a 28.1% share for GOs, 36% for revenue issues, 4.4% for lease transactions, and 2.9% for other types of deals. Nationally, special tax bonds are 2% of the total unenhanced bonds rated; GOs, 67%; revenue issues, 14.8%; lease financings, 14.3%; and others, 1.9%.
"Moody's expects to see increased leveraging of special tax securities over the next few years due to improved economic trends following the 1991-92 recession," said the report, written by Moody's vice president Maria Matesanz.
"Economic growth is expected to translate into population growth and increased needs for infrastructure and support services," the report continued.
"This trend, coupled with voter conservatism, and the increasing availability of a wide range of special taxes and fees to secure debt, is expected to result in an increase in special tax-secured debt."
At the same time, Moody's said that the ratings of this debt will probably continue to be lower than that of the GOs issued by the same local government, "with some exceptions for those issues structured with very strong legal provisions."
In arriving at its ratings, Moody's said it places much emphasis on legal provisions, as well as revenue base and project essentiality.
For a special tax issue to obtain a Moody's investment-grade rating, it must generally be structured to include a debt service reserve equal to annual debt service, an "additional bonds" test of 1.25 times debt service coverage, and a "sound flow of funds which provides for replenishment of reserves and sets limits on the use of pledged revenues."
In assessing the revenue base, Moody's said it focuses on collection trends. The ratings agency said it also pays close heed to constraints on revenues available to support operations.
Moody's noted that this year, the Florida legislature amended state law to permit counties with professional sports franchises to impose an additional one-cent transient rental tax to fund a new sports franchise. This is in addition to the one-cent tax they have already been permitted to levy.
The state defines transient rental tax as leases and rentals of hotels, motels, rooming houses, mobile-homes, condominiums, or apartments for six months or less.
In 1994, lawmakers also permitted creation of multi-jurisdictional tourism, sports, and entertainment districts. These districts will be empowered to levy either a half-cent or one-cent sales tax surcharge on tangible property.
The ratings agency said three other types of special tax bonds have been implemented since the late 1980s. These are: an additional five-cent local option gas tax authorized by the legislature in 1993; the small county sales surtax, established in 1992; and the local government infrastructure sales surtax, set up in 1987.
"With every passing year, we see new special tax revenue sources, or amendments to existing revenue programs and sources that are used as debt security by localities," said Moody's.
The report said Moody's rates four major categories of special tax securities, all of which provide debt service coverage for Florida bonds: sales, transportation, utility/excise, and hotel taxes. Other sources include the parimutuel betting tax, which is distributed annually to each county; revenue sharing entitlements; franchise fees; and motor vehicle license revenues.
The Moody's report includes a list of the 54 outstanding ratings of special tax debt. Of those ratings, one is Aa, 13 are A1, 34 are A, two are Baal, and four are Baa.
