Fitch gives Cape bonds solid rating

In the course of routine surveillance, Fitch Ratings affirmed the 'A+' rating on the city of Cape Coral's approximately $3 million in outstanding general obligation bonds, series 2003A, the 'A' rating on the approximately $200 million in outstanding water and sewer revenue bonds, and the 'A-' rating on the approximately $167.4M in outstanding wastewater and irrigation water assessment bonds. The Rating Outlook on all bonds has been revised to Negative from Stable.

The Negative Outlook on the bonds reflects Fitch's growing concerns that a distressed housing market, recently enacted property tax reform, and passage of Amendment 1 will result in increased budgetary pressures for the already stressed city. While the city does not track foreclosure and delinquency rates, data for the Cape Coral-Ft. Myers metropolitan statistical area show a significant increase in both. New construction has declined year-over-year for the city and is down about 77 percent for fiscal 2008. The number of single family building permits issued for fiscal 2007 was 1,170, a decline of about 73 percent from fiscal 2006, resulting in a decrease in impact fee collections of $13.1 million. Year-to-date permit figures show that only 103 permits have been issued for fiscal 2008.

The 'A+' rating on the city's GO bonds reflects sound management, additional taxing capacity, and moderate overall debt levels. The city's property tax rate is 4.879 mills, well below the 10-mill cap under Florida Law.

The 'A-' rating on the various wastewater assessment bonds reflects a relatively stable stream of special assessments that have a property lien on par with an ad valorem tax lien. The property tax collection rate has averaged 98.2 percent over the last 10 fiscal years, with a fiscal 2007 collection rate of 96.6 percent. Collections so far for fiscal 2008 are reportedly in line with the prior years. The Outlook revision to Negative reflects increasing tax certificate sales that could reduce already narrow coverage by special assessments levied on residential and commercial properties that benefit from the wastewater and irrigation projects. About 42 percent of assessments are currently levied on undeveloped parcels. Tax certificate sales totaled 9,520 for fiscal 2007, compared to 6,248 in fiscal 2006.

The 'A' rating on the water and sewer bonds reflects historically adequate debt service coverage, a moderate overall rate structure with adopted annual rate increases, and a comprehensive capital improvement plan intended to ensure significant water and wastewater capacity to a growing service area. The Outlook revision to Negative reflects concerns over the decline in debt service coverage levels, a decline in the system's liquidity, and large rate increases required to support system operations and debt service. The City anticipates the need to increase water and sewer rates by 19 percent for each of fiscal 2009 and 2010 due to a decline in development within the city. The City Council had previously approved rate increases of 7 percent for the water system for fiscal years 2007- 2010 and 10 percent for the wastewater system in fiscal years 2007-2008 and 9 percent in fiscal years 2009-2010. Maintenance of the current rating will depend on the city's ability to maintain debt service coverage ratios and liquidity margins consistent with the rating category.

- Business Wire