Fitch Affirms Florida Inland Protection Fin. Corp. Bonds at 'AA'; Outlook Stable

In the course of routine surveillance, Fitch Ratings affirms the 'AA' rating on the following state of Florida Inland Protection Financing Corporation revenue bonds:

--$18.55 million series 2010A;

--$60.615 million series 2010B Build America Bonds (federally taxable-issuer subsidy).

The Rating Outlook is Stable.

SECURITY: The bonds are secured by payments to the corporation under a service contract with the state's Department of Environmental Protection. Payments are derived from a wholesale excise tax on pollutants (primarily petroleum products), deposited into the Inland Protection Trust Fund, subject to annual appropriation by the state legislature.

KEY RATING DRIVERS

AMPLE DEBT SERVICE COVERAGE: Debt service is paid from a revenue source that is generally stable and provides very strong debt service coverage. Pledged revenues in fiscal 2013 provided 19.3x coverage of annual and maximum annual debt service (MADS).

LIMITS ON ADDITIONAL BORROWING: Issuance of additional bonds requires 2.5x coverage of MADS. No additional issuance is currently authorized, although future legislatures could authorize additional debt for budget relief or to accelerate program funding.

APPROPRIATION REQUIREMENT: Payments under the service contract, which fund debt service, require annual appropriation by the state legislature. Fitch rates general obligation bonds of the state 'AAA' with a Stable Outlook.

RATING SENSITIVITIES

The rating is sensitive to changes in the general credit quality of the state of Florida, as bond payment is contingent upon legislative appropriation. The rating is capped at the state appropriation rating (currently 'AA+' with a Stable Outlook). Upward credit movement is unlikely as state transportation/gas tax bonds are generally rated 'AA+' or 'AA', with distinctions primarily based on the strength of the additional bonds test (generally 2x-3x) and the diversity of the pledged revenues.

CREDIT PROFILE

The Inland Protection Trust Fund was created in 1986 to pay for remediation of petroleum-contaminated sites. A wholesale motor fuel tax on gasoline, gasohol, diesel, aviation, and other petroleum products was dedicated to the fund to finance the clean-up, with both the fund and the remediation program administered by the state's Department of Environmental Protection (DEP). The program was initially run as a reimbursement program without any pre-approval requirement. In 1996, the state modified the program to require DEP pre-approval of projects and instituted a prioritization process to ensure that available funding did not exceed reimbursement claims. The corporation was created as a conduit issuer to issue bonds to fund the backlog of private party reimbursement claims to the state from the initial program; in early 1998, the corporation issued $253 million in bonds for this purpose. The program has been funded from the excise tax revenues on a pay-as-you-go basis since that time, and the 1998 bonds were fully retired in 2004.

As part of the state's fiscal 2010 budget balancing process, the state issued bonds to fund annual costs for the program rather than pay-as-you-go funding. The authorization was limited to a maximum of $104 million, with MADS of $10.4 million and a final maturity of no more than 15 years. Although no additional borrowing is anticipated at this time, the legislature could authorize additional debt in the future, which would more likely be for budget relief rather than program funding acceleration given the state's success with pay-as-you-go funding in the last decade.

The series 2010 bonds are the only outstanding bonds backed by the pledged revenues and have a first lien on monies in the Inland Protection Trust Fund, subject to annual legislative appropriation. Payments to the corporation for debt service are made pursuant to a service contract between the corporation and DEP that requires DEP to make payments to the corporation and include all payments under the contract in its annual budget request to the legislature and governor, establishes that monies in the trust fund shall be used first to make payments under the contract, and details the flow of funds.

Service contract payments are derived from a per-barrel wholesale excise tax on pollutants, primarily gasoline, gasohol, diesel, and aviation fuel that are produced in, removed from storage in, or imported into and remain within the state. About 75% of total revenues have come from gasoline and gasohol. The tax has been imposed and collected since 1986. The current rate of 80 cents per barrel is the maximum authorized rate and has been in place since 1992. Although the rate can be reduced to zero depending on the unobligated balance of the Inland Protection Trust Fund, the state expects to remain at the maximum rate given large outstanding need for the clean-up program and active management of the unobligated fund balance.

Although revenues declined during the recession and have not begun growing again post-recession, performance has been relatively stable compared to many of Florida's revenue sources, which saw huge upswings in the boom and subsequent dramatic declines in the downturn. The minimal leveraging of the revenue stream results in very strong debt service coverage by fiscal 2013 revenues at 19.3x annual and maximum annual debt service and 18.1x the $10.4 million authorized maximum annual debt service.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;

--'U.S. State Government Tax-Supported Rating Criteria', dated 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. State Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686033

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814011

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