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RATING SENSITIVITIES IDR: The IDR is sensitive to unexpected and significant changes in the county's financial resilience and/or long-term liability burden. SPRING TRAINING FACILITY BONDS: Due to the nature of the revenue pledge and the automatic release of the TDT and half -cent sales tax, the rating on the bonds is capped at the lower of the IDR on the county or one notch below the state's IDR. The rating is also sensitive to a material change in coverage resulting from additional leverage or a shift in the performance of pledged TDT and/or half -cent sales tax revenues prior to their automatic release. ECONOMIC RESOURCE BASE The local economy of Indian River County is traditionally centered on agriculture and tourism, although it has diversified with an increased presence of health care and information technology, light manufacturing, wholesale and retail trade and service sector jobs. The county's tax base has picked up solid momentum in recent years after enduring steep declines during the recession and a slow initial recovery. The county's unemployment rate has improved considerably but still exceeds the state and the U.S. average. The tourism sector continues to strengthen, with tourist development taxes up 7% in fiscal 2018 over the prior year. IDR CREDIT PROFILE Revenue Framework Property tax revenues are the county's largest revenue source, comprising 66% of fiscal 2019 general fund budgeted revenues. The county's 10 -year historical general fund revenue growth has lagged both U.S. GDP and inflation increases through fiscal year ending 2018, due to the severe impact of the great recession and housing market decline as well as the state property tax reform. Growth prospects are somewhat more positive, absent policy action, driven by continued population growth, property appreciation and development. The county has ample legal revenue raising authority as the current.millage is well below the property tax cap of 10 mills. The adopted general fund tax rate remained stable at 3.4604 mills in fiscal 2019. Expenditure Framework The county maintains solid expenditure flexibility with moderate carrying costs. Public safety is the largest spending item, with fiscal 2018 outlays comprising 50% of total general fund and MSTU expenditures. General government spending is the second largest spending category equal to about 23%. The county's pace of spending is expected to be in line with or marginally exceed revenue growth trends, absent policy action, with increased demands associated with population growth largely offset by growth in the tax base and other non -ad valorem revenues. Employee wages and benefits are the main expenditure driver. Wages and benefits are collectively bargained, as county employees are largely represented by two unions. However, under state law, if an impasse is declared, both parties are required to engage in a non-binding mediation process after which the local government may impose contract terms for one year. The county was able to manage the budget through the great recession by privatizing certain services, implementing hiring and wage freezes and layoffs, and using reserves. It has since increased staffing levels in recent years (albeit to a level that is still below pre -recession highs) and reinstated pay increases. The county's high proportion of public safety spending may present some practical restrictions on future expenditure flexibility. Fixed carrying costs associated with debt and retiree liabilities are equal to about 9% of total government spending in fiscal 2018. Long -Term Liability Burden The county's long-term liability burden approximates 3% of personal income and is expected to remain very low. The county's overall debt burden mainly reflects the overlapping obligations of the county school board. The county's direct debt amortizes at an aggressive pace with over 90% of principal to be repaid within 10 years. Capital needs from 2019 through 2023 are manageable and are largely focused on transportation and utility system improvements financed from gas and sales tax revenues, impact fees, user fees and grants. The county does not have any debt issuance planned. During the November 2016 general election, county voters approved the extension of the optional sales tax beginning in Jan. 1, 2020 for an additional 15 years through Dec. 31, 2034. The local option sales tax generated approximately $19 million in revenues in fiscal 2018. The county plans to continue to use the funds to support its infrastructure and capital needs on a pay-as-you-go basis in lieu of higher amounts of debt financing. The county participates in the state -administered Florida Retirement System, a cost sharing multiple employer plan. FRS is adequately funded with a reported asset to liability ratio estimated at 84% (as of the June 30, 2018 measurement date), or 75% using Fitch's standard 6% investment rate of return. The county's net pension liability (excluding the HIS plan) totaled $104 million, or approximately $190 million (less than 2% of personal income) using the Fitch adjustment. The county historically funds 100% of the actuarially determined FRS contribution. Operating Performance Fitch believes that the county's broad revenue raising ability and spending flexibility provide it with the ability to maintain reserves well in excess of a level consistent with a 'aaa' financial resilience assessment through economic cycles. Fitch's Analytical Sensitivity Tool (FAST) generates a general fund revenue decline of nearly 4% in a moderate economic downturn scenario. The county continues to comply with its financial reserve policy requiring unassigned reserves equal to 20% of total operational spending plus an additional 5% for both budget stabilization and emergency use. The county has demonstrated robust financial management by maintaining ample reserves. Despite modest operating deficits that occurred from fiscal 2015-2017, the county's unrestricted reserve levels have remained in excess of 44% of total general fund expenditures and transfers out. 7