BRADENTON, Fla. - Florida’s water and sewer utilities expect to take on more debt, Fitch Rating analysts say, to focus on developing alternative water sources and ensuring water quality.

Although debt levels among the state’s utilities have trended upward since 2014, Fitch said in a report Monday that borrowing has been largely for renewal and replacement capital expenses.

The average utility rating continues to be AA, and based on mostly stable rating outlooks “credit quality is expected to remain high,” said Fitch analyst Eva Rippeteau, lead author of the report.

“The increased debt has supported a concurrent rise in annual capital expenditures and has resulted in much improved cash reserves,” Rippeteau said. “Fitch expects debt issuances to continue to rise over the next several years.”

The Florida Department of Environmental Protection has issued permits for 5,230 public drinking water systems in the state and 1,970 domestic wastewater facilities, said DEP spokeswoman Dee Ann Miller.

Fitch said some utilities will need to find new sources of water that could be costly, necessitating regional cooperation.

“Regional water supply initiatives are becoming important ways to co-finance, operate and ensure what can be costly approaches to long-term water supply resource,” Rippeteau said. “These are particularly important for parts of the state that may be drought sensitive or those located in ecologically sensitive areas throughout the state, such as the Everglades.”

The regional approach to planning is already underway in Orange, Osceola, Seminole, Polk and southern Lake counties, which created the Central Florida Water Initiative to work on water supply projects with water management districts, the state Department of Environmental Protection and other stakeholders.

The CFWI estimates a need for 300 million gallons per day in additional supply - above the 800 million gallons per day of current average total use - to meet forecast needs of the region through 2035, Fitch said.

The CFWI expects to obtain new water resources through a number of avenues, including aquifer recharge and augmentation, increased water conservation and the continued development of alternative treatment capacity.

On June 14, Gov. Rick Scott signed House Bill 573 into law, creating the Heartland Headwaters Protection & Sustainability Act” recognizing the 560,000-acre Green Swamp in central Florida as a regionally significant recharge area for the Floridan Aquifer.

HB 573 requires that the Polk Regional Water Cooperative consisting of Polk County and 15 municipalities in the county prepare an annual report of needed water, sewer and flood control projects as well as costs and financing sources. The report is due to the state by Dec. 1 each year.

Fitch said it took 39 rating actions between June 1, 2016 and May 30, 2017, affirming 30 ratings, upgrading four ratings by one notch each. Only one rating was downgraded over the year-long period.

Median operating revenues grew by 7% from fiscal years 2014 to 2016, largely supported by continued rate increases and steady customer growth.

“Sufficient revenue growth offset steadily rising operations and maintenance expenses, leading to improved net revenues and the resulting strong debt service coverage levels,” Fitch said, adding median senior lien debt-service coverage from all revenues totaled more than 3 times.

Fitch said strong financial results in Florida are supported by an increase in the median days’ cash on hand and improved free cash relative to depreciation, both of which are key liquidity metrics.

Cash on hand improved to a “very robust” 634 days in fiscal 2016, marking a fifth consecutive year of annual increases, and an overall 47% rise in liquidity from fiscal year 2012 to 2016, Fitch said.

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