|[February 12, 2013]
Fitch Rates St. Lucie County School Board COPS 'A+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has assigned an 'A+' rating to the following St. Lucie
County School Board, Florida's (the board or district) obligations:
--$75 million refunding certificates of participation (COPS) series
The bonds are expected to sell via negotiation during the week of
In addition, Fitch affirms the following ratings:
--$105.4 million COPS series 2005, 2011A and 2011B at 'A+';
--$108.8 million sales tax revenue bonds, series 2006 at 'A';
--Implied unlimited tax general obligation bonds at 'AA-'.
The Rating Outlook is Stable.
The COPs are payable from lease rental payments made by the district,
subject to annual appropriation, pursuant to a master lease purchase
agreement. The master lease requires the district to appropriate funds
for all outstanding sub-leases on an 'all or none' basis. An event of
non-appropriation would result in the termination of the master lease,
and the surrender to the trustee of all lease-purchased projects under
the master lease.
The sales tax bonds are secured by the proceeds of half cent school
capital outlay sales tax.
KEY RATING DRIVERS
FINANCIAL FLEXIBILITY: The district benefits from a strong experienced
management team which practices conservative budgeting and prudent
fiscal planning. Adequate reserves and options for spending cuts provide
the district with satisfactory financial flexibility.
STRONG MASTER LEASE PROVISIONS: The 'A+' rating on the COPS is based on
the district's general creditworthiness and the COPs' sound legal
structure and available capital millage. The master lease structure
requires all or none appropriation and the 1.5 mill capital millage
outlay typically used for lease payments provides more than sufficient
revenues to meet debt service requirements.
ADEQUATE SALES TAX COVERAGE: Sales tax revenues have improved over the
past two years and the 'A' rating reflects the narrow but adequate
coverage levels on the outstanding bonds.
LOW CARRYING COSTS: Carrying costs including debt service, pension and
other post-employment benefits (OPEB) are very manageable and no
material changes are expected.
LIMITED LOCAL ECONOMY: The district's economic base remains somewhat
limited despite recent diversification and exhibits below average levels
of income and high unemployment.
STRUCTURAL IMBALANCE: If the district is unable to eliminate the fiscal
2014 structural deficit and maintain reserves at close to forecast
levels, there could be negative rating action.
St. Lucie county, whose boundaries are coterminous with those of the
school district, is located along the east coast of Florida and has a
year round population of approximately 280,000. Encompassing 76.7 square
miles, the largest city in the county is Port St. Lucie (Fitch rated
'AA' with Stable Outlook) with a population of 164,000.
PROACTIVE FINANCIAL PLANNING
The district benefits from a strong and knowledgeable management team
which prudently focused on building reserves in the anticipation of
upcoming budgetary shortfalls. Over the two year period of fiscal 2010
and 2011 the district added $18 million to reserves by implementing a
nearly $30 million expenditure reduction, increasing transfers from the
capital improvement fund, and the levying a temporary 0.25 mill critical
needs millage (expires in fiscal 2013).
As a result of these measures as well as the receipt of Federal stimulus
funds, general fund balance grew to approximately $28 million (11.7% of
expenditures) in fiscal 2011. Unaudited fiscal 2012 results indicate an
operating deficit of just under $4 million (1.4% of expenditures) and a
still ample unrestricted general fund balance to spending of 9.8%.
FINANCIAL CHALLENGES AHEAD
Consistent with its budget, the district plans on using $13 to $15
million of general fund balance in fiscal 2013 as Federal stimulus funds
dry up and the district reduced transfers in to the general fund from
the capital improvement fund to their former levels. The use of
available reserves will reduce total general fund balance to
approximately $17 million (6.1% of expenditures) at the end of fiscal
2013, which remains above the informal target of 5% of expenditures
which Ftch believes provides an adequate amount of financial
flexibility for the rating level.
The district faces a $15 million revenue shortfall in fiscal 2014.
Management has identified over $20 million in possible expenditure
reductions including privatization of custodial services, a 10%
reduction in board contribution to employee health insurance and the
closure of two schools. The identified reductions do not need voter
approval and the board's past willingness to implement the necessary
reductions makes it reasonable to believe that the board will act
prudently to restore fiscal balance to the general fund.
The budget gap reflects increased costs as well as the redirection of
approximately $5 million from the capital improvement fund that had
supported operations (general maintenance and other projects) in recent
years and the loss of revenue from the 0.25 mill critical needs levy in
2014 ($3.75 million).
The district plans to implement budget cuts in order to maintain total
general fund balance at or slightly below the informal policy level of
5% of expenditures. The Stable Outlook is based on Fitch's expectation
that management will implement sufficient expenditure reductions to fund
operations going forward, preserving the districts stable financial
CARRYING COSTS ARE MANAGEABLE
Overall debt levels are moderate at 3.5% of market value and $2,566 per
capita; amortization of direct debt is average with 54% of principal
retired within 10 years. Debt levels are expected to remain stable, as
no additional long-term debt is presently contemplated.
Pensions are provided through the state run Florida Retirement System
(FRS) and total annual pension contributions were a manageable at 5% of
expenditures in 2011. FRS is well funded at 80% and as such costs are
not expected to increase materially.
OPEB is currently funded on a paygo basis and the unfunded liability
represents a very low 0.04% of market value. Carrying costs including
debt service, pension and OPEB were a very manageable 12% of total
fiscal 2011 expenditures.
IMPROVEMENT IN SALES TAX REVENUES
Fiscal 2012 sales tax receipts increased 2.2% over the prior year to
$12.7 million or 1.25 times (x) maximum annual debt service (MADS).
Collections peaked at $15.1 million or 1.5x MADS in fiscal 2006 then
declined through fiscal 2010 due to the poor economic conditions. With
the uptick in economic activity, Fitch expects sales tax to continue to
expand over the next two or three years.
The debt service reserve account which had been satisfied by a surety
from National Public Finance Guarantee, formerly MBIA has been replaced
with a Letter of Credit from JP Morgan (News - Alert) which will expire in 2014. The
district has a balance of $411 thousand in surplus sales tax collections
that, if retained, can be used to meet debt service or other capital
LIMITED LOCAL ECONOMY
The county's economy, historically driven by its sizable residential
base, is also led by service sector activities with concentrations in
tourism and construction. The county was hard hit by the housing
downturn beginning in 2007. Home values dropped by over 60% from 2006,
the largest decline of any county in Florida according to Case Schiller.
More recent data indicates tentative stabilization in the housing
market, but home values remain well below their former highs.
The opening of the Torrey Pines Institute of Molecular Studies in Port
St. Lucie in 2008 has fostered a small but growing biotech hub in the
area, providing both jobs and diversification to the underlying economy.
Recent developments include the opening of Martin Memorial Health
Systems and the Vaccine and Gene Therapy Institute with additional
biomedical projects scheduled to open in 2014.
Income levels are below average, with per capita money income equal to
87% of the state average and 83% of the national. Unemployment rates
remained high at 10.5% in November 2012 above both the state (8%) and
nation (7.4%) in the same month. Improvements in year over year
unemployment were mainly attributable to a decline in the labor force.
ASSESSED VALUE DECLINES ARE SLOWING
The district experienced large assessed value (AV) declines reflecting
the housing meltdown; however the pace of tax base devaluation has
slowed more recently to 4.2% and 1% in fiscals 2012 and 2013,
respectively. Fitch believes that tax base stabilization is imminent as
housing begins to rebound. While Fitch notes that Florida school
districts are less dependent on the tax base than other local entities,
tax base losses do lessen revenues available for capital needs as well
as critical discretionary millage revenues. Property tax collection
rates remain slightly above the 96% budgeted rate, despite significant
STRONG MASTER LEASE PROVISIONS
Lease payments are payable from any legally available source; however,
on a budget basis, payments are made from the district's capital millage
outlay which can be levied up to 1.5 mills for lease payments for COPs
issued before 2009. For bonds issued post 2009, state law limits the
amount to be used for COPs repayment to 75% of the 1.5 mill levy or
1.125 mills. In fiscal 2012, the 1.5 mill levy provided ample revenues
to meet MADS. While the lease payments are subject to appropriation, the
'all or none' payment requirement under the master lease would result in
the loss of all or parts of nearly 30% of the district's schools which
are covered under the lease should the district fail to appropriate. The
'all or none' appropriation feature provides significant enhancement to
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS (News - Alert) Global Insight, and National
Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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