|[March 04, 2014]
Fitch Rates Orange County FL School Board Leasing Corp.'s COPs 'AA'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has assigned an 'AA' rating to the following Orange (News - Alert) County
School Board Leasing Corporation, FL's (the corporation) certificates of
$65,525,000 million COPs, series 2014A.
The COPs are scheduled to price via negotiation, but a final pricing
date has not yet been determined. Proceeds will be used to refund a
portion of the corporation's outstanding series 2004A COPs.
In addition, Fitch affirms the following ratings:
--$1.1 billion outstanding COPs at 'AA';
--Implied unlimited tax general obligation (ULTGO) for the Orange County
FL School District (the district) at 'AA+'.
The Rating Outlook is Stable.
All corporation COPs are secured by lease payments made by the Orange
County FL School Board (the board), subject to annual appropriation, to
the corporation under a master lease purchase agreement. In the event of
less than full appropriation the trustee may force the board to
surrender possession of all leased facilities under the master lease to
the trustee, for disposition by sale or re-letting of its interest in
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: The district's conservative budgeting
practices and policies have contributed to historically sound operations
and strong reserves even during a period of volatile levels of state
funding and declines in property values. The 'AA+' implied ULTGO rating
reflects the district's solid financial performance and expected
maintenance of strong reserves.
AMPLE LIQUIDITY: The district benefits from the financial flexibility
afforded by the voter-approved one mill levy for operations and a
half-cent sales tax which supports capital needs. Although both levies
expire in fiscal 2015, the district plans to seek renewal of the sales
tax this fall. The district's large level of capital and operating
reserves, recent and projected improved levels of state funding, and
projections for growth in the tax base mitigate concerns of the
potential discontinuation of these recurring revenues.
DEPENDENCE ON (News - Alert) STATE REVENUES: Like most Florida school districts, the
district remains dependent upon state funding which has fluctuated in
MODERATE DEBT LEVELS: Annual debt service expenditures consume an
affordable share of the district's budget due in part to slow
amortization. Key debt ratios are moderate. The district's sizeable
capital plan is fully funded from a variety of existing capital reserves
and recurring revenue. No additional new money debt is anticipated at
EXPANDING ECONOMY: Although tourism based, the area has expanded its
educational, healthcare and biotechnical presence. Unemployment levels
have improved notably and wealth levels are at or slightly below state
COPS SUBJECT TO APPROPRIATION: The 'AA' COPs rating reflects the
district's general credit quality, the district's obligation to make
annually appropriated lease payments under a master lease structure, and
the essentiality of leased assets.
CONTINUED STRONG FINANCIAL MANAGEMENT: The rating is sensitive to shifts
in fundamental credit characteristics including the district's strong
financial management practices. The Stable Outlook reflects Fitch's
expectation that such shifts are unlikely.
Orange County (implied ULTGOs rated 'AAA' by Fitch), home to Walt Disney (News - Alert)
World, had a 2011 population of 1.2 million. The boundaries of the
school district are coterminous with the county.
HISTORICALLY STRONG FINANCIAL OPERATIONS
The district has been consistent in achieving surplus general fund
operations for the last ten fiscal years. These results stem primarily
from its conservative budgeting practices and effective management of
resources. For fiscal 2013, the district posted a $33.3 million general
fund surplus, after transfers, equivalent to 2.6% of spending. This
follows a $42.3 million net operating surplus for fiscal 2012. The
positive results were achieved due mostly to a combination of utility
costs savings as a result of recent school renovations, lower costs
derived from unfilled positions and the postponement of certain
non-recurring initiatives representing 1% - 2% of spending. Unrestricted
fund balance improved to a solid $382.6 million or 30% of spending.
Management has indicated to Fitch that it expects a moderate surplus
again for fiscal 2014 as certain one-time planned expenditures carried
over from fiscal 2013 continue to be delayed.
The district continues to benefit from a one-mill operating levy which
was approved by voters in Nov. 2010. This additional operating levy was
approved for four years begnning in fiscal 2012 and provided $84
million in tax revenues in fiscal 2013 (6.5% of total general fund
revenues). Management is contemplating asking voters to renew this
operating millage, but is waiting for more information on expectations
for state aid for the next fiscal year.
Overall tax rates remain moderate compared to other school districts at
8.362 mills (including the voted one-mill additional operating levy).
State statute limits the total non-voted millage rate that may be levied
for operations and capital funds to 10 mills, leaving the district with
some flexibility. State funding represents 56% of fiscal 2014 budgeted
revenues evidencing the district's reliance on the state.
The district's fiscal 2015 budget is in preliminary stages and the major
drivers include salaries and increased health and retirement costs.
Management does not expect any material changes in its current level of
AFFORDABLE DEBT BURDEN
Overall debt ratios are moderate at 2.8% of taxable value and $2,100 per
capita. The district has no current plans for additional debt. Capital
improvements are scheduled to be funded from a combination of existing
reserves in the district's capital projects fund which total $863
million and revenue from the voter-approved capital outlay sales tax
through December 2015.
The district's annual debt service budget is primarily driven by its
$1.3 billion in outstanding COPs. While any legally available revenue
can be used for COP debt service, the district has historically made
payments from the 1.5 mill capital outlay tax. With the district's
taxable assessed value (TAV) for fiscal 2013 of $89.4 billion, a 1.17
mill rate generates sufficient revenues, assuming a 96% tax collection
rate, to cover maximum annual COP debt service of $101 million (fiscal
The district has $195 million in outstanding variable rate COP debt
which is hedged with fixed interest rate swaps. Fitch considers the
risks associated with these transactions to be moderate considering the
debt represents 15% of the district's total direct debt and its current
strong liquidity position mitigates market risks.
The district has benefitted from its voter approved half-cent capital
outlay sales tax which provides over $160 million in annual revenue. The
sales tax, approved by voters in 2002, is effective from Jan. 1, 2003
through Dec. 31, 2015. Such sales tax revenues are available to service
COP debt if necessary. The availability of these sales tax revenues has
helped the district manage the growth of its student base and keep up
with necessary improvements, expansions and maintenance as necessary to
maintain adequate facilities for its students. The district plans to ask
voters to approve a renewal of this levy in November 2014. While the
substantial capital reserves provide funding for the near to medium term
in the event a renewal is not approved, Fitch believes an additional
source of capital funding will be needed at some point.
All district employees participate in the state administered retirement
system. Pension and OPEB costs are affordable. Total carrying costs for
pension, OPEB pay-go and debt service equated to an affordable 8.5% of
total fiscal 2013 governmental spending. Carrying costs are somewhat
depressed by slow debt amortization of only 32% in 10 years.
The county's economy anchors the central portion of the state, as
professional and business services, education, health care, and
biotechnology augment the historically strong tourism sector. Two of the
leading employers in the county are health care systems, Adventist
Health System and Orlando Health, which together employ 32,000 workers.
Tourism remains a considerable economic force. Walt Disney World is the
county's largest taxpayer at 8% of taxable assessed value and the
largest employer. Nine of the top ten taxpayers, representing 16% of AV,
are in the hospitality industry. While Disney and Universal are firm
anchors to the historically volatile tourism sector, Fitch believes the
increasing diversification of the area economy enhances stability and
the prospects of future economic growth.
In fiscal 2013 and 2014, the tax base reversed a four year trend of
contraction, stabilizing in fiscal 2013 and expanding by 4% in fiscal
2014, boosted by new construction coming onto the tax rolls. The 24%
cumulative tax base decline between fiscals 2009 and 2012, although
substantial, was not as severe as that which occurred in other parts of
the state. Fitch anticipates continued near-term expansion of taxable
values as the economic recovery continues.
WEALTH LEVELS ARE LOW; UNEMPLOYMENT RATES IMPROVE
County per capita income levels fall below state and national averages,
reflecting the substantial employment in the tourism industry. Wealth
indicators steadily declined relative to state and national benchmarks
between 2007 through 2011, reflective of the severity of the recession
in central Florida. Fitch expects this trend to reverse as the area
economy recovers. County employment trends demonstrate strong gains of
3.6% in 2012 and 2.8% in 2013. Unemployment rates have continued to
decline in tandem with the employment growth from a high of over 11% in
2010 to 5.4% as of December; well below 7.4% of the prior year and lower
than the current state and national averages.
The district is the fourth largest in Florida and has a current
enrollment of 187,547. The district is projecting 1% - 2% annual
enrollment growth over the next few years.
Additional information is available at 'www.fitchratings.com'.
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, 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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