|[April 17, 2014]
Fitch Assigns Initial 'AA-' Rating to Escambia County School Board, FL COPs; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings assigns an 'AA-' rating to the following Escambia County
School Board, Florida certificates of participation (COPs):
--$20.3 million refunding COPs, series 2014.
The COPs are expected to price through negotiation the week of May 5.
Proceeds will be used to refund a portion of the series 2004 COPs for
debt service savings.
In addition, Fitch assigns an initial 'AA' implied unlimited tax general
obligation (ULTGO) rating to Escambia County School District, FL (the
The Rating Outlook is Stable.
The COPs are secured by lease payments subject to annual appropriation
by the Escambia County School Board under a master lease-purchase
agreement with the Florida School Boards Association. Upon certain
events of default or the school board's failure to appropriate funds all
leases under the master lease will terminate, and the school board is
required to immediately surrender possession of all facilities subject
to the master lease.
KEY RATING DRIVERS
COPS APPROPRIATION RISK: The one-notch distinction between the implied
ULTGO and COPs ratings incorporates the slightly elevated risk of annual
appropriation. The all-or-none appropriation feature of the master lease
and the essential nature of leased assets, which are subject to
surrender in the event of non-appropriation, temper this risk.
STRONG FINANCIAL RESERVES: The accumulation of sizable financial
reserves has enabled transition through the national economic downturn.
With continued conservative budgeting, moderate further use of reserves
and balanced operations by fiscal 2016, a strong financial position is
expected to be maintained over the longer term.
RELATIVELY STABLE TAXBASE: Unlike most of Florida, Escambia County's
taxbase declines have been moderate. The presence of a large military
installation as well as a sizable regional power plant fosters economic
MODEST DEBT POSITION: The district's debt levels are low and all debt is
rapidly retired. Borrowing needs are minimal and overall carrying costs
The rating is sensitive to shifts in fundamental credit quality
including the county's strong financial management practices. The Stable
Outlook reflects Fitch's expectation that such shifts are unlikely.
Escambia County is located in the extreme northwest corner of the state,
bordering the state of Alabama and the Gulf of Mexico. The 2013
population of the county is 302,715 and the land area is 661 square
miles. The district served 40,340 full-time equivalent students in
fiscal 2013. The county seat is Pensacola.
SIZABLE FINANCIAL RESERVES
The district's strong financial position is highlighted by strong
reserves and ample liquidity. The $40.3 million unrestricted general
fund balance at the close of fiscal 2013 was a sizable 14.4% of
expenditures and transfers out. Cash and investments in the general fund
and across all governmental funds totaled $47 million and $156 million,
respectively. The general fund quick ratio (cash divided by liabilities
net of deferred revenue) is a strong 5.6 times. Fiscal 2013 non general
fund liquidity includes $79 million held in the capital projects fund
which accounts for the receipt of the district's local option sales tax.
While those proceeds are dedicated to capital improvements, the reserves
provide sizable cash flow liquidity. Furloughs and layoffs were not
utilized during the economic downturn and the district gave raises in
every year except one.
Similar to many Florida school districts, Escambia school district built
up reserves in fiscal years 2010 ($12.4 million operating surplus) and
2011 ($16.8 million operating surplus) from receipt of federal stimulus
funds to enable planned drawdowns in subsequent years. In fiscal years
2012 and 2013, the district relied on reserves of $11.4 million and $4.9
million, respectively. The district is expecting a more moderate $3
million to $3.5 million use of reserves in fiscal 2014 and another
moderate use of reserves in fiscal 2015, but expects a return to
balanced operations by fiscal 2016. The district's board policy is to
maintain a general fund unreserved balance of at least 3.5% of general
fund revenues, although the perecession reserves exceeded the policy.
Given the district's projection for moderate use of reserves, Fitch
expects the district will manage operations well above the stated policy
largely through expenditure controls.
AMPLE CAPITAL MILLAGE FOR COPS DEBT SERVICE
While any legally available revenue can be used for COPs debt service,
the district has historically made payments from the capital outlay real
property tax. The capital outlay millage is authorized by state law up
to 1.5 mills and the district levies the full millage. Up to
three-fourths of the proceeds of the capital levy is available, but not
pledged, for lease payments. Effective July 1, 2012, the three-fourths
limitation is waived for lease purchase agreements entered into prior to
June 30, 2009. All of the district's outstanding lease agreements were
originally entered into prior to this date. The district's capital
outlay millage is expected to generate $21.8 million in fiscal 2014
while maximum annual debt service (MADS) on outstanding COPs is only
$4.8 million. After payment of debt service, the millage provides a
substantial source of funding for pay-go capital funding.
Under an event of non-appropriation the district is required to
surrender the leased facilities. The trust estate for the series 2014
COPs includes an elementary school, which is a magnet school for the
arts with a waiting list, and portions of four other schools. These
facilities represent less than 3% of total facilities, but the district
reports all the facilities in the trust estate are anchor schools.
Overall, fiscal 2014 utilization of these facilities is very high.
LOW DEBT WITH RAPID RETIREMENT
District debt levels are extremely low and a high 98% of debt matures in
10 years. The debt burden is a low 0.6% and debt per capita is only
$457. Of the district's $37 million of direct debt, $4 million is
variable rate and swapped to fixed. The variable rate debt matures in
District capital needs are funded through both the excess capital outlay
millage as well as a voter approved discretionary sales surtax. The
sales tax is dedicated to capital spending and was approved for ten
years, expiring Jan. 1, 2018. In fiscal 2013, the tax generated $20.9
million. The district is planning to go to the voters this fall to seek
renewal of the sales tax for an additional 10 years. If renewed, the
district is considering issuing sales tax bonds secured by the tax
MILITARY PRESENCE STABILIZES ECONOMY
The local economy is dependent upon the military, with the Naval Air
Station Pensacola providing employment for 23,400 uniformed and civilian
jobs. The base was not affected during the 2005 base realignment and
closure (BRAC) and no cuts at the base are currently pending. Health
care and tourism are two other major sector employers. Employment growth
over the past year contributes to a decline in unemployment and the
November 2013 rate is a low 5.9%. Federal Navy Credit Union is
undergoing a 342,000 square foot expansion, representing a capital
investment of $200 million and is expected to create 1,500 new jobs. The
construction contract for phase I was awarded earlier this year.
County population was flat from 2000 to 2010 and has grown a modest 1.6%
through 2013. Wealth levels trail the state and national medians,
partially reflecting the large military presence. Poverty is slightly
above the national rate.
TAXABLE PROPERTY VALUES
From peak to trough (fiscal 2009 to 2013), taxable assessed values (TAV)
declined 8.8%, a modest amount relative to the rest of the state. The
fiscal 2014 TAV shows a modest increase of just under 1%. Officials
expect stable values for fiscal 2015. According to the Zillow Home Value
Index, the growth in home values in Escambia County is continuing as
housing prices for were up 5.5% in the past 12 months. Moreover, the
total value of permit activity in 2013 is at the highest level in the
past six years.
MODEST CARRYING COSTS
Carrying costs (debt service, pension and other post-employment benefits
[OPEB]) are a modest 4.4% of government spending. The district has no
borrowing plans. Student enrollment has been generally stable over the
past five years, alleviating the need for capital construction needs.
All district employees participate in the state operated retirement
system, a relatively well funded plan. Pension and OPEB costs are
affordable. The district self-insures for medical coverage and is in
compliance with state guidelines for reserves in the internal service
fund. Excess internal service funds can be used for catastrophic
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, Zillow.com,
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
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
[ InfoTech Spotlight's Homepage ]