|[May 21, 2014]
Fitch Affirms Bay County School Board, FL's COPs at 'A+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the following ratings on outstanding Bay
County School Board, Florida (the district) bonds:
--Implied unlimited tax general obligation (ULTGOs) at 'AA-';
--$88.1 million certificates of participation (COPs) at 'A+'.
The Rating Outlook is Stable.
The COPs are secured by lease payments made by the Bay County School
Board, subject to annual appropriation, to the issuer under a master
lease purchase agreement. In the event of non-appropriation the trustee
may force the school 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 such facilities.
KEY RATING DRIVERS
IMPLIED GO RATING: The 'AA-' implied ULTGO rating reflects the
district's sound financial position. Careful management and conservative
budgeting have augmented solid reserves and ample liquidity.
IMPROVING ECONOMIC PROFILE: The local economy has shown solid
improvement with employment indicators trending favorably to both the
state and nation, though resident wealth remains slightly below average.
The tax base has shown signs of stabilizing following several years of
LOW DEBT LEVELS: Debt levels are low and likely to remain so given the
district's rapid amortization schedule and manageable capital needs.
Retiree benefit costs do not pressure district finances, and overall
carrying costs constitute a relatively small share of governmental fund
COPS APPROPRIATION RISK: The one-notch distinction between the implied
ULTGO and COPs rating incorporates the risk associated with annual
appropriation. The all-or-none appropriation feature of the master lease
and the essential nature of leased assets (eight major facilities),
which are subject to surrender in the event of non-appropriation,
somewhat temper this risk.
The rating is sensitive to shifts in fundamental credit characteristics
including the district's strong financial management practices and sound
reserve levels. The Stable Outlook reflects Fitch's expectation that
such shifts are unlikely.
The district is located on Florida's panhandle and is home to Panama
City and Panama City Beach, as well as Tyndal Air Force Base and Naval
Support Activity Panama City (NSA PC). The district had a population of
171,903 in 2013, which has grown moderately in the last 10 years.
PRUDENT FINANCIAL MANAGEMENT
Financial management is strong as evidenced by historically prudent
management of reserves, ample liquidity, and favorable budget to actual
variances. Cost-saving measures, including the negotiation of labor
concessions and the elimination of positions upon retirement, have
yielded significant savings in recent years. As a result, the district
posted a use of $5.4 million of fund balance in fiscal 2012, despite a
budgeted draw of approximately $9 million related to the Education Jobs
Fiscal 2013 closed with an operating surplus of $3.3 million after
transfers, or a modest 1.8% of spending. Favorable results were
supported by conservative revenue forecasting and careful expenditure
controls, reversing a budgeted $17.9 million deficit after transfers.
Fitch views positively the consistency with which the district has
outperformed projections, having expended on average only 93% of budget
over the last five fiscal years. The district has realized these savings
while remaining compliant with constitutionally mandated class size
The district maintains ample reserve levels. Fiscal 2013 unrestricted
general fund balance was $27 million, or a sound 15.3% of spending, of
which $25 million (14.3% of spending) is unassigned; well-above the
district's unassigned fund balance policy minimum.
2014 BUDGET MAINTAINS BALANCED OPERATIONS
Management anticipates fiscal 2014 general fund reserves will remain
consistent with prior years despite a modest use of fund balance for
non-recurring employee raises. Fiscal 2014 state funding is budgeted to
increase by $13.8 million (17%) over fiscal 2013 actual results.
Property tax revenue is budgeted to decrease (approximately 3.4% or $2.9
million) compared to the prior year, due to modest taxable assessed
value (TAV) declines and a decrease of .174 mills in the required local
Enrollment growth, the basis for the state funding formula, will be
favorably affected in fiscal 2014 due to the relocation of military
families to facilities within the district.
LOW COPS DEBT SERVICE MILLAGE
The district has historically paid COPs debt service with revenue from
its capital outlay millage, although all legally available revenues are
free for this purpose. The capital outlay millage is authorized by state
law up to 1.5 mills. Up to three-fourths of the proceeds of the capital
levy is available 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 but one of the district's lease
agreements, series 2010A, were entered prior to this date. The series
2010A COPs were issued to refund outstanding COPs from 1999, and
therefore may also be waived from the three-fourths limitation.
In fiscal 2014 the district levied 0.524 mills for COPs debt service,
less than half of the allowed levy, leaving ample cushion beneath the
state cap. The district's total capital outlay millage increased
modestly in fiscal 2014, to 1.0 mills, all of which is used for
designated capital purposes and debt service. Fitch views positively the
district's conservative levy as preserving revenue flexibility below the
1.5 mill cap.
The master lease structure on the district's COPs is strong, requiring
an all-or-none appropriation. In the case of non-appropriation, the
trustee is authorized to require the district to surrender use of all
facilities under the master lease, which would amount to approximately
eight schools and education centers, or 22% of the district's total
facilities. Fitch views as a credit positive the significant proportion
of district facilities under the master lease agreement providing a
strong incentive to appropriate.
RECOVERING ECONOMY AND TAX BASE
The local economy is comparatively limited with concentrations in
tourism and military operations. The presence of Tyndal Air Force Base
and NSA PC support major shipbuilding and marine manufacturing firms in
the area, providing a degree of long-term stability to the local
economy. Large private employers within the district include healthcare,
tourism, and military support interests, which have remained stable in
Per capita income levels are slightly lower than the state and U.S.
averages, consistent with historical trends. The county's unemployment
rate as of March 2014 has declined to a low 5.8% relative to the state
(6.4%) and nation (6.8%). Employment has shown stable growth throughout
the recession, posting consistent gains in each of the last four years
following a drop of 3.5% in 2009.
The district reports that tourism figures have shown continued growth.
Improved economic activity is evidenced by growth in the district's
one-half-cent sales tax (approved by voters in 2010 for a period of 10
years), up a strong 5.5% in fiscal 2013 to $16.5 million (9.2% of
revenue). Fitch views positively the district's ability to secure voter
approval of the one-half cent sales tax during a period of economic
hardship as indicating strong community support for the district's
The housing market correction has challenged the district in terms of
tax base declines. TAV has stabilized in recent years with modest growth
of 1.3% in fiscal 2013 following three years of recessionary
contraction. TAV remained essentially flat in fiscal 2014, with further
growth of 4.6% projected for fiscal 2015, per the state. Management
anticipates actual performance to be slightly higher, given recent
trends. Fitch considers the district's expectations to be reasonable, as
the district has historically out-performed state TAV projections.
LOW DEBT, AFFORDABLE CARRYING COSTS
Overall debt levels are low at 1.3% of TAV and $1,644 per capita. Annual
debt service was $15.9 million in fiscal 2013, or an affordable 6.9% of
governmental fund spending. Direct debt amortization is rapid, with 70%
paid within 10 years. School facility needs are minimal and capacity is
satisfactory. Debt service is expected to remain stable as the district
has no plans to issue additional debt in the next two years.
The district's future capital improvement needs are modest and the
likelihood of future borrowing is limited. The district closed five
school facilities at the outset of the recession, repurposing two others
for modified use. Fitch views favorably the district's proactive
response to enrollment pressures, as these actions preserve capacity for
expected future growth.
Pension obligations are limited to the district's participation in the
Florida Retirement System (FRS), a cost sharing multiple-employer plan.
For fiscal 2013 the district's annual contribution was $6 million, equal
to a modest 2.6% of governmental fund spending. Fitch estimates that FRS
is adequately funded at 78.9%, based on the 7% investment rate of return
used by Fitch.
The district offers an implicit subsidy for other post-employment
benefits (OPEB) as required by state law. The district continues to fund
the liability on a pay-as-you-go basis with a fiscal 2013 contribution
of $589,000, or a very low 0.3% of governmental fund spending. The
annual required contribution (ARC) had been overfunded in prior years
and the unfunded actuarial accrued liability (UAAL) is a modest $5
Total carrying costs, including debt service, pension ARC and OPEB
contributions, equaled a low 9.7% of governmental fund spending in
fiscal 2013. Fitch expects carrying costs to remain affordable, given
limited debt plans and the adequate FRS funding level.
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.
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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