|[July 15, 2014]
Fitch Affirms Seminole County Schools, FL COPs at 'AA-'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms the following ratings of Seminole County School
Board (the district), FL:
--$171 million certificates of participation (COPs) at 'AA-';
--Implied unlimited tax general obligation (ULTGO) bonds at 'AA'.
The Rating Outlook is Stable.
The district's COPs are secured by lease payments made to the trustee
and pursuant to a master lease purchase agreement. Lease payments are
payable from legally available funds of the district (subject to annual
appropriation by the Seminole County School Board). The district is
required to appropriate funds for all outstanding leases on an
In the event of non-appropriation, all leases will terminate, and the
district would, at the trustee's option, have to surrender all
lease-purchased projects for the benefit of owners of the COPs which
financed or refinanced such projects.
KEY RATING DRIVERS
VOTER SUPPORT FOR SCHOOLS: District financial position is adequate,
marked by strong expenditure control. Recent passage of tax referendums
enhances financial flexibility. One time reserve use in fiscal 2014
narrows financial reserves but operating stability is expected in fiscal
LOW LONG TERM LIABILITIES: Key debt ratios are very low and are expected
to remain so given moderate capital needs and absence of borrowing
plans. Pension and other long term liabilities are a low percentage of
STRENGTHENING ECONOMIC PROFILE: Recovery from the downturn is evidenced
by employment growth and tax base expansion. Seminole County's economy
is marked by diverse employment opportunities, low unemployment, and
COPS APPROPRIATION RISK: The one-notch distinction between the implied
ULTGO and COPs rating incorporates risk to annual appropriation.
Tempering this risk is the all-or-none appropriation feature of the
master lease, the sizable number of schools under the master lease and
the essential nature of leased assets that are subject to surrender in
the event of non-appropriation.
WEAKENING OF OPERATING RESERVES: The rating is sensitive to the
district's ability to maintain structural balance. Failure to maintain
reserve levels in fiscal 2015 could pressure the rating.
The school district, which is coterminous with Seminole County, is
located in the central portion of the state near the Atlantic coast and
is in the Orlando metropolitan statistical area (MSA). The county's 2013
population is 430,838.
SOUND FINANCIAL POSITION
District financial position has weathered the economic downturn well
with moderate draws on reserves. The district tax base turned the corner
in fiscal 2014. Together with voter approvals for added real property
tax and sales tax revenue, this helps support the expectation of
continued sound financial position.
The district incurred operating deficits of $12.3 million (2.9% of
spending) and $3.4 million (0.8%) in fiscal years 2012 and 2013,
respectively. The fiscal 2013 general fund unrestricted balance of $41.8
million represents a satisfactory 9.9% of spending. The district's
general fund balance policy calls for the unassigned fund balance to
equal 4% of total recurring expenditures. At the close of fiscal 2013
the unassigned balance was 7.7% of expenditures.
Fiscal 2013 results were $21 million better than budget, reflecting the
district's practice of conservative budgeting. Fiscal 2013 expenditures
included a 2.7% pay increase for personnel totaling $8.2 million. The
previous pay increase was in fiscal 2008.
ONE TIME RESERVE USE IN FISCAL 2014; BALANCE EXPECTED IN 2015
District officials project the fiscal 2014 general fund balance to
decline by $10.4 million. Only $1.5 million of the fund balance use
represents a structural gap. The district is implementing medical
self-insurance in fiscal 2015 and is transferring $7.5 million to a new
self-insurance fund. Commercial insurance costs were expected to
increase by over 12% and self-insurnce is expected to result in a 1%
cost increase. Additional one-time small reserve use in fiscal 2014 is
related to unexpected software costs.
Voters approved a one mill increase in property taxes for operations for
four years, the collection of which began in fiscal 2014. The $25.8
million fiscal 2014 levy from the voter authorized one-mill is budgeted
for repair and maintenance of school buildings as well as outlay needs.
Voters also approved, by a 52% margin, a ten-year one cent sales tax
increase, bringing the county wide sales tax from six cents to seven
cents. The tax goes into effect Jan. 1, 2015 and the district will
receive 25% of the tax revenue, an estimated $15.8 million. The district
pledged to voters to reduce property taxes by the amount of sales tax
expected. Consequently the discretionary real property millage is
expected to be reduced in the fiscal 2015 budget. Total sales tax
revenue to the school over the ten years is an estimated $158 million.
SATISFACTORY REVENUES FOR COPS DEBT SERVICE
The district has historically paid COPs debt service with revenue from
its 1.5 mills for capital outlay, although all legally available
revenues are available for this purpose. Three-fourths (1.12 mills) of
the 1.5 mills levy is available for COPs debt service. In fiscal 2013
the total capital millage collected was $37.8 million, relative to COPs
debt service of $22.5 million, leaving a satisfactory cushion beneath
the state 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 is approximately 30% of the
district's total facilities. Fitch considers this a strong incentive to
LOW LONG TERM OBLIGATIONS
Overall debt levels are very low at 1.0% of market value (MV) and $811
per capita. Debt service amortization is rapid with 77% of outstanding
debt retired in 10 years. Debt levels are expected to decline as the
district has no plans to issue additional debt.
The district's fiscal 2015-2025 capital improvement program totals a
moderate $159 million and is fully funded by local revenues. School
facility needs are minimal and capacity is satisfactory. The majority of
projects are for building renovations.
Pension obligations are limited to the district's participation in the
statewide multiple-employer pension plan (FRS), a plan which is fairly
well funded. For fiscal 2013, the district's annual contribution totaled
$13.4 million to the defined benefit plan and $1.4 million to the
defined contribution plan.
The district offers an implicit subsidy for other post-employment
benefits (OPEB) as required by state law. The district funds the
liability on a pay-as-you-go basis with a fiscal 2013 contribution of
$2.1 million. Total fiscal 2013 carrying costs (debt service, pension
and OPEB payments) were a moderate 10.6% of total government spending.
RECENT ECONOMIC AND TAX BASE STRENGTHENING
Seminole County is home to the corporate headquarters of the American
Automobile Association (AAA), Mitsubishi (News - Alert) Power Systems, Scholastic Book
Fairs, and Sears Home Improvement Products. Large private employers
within the MSA include Walt Disney World, Florida Hospital, Publix Super
Markets, Universal Studio - Florida, Orlando Regional Healthcare, and
Lockheed Martin (News - Alert).
Verizon constructed a new finance and accounting hub adding
approximately 300 new jobs which together with general economic recovery
has contributed to robust county-wide job growth. Consequently, the
county's unemployment rate has fallen over the past year. As of December
2013, unemployment was a low 5.1%; below the state (5.9%) and national
levels (6.5%) rates. Income levels are favorable, slightly higher than
the state and U.S.; and the poverty level is lower.
In addition to job growth, recovery is also evident in the district's
real property tax base. Taxable assessed value (TAV) fell almost 24%
from peak to trough, but is now showing sustained improvement with 2.7%
and 5.7% growth in fiscal years 2013 and 2014, respectively.
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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