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Fitch Rates Indian River County School, FL COPs 'A+'; Outlook Stable
[October 15, 2014]

Fitch Rates Indian River County School, FL COPs 'A+'; Outlook Stable


NEW YORK --(Business Wire)--

Fitch Ratings assigns an 'A+' rating to the following certificates of participation (COPs) of the Indian River County School Board, Florida (the district):

--$47.715 million certificates of participation series 2014A

The Rating Outlook is Stable.

Fitch also affirms the 'A+' rating for the $96.4 million of outstanding series 2005 and 2007 COPs.

The bonds are scheduled to sell on Oct. 23, 2014 via negotiated sale. Proceeds will be used to refund the series 2005 COPs for level savings.

SECURITY

The COPs are payable from lease rental payments made by the district, subject to annual appropriation, pursuant to a master lease purchase agreement. The district is required to appropriate funds for all outstanding leases under the master lease 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.

KEY RATING DRIVERS

LOW DEBT LEVELS: The district's very low debt burden is a fundamental credit positive, as is its low cost of carry for debt, pension, and other post-employment benefits (OPEB). Capital needs and borrowing plans are limited.

SATISFACTORY FINANCIAL POSITION: Unrestricted general fund reserves are 10% of spending, providing a good cushion against unforeseen budgetary challenges.

VOTER-AUTHORIZED TAXES TEMPER REVENUE CONSTRAINTS: As with all other Florida school districts, independent revenue raising capacity is extremely limited. Somewhat offsetting this concern are additional discretionary tax levies approved by voters that enhance financial flexibility and indicate community support for management initiatives and performance.

MIXED ECONOMIC PROFILE: The presence of a wealthier retiree population lends some stability to the local economic base. However, employment opportunities are somewhat narrow and concentrated in lower wage jobs, and the county's rate of joblessness is persistently above that of the state.

RATING SENSITIVITIES

Fitch's rating and Stable Outlook reflect management's commitment to maintaining fiscal balance. Deviation from this practice could pressure the rating. The area economy remains limited and unemployment well above the national rate, constraining credit strength.

CREDIT PROFILE

Indian River County is located on the Atlantic coastline, approximately 135 miles north of Miami, and includes the cities of Vero Beach and Sebastian. The county's 2013 population is 141,944. The district operates 22 schools.

A RETURN TO FISCAL STABILITY

Positive operating results in fiscal years 2010-11 through 2013-14 (unaudited) demonstrate good fiscal control after a low point in 2009-10 when general fund reserves fell to a thin $1.4 million (1.3% of spending). Conservative budgeting has been a hallmark of the district's more recent operating performance.

In fiscal 2012-13 the general fund had a small $674 thousand operating surplus. The original budget called for $2.7 million use of reserves, and with subsequent amendments, a total of $7.0 million was appropriated. Expenditures came in well under budget, largely through savings in supplies, outlay and energy costs, enabling positive operating results. The unrestricted general fund balance was a satisfactory 9.6% of operating expenses.

Unaudited results for fiscal 2013-14 indicate a $3.6 million operating surplus (2.7% of spending), and an unrestricted general fund balance of 10.1% of spending. Fiscal 2014 operations were bolstered by voter approval of an 0.6 mill property tax levy for technology expenditures, which generates approximately $8 million a year. The four year authorization garnered a favorable 65.5% voter support rate. In 2010 the dstrict had also received community support for a two year 0.25 mill tax levy.



The fiscal 2014-15 budget includes a $5.7 million use of reserves, of which about $4.5 million represents an expense of restricted fund balance. The school board has engaged in preliminary discussions around the possibility of increasing the minimum reserve requirement above the current policy level.

Reserves comfortably exceed the district's fund balance policy of a minimum of 5%, a relatively low target. The district is exploring raising the minimum reserve requirement and has begun the initial steps required under the school board's rule making process.


MANAGEABLE LONG-TERM LIABILITIES

Debt levels are very low at approximately $1,465 per capita and 1.1% of estimated market valuation. The five year capital improvement program (CIP) totals just $40 million and will be financed on a paygo basis with no additional debt contemplated. The CIP focuses on school safety enhancements and equipment. Facility capacity is adequate and classroom wings have been added to accommodate both growth and shifts in population within the county. Capital funding sources include excess capital outlay millage (almost $10 million after payment of debt service) and impact fees (approximately $1 million in fiscal 2013-14). The district remains compliant with the state's class size requirements.

Carrying costs, debt service, pension and other post-employment benefits(OPEB)accounted for a low 12% of fiscal 2012-13 governmental spending. The district participates in the Florida Retirement System (FRS) whose Fitch adjusted funded ratio is 78.9%.

MASTER LEASE & CAPITAL LEVY - STRONG APPROPRIATION INCENTIVE

The district has historically paid debt service on COPs with revenue from its capital outlay millage, although all legally available revenues may be used for this purpose. Of the statutorily authorized 1.5 mills, the district allocates a relatively moderate 0.83 mills of the capital outlay levy to service COPs debt service.

The master lease structure on the 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 house 27.6% of the district's full-time equivalent enrollment of 17,614 school enrollment. Fitch considers this a strong incentive to appropriate.

NARROW ECONOMIC PROFILE

The economy of Indian River County is historically based in agricultural production and tourism. Ample developable waterfront land and a relative lack of congestion serve to attract a significant wealthy retiree population, which is evident in the per capita income levels approximately 20% higher than the state. The median age of county residents is well above both the state and nation. Median family income lags the nation and poverty levels approximate the national rate.

Strong population growth of almost 20% from 2000 to 2010 fed a retail and service-based economy including a considerable construction and real estate component, which has proven extremely vulnerable to the effects of the national recession. A steep 28% decline in taxable property values occurred from the peak in fiscal 2007-08 to the trough in fiscal 2012-13, but stabilization is now apparent with value gains of 1.5% and 4.8% in fiscal years 2013-14 and 2014-15, respectively. The estimated market value of real property per capita is a strong $131,000. The county's July 2014 unemployment rate of 8.5% remains well above state and national norms, but improved from 10.1% a year earlier due in part to contraction of the labor force.

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, Zillow.com, U.S. Census Bureau, University Financial Associates, S&P/Case-Shiller Home Price Index, and IHS (News - Alert) Global Insight.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=899194

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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE 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 WEBSITE.


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