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Fitch Rates St. Lucie County School Board COPS 'A+'; Outlook StableNEW YORK --(Business Wire)-- Fitch Ratings has assigned an 'A+' rating to the following St. Lucie County School Board, Florida's (the board or district) obligations: --$25.37 million refunding certificates of participation (COPS) series 2014. The bonds are expected to sell via negotiation during the week of December 1. In addition, Fitch affirms the following ratings: --$159.45 million COPs series 2005, 2011A, 2011B and 2013A at A+; --$95.75 million sales tax revenue bonds, series 2006 at 'A'; --Implied unlimited tax general obligation bonds at 'AA-'. The Rating Outlook is Stable. 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 master lease requires the district to appropriate funds for all outstanding sub-leases 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. The sales tax bonds are payable from the proceeds of half cent school capital outlay sales tax. KEY RATING DRIVERS FINANCIAL CONTROL: The district benefits from a strong experienced management team which practices conservative budgeting and prudent fiscal planning. Reserves are adequate and management has instituted spending cuts to maintain fiscal balance when warranted. STRONG MASTER LEASE PROVISIONS: The 'A+' rating on the COPS is based on the district's general creditworthiness and the COPs' sound legal structure and available capital millage. The master lease structure requires all or none appropriation and the 1.5 mill capital millage outlay typically used for lease payments provides more than sufficient revenues to meet debt service requirements. ADEQUATE SALES TAX COVERAGE: The 'A' rating on the sales tax bonds reflects the narrow but adequate coverage levels on the outstanding bonds. LOW CARRYING COSTS: Carrying costs including debt service, pension and other post-employment benefits (OPEB) are very manageable and no material changes are expected. HISTORIC TAX BASE VOLATILITY: Taxable values have shown some recovery over the past two years although values are still well below the prerecession peak. The local economy is growing although limited; wealth levels are below average and unemployment exceeds the national rate. RATING SENSITIVITIES ADEQUATE RESERVES: The COPs and implied GO ratings are sensitive to changes in the district's financial profile. Failure to maintain adequate reserves could pressure the rating. The sales tax bond rating is sensitive to changes in debt service coverage. CREDIT PROFILE St. Lucie County, whose boundaries are coterminous with those of the school district, is located along the east coast of Florida and has a year round 2013 population of 286,832. Encompassing 76.7 square miles, the largest city in the county is Port St. Lucie (Fitch rated 'AA' with Stable Outlook) with a population of 164,000. PROACTIVE FINANCIAL PLANNING The district benefits from a strong and knowledgeable management team which prudently focused on building reserves in the anticipation of recessionary revenue declines. During fiscal years 2010 and 2011 the district added $18 million to reserves by implementing a nearly $30 million expenditure reduction, increasing transfers from the capital improvement fund, and the levying of a 0.25 mill critical needs millage (which expired in fiscal 2013). In fiscal 2013 the district originally budgeted to use $12.8 million of general fund reserves, but through expenditure control actual results were a more moderate $7.7 million operating deficit (2.7% of spending). Expenditures were held constant from the prior year and revenues increased a minimal $2 million, but the transfer from the capital improvement fund declined by approximately $5 million. The general fund closed with unrestricted reserves of $19.8 million, a satisfactory 7.1% of spending. Florida school districts receive their state aid evenly throughout the year. The district does a modest amount of short term cash flow borrowing in anticipation of property tax collections. Fiscal 2014 unaudited expenditures increased a modest 1.7%, while revenues grew 5.4%. State aid increases accounted for 86% of revenue growth, with most of the state aid increase restricted for teacher salary increases. The district budgeted for using $2.9 million of reserves to balance the budgt, but closed with essentially balanced operations. The unaudited unrestricted balance of $18.4 million is an adequate 6.5% of expenditures, within the district's informal policy level to maintain an unassigned balance of 5% of revenues. The district allows students school choice, which eases class size restrictions and the district was in compliance with state requirements in school year 2014. The fiscal 2015 budget is balanced with a $6.5 million appropriation of reserves. The district typically budgets conservatively and Fitch anticipates better than budget results. Further use of operating reserves could pressure the rating. MANAGEABLE CARRYING COSTS Direct debt levels are low at 1.4% of market value and $1,174 per capita; amortization of direct debt is average with approximately 51% of principal retired within 10 years. Overlapping debt is high, pulling up the total debt burden to 4% of market value, which is still considered midrange. Debt levels are expected to remain stable, as no additional long-term debt is presently contemplated. Pension benefits are provided through the state run Florida Retirement System (FRS) and total annual pension contributions were a manageable at 4.4% of expenditures in 2013. The FRS Fitch-adjusted funded ratio is 78%. OPEB is currently funded on a paygo basis representing a very low 0.3% of fiscal government spending. Carrying costs including debt service, pension and OPEB were a very manageable 12.1%% of total fiscal 2013 government expenditures. ADEQUATE SALES TAX COVERAGE The district reports that sales tax collections for fiscal years 2014 and 2013 were $11.99 million and $14.29 million, respectively. The decline in fiscal 2014 does not reflect weakening of collections but a $1.92 million overstated accrual in 2013 of 2014 collections. Correcting for this accrual, fiscal 2014 revenues of $13.91 million provides adequate 1.38x coverage of MADS. Collections are still well off the peak of $15.1 million in fiscal 2006, although the decline is far less severe than the fall in real estate value, partially reflecting the broad-based nature of the sales tax. The debt service reserve account is satisfied by a letter of credit (LOC) from JP Morgan (News - Alert) which will expire in February 2015, and the district intends to renew the LOC. At the close of fiscal 2014 the unaudited balance in the other capital projects fund, where sales tax and impact fees are recorded, was $3.7 million. The additional bonds test is weaker with a test of 1.2 times coverage, although the district has no borrowing plans. LIMITED LOCAL ECONOMY The county's economy, historically driven by its sizable residential base, is also led by service sector activities with concentrations in tourism and construction. The county was hard hit by the housing downturn with taxable property values falling 38% from peak to trough. Taxable values are showing some recovery and values increased 5% and 4% in fiscal years 2014 and 2015, respectively. The Zillow reported median home value of $130 thousand is still approximately half the prerecession peak. The outlook is for continued improvement: as of Sept. 30, 2014 Zillow is projecting 5.8% growth. The tax base is concentrated as the largest taxpayer is Florida Light and Power, accounting for 16.3% of the tax base. The Lucie nuclear power plant is in the county and the operating licenses for the two units runs to 2036 and 2043. In 2012, plant modifications increased the plant's electric output. The essential nature of the plant and expected continued operations helps offset concerns over taxbase concentration The Torrey Pines Institute of Molecular Studies, the Vaccine and Gene Therapy Institute, and the Mann Research Center provide a small but growing life science cluster in the area, providing both jobs and diversification to the underlying economy. Education levels in the county exceed the statewide averages. Income levels are below average, with median family income equal to 93% of the state average and 83% of the national. Unemployment rates remained high at 7.9% in September 2014, above both the state (6.1%) and nation (5.7%) in the same month. However, employment growth in the county is now outpacing the nation. STRONG MASTER LEASE PROVISIONS Lease payments are payable from any legally available source; however, on a budget basis, payments are made from the district's capital millage outlay which can be levied up to 1.5 mills for lease payments for COPs issued before 2009. For bonds issued post 2009, state law limits the amount to be used for COPs repayment to 75% of the 1.5 mill levy or 1.125 mills. The fiscal 2015 levy of 1.5 mills, at a 96% collection rate, is expected to generate $24.87 million. MADS of $14.82 million utilizes a moderate 59.6% of the levy. While the lease payments are subject to appropriation, the 'all or none' payment requirement under the master lease would result in the loss of all or parts of nearly 30% of the district's schools which are covered under the lease should the district fail to appropriate. The 'all or none' appropriation feature provides significant enhancement to the credit. 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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS (News - Alert) Global Insight, and 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 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=929735 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. |
