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Fitch Rates Lee County School Board's (FL) $61MM COPs 'AA-'; Outlook StableNEW YORK --(Business Wire)-- Fitch Ratings assigns an 'AA-' rating to the following certificates of participation (COPs) of Lee County School Board, Florida (the school board): --$61.1 million COPs, series 2014B. The COPs will be sold on a negotiated basis during the week of Dec. 1, 2014. Proceeds will be used to advance refund a portion of outstanding COPs for debt service savings. In addition, Fitch affirms the ratings on the following outstanding COPs: --$295.1 million COPs, series 2005A, series 2006A, series 2012B, and series 2014A at 'AA-'. Fitch also affirms the school board's implied general obligation (GO) rating at 'AA'. The Rating Outlook is Stable. SECURITY The COPs are secured by lease payments made by the district to the trustee pursuant to a master lease purchase agreement. Lease payments are payable from legally available funds of the district, subject to annual appropriation by the school board. The district is required to appropriate funds for outstanding leases on an all or none basis. KEY RATING DRIVERS SOUND FINANCIAL POSITION: The 'AA' implied GO rating reflects the district's solid financial position and maintenance of ample reserves. Unaudited fiscal 2014 results show a return to balanced operations after two sizable drawdowns. FAVORABLE DEBT BURDEN: District debt levels are manageable and management has no current plans to issue new money debt. While debt levels are expected to remain low, Fitch notes the district is facing some pressure with capacity needs which will need to be addressed, possibly through debt issuance. Amortization is above-average, and carrying costs for long-term liabilities are low. IMPROVING ECONOMIC PROFILE: Assessed value (AV) increased solidly in fiscals 2014 and 2015, after a period of significant contraction. Unemployment has improved and is now below the state and only slightly above the national averages. COPS APPROPRIATION RISK: The one notch rating difference between the implied GO and the COPs recognizes the non-appropriation risk inherent in the COPs structure. 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. RATING SENSITIVITIES The rating is sensitive to shifts in fundamental credit characteristics, including the school board's strong financial management practices, conservative budgeting, and maintenance of ample reserves. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely. CREDIT PROFILE The school district, which is coterminous with Lee County (implied ULTGO rating of 'AA' with a Stable Outlook by Fitch), is located on the Gulf Coast of Florida. Incorporated municipalities within the district include Fort Myers and Cape Coral. The projected enrollment for the 2014-2015 school year is 88,708 students, an increase of 1.7% over the prior year. Enrollment has demonstrated steady growth since 2010 and officials expect this trend to continue. AMPLE RESERVES DESPITE DRAWDOWNS IN FISCALS 2012 and 2013 After two planned general fund drawdowns of $22 million (3.6% of spending)in fiscal 2012 and $18.6 million (2.9% of spending) in fiscal 2013, the unrestricted general fund balance of $111 million remained sound at approximately 17% of spending at the close of fiscal 2013, a level that eases Fitch's concerns about the drawdowns. UNAUDITED FISCAL 2014 RESULTS SHOW GROWTH IN FUND BALANCE Unaudited fiscal 2014 results show a return to balanced operations, with a slight general fund surplus of $2.8 million projected at year-end, increasing the total general fund balance to 19% of spending, a level consistent with the prior year's. Total general fund revenue increased $44.4 million over prior year results. Healthy assessed value growth of 4.2% in fiscal 201 positively impacted general fund results, adding an additional $15.8 million in revenue (a 4.7% increase). State aid also increased ($27.2 million) as a result of continued enrollment growth. ADDITION TO FUND BALANCE PROJECTED FOR FISCAL 2015 The fiscal 2015 final budget totals $1.3 billion, a 2% decrease over the prior year's original budget. Total general fund revenue is budgeted to increase by 2.2%, driven primarily by continued growth in property tax revenue generated by the discretionary millage as a result of a second year of positive AV developments. The fiscal 2015 final budget also includes a 3.6% average salary increase ($15 million) as well as increases in expenses associated with continued student growth including the hiring of additional teachers, support staff, and supplies. Management anticipates results similar to fiscal 2014, with a moderate general fund surplus of $1 million to $2 million at year-end 2015, which Fitch views as reasonable given the school board's history of conservative budgeting. Management indicates year-to-date results are currently tracking according to budget. The maintenance of sound reserves is key to credit stability. CONTINUED IMPROVEMENT IN REGIONAL ECONOMY After dropping approximately 41% since 2008, AV improved solidly in fiscals 2014 and 2015, with growth of 4.2% and 8.4%, respectively. The September 2014 unemployment rate improved significantly year-over-year, falling to 6% from 7.1%, below the state and slightly above the national rate. Wealth indices remain slightly above the state average and on par with the national average. LOW DEBT BURDEN, AFFORDABLE CARRYING COSTS Overall debt levels are modest at $1,118 per capita and 1% of AV. Principal amortization is above average with 60% of principal retired within the next 10 years. Management indicates there are no plans to issue additional debt. The district's fiscal 2015-2019 capital plan totals $253 million excluding debt service and transfers. Maintenance, renovations, and technology account for the majority of needs. The CIP is fully funded through prior year carry-over balances and local revenues. The school board will be focused on capacity issues as student enrollment continues to grow and may need to seek alternative sources of revenue, such as a sales tax, for capital funding, in lieu of issuing additional debt. Pension obligations are limited to the district's participation in the well-funded statewide multiple-employer pension plan (FRS). The district's contribution in fiscal 2013 totaled $30 million, which represented a modest 3.5% of governmental funds spending. The district offers an implicit subsidy for other post-employment benefits (OPEB). Fiscal 2013 pay-as-you-go contributions, which are less than the annual required contribution (ARC), represented only 0.2% of governmental funds spending. If the fiscal 2013 ARC had been fully funded, the contribution would represent a still modest 0.6% of spending. Carrying costs (including debt service, pension and OPEB costs) are low at less than 9% of spending. MASTER LEASE STRUCTURE MITIGATES APPROPRIATION RISK The district continues to pay COPs debt service with revenue from its 1.5 capital outlay millage, although all legally available revenues can be used for this purpose. The capital outlay millage provides ample 2.2x coverage of maximum annual debt service based on fiscal 2013 AV. 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 would amount to approximately 33% of the district's total facilities. Fitch considers this a strong incentive to appropriate. 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, and the 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 - Effective Aug. 15, 2011 to Aug. 14, 2012 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=930115 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. |
