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Fitch Rates Pasco County School Board COPs 'A+'; Outlook StableFitch Ratings assigns an 'A+' rating to the following certificates of participation (COPs) issued on behalf of the Pasco County School Board, Florida (the district): --$44,965,000 refunding COPs series 2015A. The COPs are scheduled to sell via negotiation the week of Feb. 23. The COPs will be used to refund the district's callable series 2007A COPs for savings and no extension of maturity. Fitch Ratings has affirmed the following ratings: --$148.68 million in outstanding COPS series 2004A, 2005A, 2005B, 2007A, 2009 and 2013A at 'A+'; --$96.72 million sales tax bonds series 2013 (issued by the Pasco County School district) at 'A+'; --Implied unlimited tax general obligation 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 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. The series 2013 sales tax bonds are secured by the district's share of a voter authorized 1% sales surtax levied within Pasco County (the county) and distributed pursuant to an interlocal agreement. KEY RATING DRIVERS SOUND FINANCIAL MANAGEMENT: The district benefits from a strong, experienced management team which practices conservative budgeting and prudent fiscal planning. LIMITED LOCAL ECONOMY: Pasco County has a primarily tourism and retirement based economy. Resident wealth levels lag the state and nation. The district's taxable assessed value (TAV) fell significantly from its 2009 peak, but recent assessments show modest growth. MANAGEABLE CARRYING COSTS: The district's debt service, pension and other post-employment benefits (OPEB) expenses are a manageable percentage of total expenses. Variable rate debt exposure is moderate. SOLID SALES TAX COVERAGE: Fiscal 2014 adjusted sales tax revenues provide 1.85x coverage of MADS. The district is considering issuing additional sales tax bonds, which would affect debt service coverage. The additional bonds test is 1.25x. FAVORABLE MASTER LEASE PROVISIONS: The district is required to appropriate for all or none of the lease payments under a master lease program. The leased assets, in use by approximately 31% of the district's students, are subject to surrender in the event on non-appropriation, providing significant incentive for the district to appropriate debt service funds. RATING SENSITIVITIES SALES TAX COLLECTIONS: Material changes in the collection of the sales tax or significant additional debt issuance could result in coverage on sales tax revenue bonds inconsistent with the current ratings. COPS REPAYMENT PRESSURES: Given the limited margin in the capital outlay millage, significant assessed value declines or significant additional COPS issuance could pressure the rating. CREDIT PROFILE Pasco County (coterminous with the district) is a 745 square mile area located on the west coast of the state approximately 30 miles northwest of Tampa. The county is home to approximately 466,000 residents and comprises a mix of suburban and rural communities. TAXABLE VALUES SHOWING IMPROVEMENT Taxable values grew .9% and 4.4% in fiscal years 2014 and 2015, respectively, after a peak to trough decline of almost 30%. Local officials are projecting 5% growth for fiscal 2016, which appears consistent with Zillow.com's forecast of 6% growth in home prices, although Zillow also reports a high 25.9% of homes still have negative equity whereas the US average is 16.9%. The residential market is poised for significant expansion as several large development projects are in varying stages of development. Census data indicate a modest recent increase in population. Should the market continue to recover, this would likely be accompanied by a return to robust population growth, which from 2000 to 2010 grew a high 29.8%. The county is primarily a retirement and tourism based economy. There is a sizable retiree population with 22.2% of residents over the age 65, as compared to the state and nation at 18.7% and 14.1%, respectively. As a result hospital and medical services are an important component of the local economy. Income levels lag the state and nation and poverty rates approximate norms, consistent with the relatively high number of retirees. Median household income as a percent f the state and nation is 94% and 83%, respectively. The poverty rate is 13.9%, below the national average of 15.4%. Unemployment rates, once as high as 13% during the economic downturn, continue to come down as job expansion is outpacing labor force growth. The monthly rate of Nov. 2014 was 6.5%, just above the national rate of 5.5%. The largest employers include the district, as well as state and county offices. STRONG FINANCIAL MANAGEMENT The district maintains strong budgetary control and uses conservative practices in budgeting. The fiscal 2013 budget anticipated a $7.3 million reduction in general fund balance; however, the district closed the year with essentially balanced operations. Substantial budgetary expenditure savings were achieved across almost all spending categories. Reductions were achieved through extending the time period for filling of positions. In addition, workers compensation cost savings were achieved through a new requirement that employees visit the district wellness center before filing a claim. The fiscal 2014 budget was balanced and included a reduction of 265 positions and savings from two temporary school closings. Actual results were again better than budget with a $7.1 million general fund net operating surplus bringing the unrestricted general fund balance to $44.4 million or a favorable 9.5% of spending. General fund expenditures grew 4.5% in fiscal 2014 as employees received the first raise in six years. The 4.6% to 5.6% increases were offset largely by state funds appropriated for salary increases. 2015 BUDGET The fiscal 2015 budget calls for general fund expenditures to increase 7.7% over the prior year budget to $508 million. Expenditure growth is funded by increased state aid as well as a $15.3 million appropriation of reserves (3% of spending). The district typically budgets conservatively and reserve use is likely to be somewhat lower. MANAGEABLE CARRYING COSTS The district's overall debt levels are low at approximately $1,041 per capita and 1.8% of full market value. Amortization is average with almost 56% of principal retired within ten years. Debt levels are expected to remain stable given the average amortization and moderate borrowing plans. The 2015 - 2020 five year CIP indicates a modest $262 million in spending, of which, approximately $40 million will be bonded. Within the next twelve months the district plans to borrow up to $40 million in either sales tax bonds or COPs. Debt security will depend on taxbase and sales tax growth. Pensions are provided through the state run Florida Retirement System (FRS) and costs are manageable. FRS is well funded at a reported 86.9%, or an estimated 79% when adjusted by Fitch to assume a 7% rate of return, and as such costs are not expected to increase materially. OPEB is currently funded on a pay-go basis and the unfunded liability of $104 million January 1, 2014 is a very low .5% of the district's fiscal 2014 tax base. Carrying costs including debt service, pension and OPEB were a very manageable 11.7% of total fiscal 2014 government expenditures. VARIABLE-RATE AND DERIVATIVE EXPOSURE The district's variable-rate debt outstanding totals $103.6 million ($30.5 million series 2005B auction rate COPs and $73.1 million series 2008C privately held COPs) or 24% of total direct debt. The variable rate debt exposure is balanced somewhat by the low level of debt service to budget. The district's variable rate series 2008C certificates are hedged with a derivative contract with Bank of America, N.A. The swap has a negative net mark-to-market value of $12.3 million as of June 30, 2014. However, the district faces limited risk of collateral posting and termination. SATISFACTORY SALES TAX BONDS COVERAGE Sales tax revenues (adjusted for the fiscal 2015 formula) have experienced favorable annual growth, after a moderate 6.2% decline from the peak in fiscal 2008 to the trough in fiscal 2012. The pledged revenue funding formula for the series 2013 bonds differs from the series 2007 bonds' formula (the series 2007 bonds matured on October 1, 2014). The fiscal 2014 sales tax, adjusted to the new formula, totals $22.9 million which provides ample 1.85x coverage on the series 2013 MADS of $12.4 million. Further leverage is possible in accordance with a fairly permissive 1.25x additional bonds test. STRONG MASTER LEASE PROVISIONS BUT LIMITED FLEXIBILITY Lease payments are payable from any legally available source, although the district funds payments from the capital outlay millage. The capital millage can be levied up to 1.5 mills for lease payments for COPs issued before 2009 and 1.125 mills for COPs issued post 2009. Total revenue generated by the 1.5 mill levy at 96% collections for fiscal 2015 is $32.3 million. MADS is an estimated $26.1 million (assuming interest costs of 4.4% to 4.6% on variable rate debt) which consumes almost 81% of the levy, leaving limited margin. The lease payments are subject to appropriation, however, the 'all or none' payment requirement under the master lease would result in the loss of 31% of the district's schools which are covered under the lease should the district fail to appropriate. Fitch considers the 'all or none' appropriation feature to be an 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, 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=980062 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. |
