NEW YORK–(BUSINESS WIRE)–Fitch Ratings has affirmed the ratings on the following Leon County
School Board (the school board), Florida bonds:
–$14.4 million certificates of participation (COPs), series 2005
refunding at AA;
–$45.5 million COPs, series 2006 at AA;
–Implied general obligation (GO) at AA+.
In addition, Fitch affirms the following ratings for the Leon County
School District (the district) issued on behalf of the school board:
–$68.3 million sales tax revenue bonds, series 2014 at AA.
The Rating Outlook is Stable.
SECURITY
The sales tax bonds are payable from the proceeds of a voted
discretionary half cent sales surtax collected within the county.
The COPs are payable from lease rental payments made by the school
board, subject to annual appropriation, pursuant to a master lease
purchase agreement. The school board must 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 surrender to the trustee
of all lease-purchased projects (three new schools, five additions plus
portions of numerous other schools) under the master lease.
KEY RATING DRIVERS
SUPERIOR CREDIT RATING OF THE DISTRICT: The AA+ implied GO rating of
the school board is based on strong financial management, modest debt
load and stable underlying economy. The school boards retirement
obligations are not considered to be a rating pressure.
SOLID FINANCIAL FLEXIBILITY: District management consistently uses
conservative fiscal practices in order to preserve financial flexibility
as evidenced by solid fund balances and strong liquidity. Carrying costs
including debt service, pension, and other post-employment obligations
(OPEB) are modest.
STABLE LOCAL ECONOMY: The district includes the state capital and
several major universities, lending significant stability to the local
economy. The economy continues to rebound from the recent slowdown
evidenced by employment and housing value growth.
STRONG BOND COVERAGE: Sales tax receipts have grown consistently over
the past five years, raising debt service coverage on maximum annual
debt service (MADS) to a solid 2.7x based on fiscal 2015 collections.
ONE NOTCH DIFFERENTIAL ON COPS: The COPs are rated one notch below the
implied GO, reflective of the strength of the master lease structure
offset by the required appropriation of COPs payments by the district.
RATING SENSITIVITIES
CONTINUED FINANCIAL STRENGTH: The implied GO and COPs ratings are
sensitive to shifts in fundamental credit characteristics including the
school boards strong financial management practices.
SALES TAX RATING: The rating on the sales tax bonds is sensitive to
major shifts in pledged sales tax revenue or sizeable additional
leveraging. The Stable Outlook reflects Fitchs expectation that such
shifts are highly unlikely.
CREDIT PROFILE
The district is coterminous with Leon County, located in the
northwestern part of Florida. The county is home to Tallahassee, the
state capital. The school board consists of 44 schools with 33,683
students as of fiscal 2016. Enrollment declined slightly between fiscals
2008 and 2010 but has since been slowly but steadily expanding. The
school board employs 4,515 employees, of which 2,389 are teachers.
STATE CAPITAL; HIGHER EDUCATION LEND STABILITY
The district is located in the Florida Panhandle and is home to the
state capital complex in Tallahassee and three institutions of higher
education: Florida State University, Florida Agricultural amp; Mechanical
University and Tallahassee Community College. The significant public
sector and higher education presence provides stability to the regional
economy.
Leon Countys (county) unemployment rate of 5.2% in August 2015 was
equivalent to both the state and national rates of 5.1% and 5.4%,
respectively. The countys job losses during the recession were minor
compared with many Florida counties so the recovery has been somewhat
muted. The local housing market also suffered from the recession with
prices falling about 24% from mid-2007 through mid-2012. However,
housing values have since been on the rise, according to Zillow.com and
as of November 2015 were up 1.6% year over year.
Taxable value trends are mildly reflective of the housing market. The
tax base declined steadily from fiscal 2009 through fiscal 2013 although
the aggregate magnitude of the drop at 8.7% is modest compared with same
period tax base trends of most Florida localities. However, since fiscal
2013, taxable values have experienced three consecutive years of
expansion totaling 8.9%. Officials are projecting modest increases
through fiscal 2019. Wealth levels are even with those of the state but
below the national benchmarks, reflective of the dominance of government
employment and a large student population. Since 2009, county median
household income growth rates have exceeded those of both the state and
nation.
SOUND FISCAL MANAGEMENT
School board management continues to demonstrate sound fiscal practices.
Officials built up reserves in fiscals 2010 and 2011 through the levy of
a 0.25 mill critical needs tax generating $4 million annually and
banking one-time education jobs monies of $6.7 million in anticipation
of the expiration of stimulus funds in 2012. The critical needs levy was
not renewed in 2012.
The reserve build-up in fiscals 2010 and 2011 nearly doubled general
fund balances from $26 million in fiscal 2009 to $50 million in fiscal
2011. With the cessation of the federal stimulus in fiscal 2012, the
district has utilized some fund balance in fiscals 2013 and 2014,
reporting general fund operating deficits of $4.4 million and $7.4
million, respectively. Despite the deficits, reserves remain solid with
fiscal 2014 unrestricted general fund balance of $30 million
representing 11.8% of spending.
The school board budgets are conservatively drawn with large projected
drawdowns of reserves. Actual results typically outperform budget as
total spending coming in at 80% to 90% of budget. The school board
budgeted a $25 million general fund drawdown for fiscal 2015, which
would have left reserves below the school boards minimum of 5% of
spending. A $2.4 million increase in spending was driven in part by
higher health insurance costs and additional support for four of the
districts lowest performing schools. Unaudited fiscal 2015 results show
a $1.4 million drawdown representing .5% of general fund expenditures.
Actual spending of $258 million was 10% below the revised budget.
Despite the drawdown, unrestricted fund balance increased by $1.7
million to $31.7 million or 12.4% of spending while restricted reserves
declined by $3 million.
The fiscal 2016 general fund budget represents a 2.7% increase over the
fiscal 2015 budget. The upturn in costs includes a $1 million rise in
health insurance premiums and $4.5 million for the second half of an
8.2% teacher salary and benefit increase implemented initially in fiscal
2015. Much of the offsetting growth in funding was due to an increase of
$6.8 million or 4.4% in state aid. Despite a budgeted $27.4 million use
of fund balance, officials are expecting a modest year-end surplus.
AFFORDABLE LONG-TERM LIABILITIES
Pension benefits are provided through the Florida Retirement System
(FRS), which covers all regular employees of the district. The district
is required to make contributions in accordance with rates established
by the Florida Legislature and has always met the annual required
contribution; contributions represent a manageable 4% of general
government expenditures. Other post-employment benefits (OPEB) are
provided by the district on a pay-go basis and the unfunded liability of
$25 million is a low 0.1% of market value.
Overall net debt is low at 1.5% of total market value and $1,292 per
capita. Amortization of district debt is average with 55% of principal
repaid within 10 years. Total carrying costs for fiscal 2015 including
debt service, pension and OPEB payments are a very affordable 10.7% of
government spending.
The school boards five year capital plan for fiscals 2016 through 2020
proposes approximately $86 million for maintenance as well as new
projects. Funding derives from the 1.5 mill capital outlay millage after
COPs debt service, state capital funds and the infrastructure sales
surtax.
GOOD CUSHION UNDER CAPITAL OUTLAY LEVY TO FUND COPS
COPs are secured by any legally available school board revenue including
excess infrastructure sales surtaxes; however, the school board has
historically used revenue from its capital outlay millage to pay lease
payments. The capital outlay levy is authorized by state law up to 1.50
mills. Florida school districts can levy up to three quarters (1.125
mills) of the 1.5 mills for COPs debt service although the full 1.50
mills levy is available for debt service on COPs issued before 2009.
About 60% of COPs debt service is attributable to pre-2009 COPs
issuance. Nevertheless, one mill of the 1.50 mill levy would be
sufficient to cover COPs debt service without taking into account
federal interest subsidies on the school boards qualified zone academy
bonds and qualified school construction bonds.
Security on the COPs is enhanced by the master lease structure in which
the school board must appropriate lease payments for all leases or risk
losing control of all of the facilities under the master lease.
Currently, three of the school boards newer schools, including a high
school, a middle school and an elementary school, five additions to
existing schools and renovations to numerous other schools are subject
to the master lease.
STRONG SALES TAX COVERAGE
The AA rating on the sales tax bonds reflects strong debt service
coverage; fiscal 2015 pledged infrastructure sales taxes covered MADS by
a hefty 2.7x. Coverage has been enhanced by strong growth in
infrastructure sales tax collections in each of the past five years,
aggregating to 19.1%. The pace of growth has picked up since fiscal 2012
and averaging 4.7% annually over the past three years.
Legal protections include a somewhat weak 1.25x coverage of MADS
although there are no immediate plans to further leverage this revenue
stream. A cash-funded debt service reserve fund is also provided.
The districts 1/2 cent infrastructure sales tax was renewed in November
2012 with a 67% approval rate for 15 years. The tax can only be applied
to capital expenditures related to school construction or for the
servicing of associated debt. The maturity date of the bonds is three
months before the expiration of the tax.
Additional information is available at www.fitchratings.com.
Fitch recently published an exposure draft of state and local government
tax-supported criteria (Exposure Draft: US Tax-Supported Rating
Criteria, dated Sept. 10, 2015). The draft includes a number of proposed
revisions to existing criteria. If applied in the proposed form, Fitch
estimates the revised criteria would result in changes to fewer than 10%
of existing tax-supported ratings. Fitch expects that final criteria
will be approved and published by Jan. 20, 2016. Once approved, the
criteria will be applied immediately to any new issue and surveillance
rating review. Fitch anticipates the criteria to be applied to all
ratings that fall under the criteria within a 12-month period from the
final approval date.
In addition to the sources of information identified in the applicable
criteria specified below, this action was informed by information from
CreditScope, IHS Global Insight, and Zillow Group.
Applicable Criteria
Exposure Draft: US Tax-Supported Rating Criteria (pub. 10 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
US Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
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Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=996008
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2amp;detail=31
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