NEW YORK--(BUSINESS WIRE)--
Fitch Ratings affirms the following Volusia County School Board, Florida's (the district) outstanding obligations:
--$59 million sales tax revenue bonds, series 2002, 2004 and 2006, at 'BBB';
--$299 million certificates of participation (COPs), at 'A+'.
In addition, Fitch affirms its 'AA-' rating on the district's implied unlimited tax general obligations (ULTGOs).
The Rating Outlook on the sales tax bonds is revised to Positive from Stable. The Rating Outlook on the COPs and implied ULTGO is Stable.
--The sales tax revenue bonds are secured by proceeds of a one-half cent school capital outlay discretionary sales surtax. Standard debt service reserve accounts are funded from surety policies written by Assured Guaranty Municipal Corporation (not rated by Fitch). The series 2006 bonds are additionally secured by a $3.057 million cash funded debt service reserve.
--The COPs are secured by lease payments, subject to annual appropriation, made by the district to the trustee, as assignee of the Volusia School Board Leasing Corporation, a Florida not-for-profit corporation.
KEY RATING DRIVERS
IMPROVED COVERAGE ON SALES TAX BONDS: The 'BBB' sales tax rating reflects the recent volatility of the pledged revenue stream and low coverage levels of maximum annual debt service (MADS). The Positive Rating Outlook reflects the rapid bond amortization rate and Fitch's expectation that coverage should continue to improve due to the potential growth in sales tax revenues from upcoming economic development projects and a general improvement in the economy.
STRONG FINANCIAL MANAGEMENT: The 'AA-' implied ULTGO rating reflects the district's satisfactory financial performance and expected maintenance of adequate reserves. The district's conservative budgeting practices and policies have contributed to historically sound operations and adequate reserves even as revenues have declined due to decreases in property values and volatile levels of state funding.
COPS SUBJECT TO APPROPRIATION: The 'A+' COPs rating reflects the district's general credit quality, the district's obligation to make annually appropriated lease payments under a master lease structure, and the essentiality of leased assets which provides strong incentive to continue to appropriate.
DEPENDENCE ON STATE REVENUES: The district remains dependent upon state funding which has fluctuated in recent years, as do most Florida school districts.
MIXED ECONOMIC INDICATORS: Unemployment rates have decreased to more average levels and wealth levels are slightly below average.
MODERATE DEBT LEVELS: Overall debt ratios are moderate and are not expected to change materially.
GROWTH IN SALES TAX REVENUES: A continued steady upward trend in sales tax revenues would likely result in a rating upgrade on the district's sales tax bonds.
MAINTENANCE OF ADEQUATE RESERVES: A reduction in reserves to below policy goal levels could put downward pressure on the district's COP and implied ULTGO ratings. The Stable Outlook reflects Fitch's expectation that reserves will be maintained at or above these levels.
The district's boundaries are coterminous with Volusia County (the county) (Fitch implied ULTGO rating of 'AA'). The county is situated on the central east coast of Florida, 50 miles northeast of Orlando, and includes Daytona Beach. The county's population was 494,804 in 2011, up 9.6% since 2000.
SALES TAX DEBT SERVICE COVERAGE REMAINS LOW BUT IMPROVING
Coverage from pledged sales tax revenues improved in fiscal 2012 to 1.12 times (x) due to a 2.2% increase in fiscal 2012 revenues. This is an improvement over fiscal 2011 coverage of 1.07x. Additionally, sales tax revenue performance for 10 months ending April 2013 is up 4%, which if annualized would improve coverage to 1.16x MADS.
The sales tax is currently set to expire in December 2016, three months after the final maturity of the bonds, and debt service is level. Proceeds are restricted for capital expenditures.
The district's local sales tax capital projects fund currently maintains a balance of $6.5 million from prior year residual revenues equating to nearly 24% of MADS. These monies are not pledged but the district could use them if necessary to make up any deficiency in the annual pledged revenues.
ECONOMIC GROWTH EXPECTED TO BOOST SALES TAX REVENUES
A number of new economic development projects are underway or in the works including the new $1.3 billion Sunrail commuter line project between DeBary and Orlando expected to commence later this year; a new Hard Rock Hotel in Daytona; $400 million in planned renovations to the Daytona International Speedway; and the Interstate 4 widening project expected to last two years and create over 3,700 jobs. These projects and others are expected to boost sales tax growth and improve employment opportunities in the county. Notably, home prices are up 11.5% year over year through May 2013 according to Zillow, Inc.
COPS BEING PAID FROM CAPITAL OUTLAY MILLAGE
Lease payments on COPs are generally paid from revenue of the capital outlay levy, but are ultimately payable from any legally available source. The capital outlay millage is authorized by state law up to 1.5 mills. Up to three-fourths of the proceeds of the capital levy is available, but not pledged, for lease payments. Effective July 1, 2012, the three-fourths limitation is waived for lease purchase agreements entered into prior to June 30, 2009 (all of the district's lease agreements were entered into prior to this date). Due to declines in assessed value (AV) totaling 36% between 2008 and 2013, the district now requires a manageable 0.946 mills to fund COPs, which still provides a moderate source of pay-go capital funding.
The district's AV increased moderately for fiscal 2014 to $27 million and the district is projecting flat to moderate growth over the next few years which would lead to stabilization or a decline in the millage needed for debt service assuming no further issuance, which is the district's current expectation.
The district has other reserves outside the general fund in addition to the sales tax funds mentioned previously, including $23 million in capital outlay funds and $7.8 million in impact fees. Such funds are available for debt service, if necessary.
The pledged assets supporting the COPs consist of 26% of the district facilities under a master lease. Pursuant to the master lease structure, all of these assets would be relinquished if the district failed to appropriate the required funds.
ECONOMY BENEFITS FROM TOURISM
Volusia County's economy has historically centered on tourism, serving as the home of several popular leisure destinations including Daytona Beach. The economy has diversified into the health care and education sectors providing new employment opportunities. The county is home to four major health care employers including Halifax Community Health System, the second largest employer in the county following the district, and three higher education institutions.
IMPROVED UNEMPLOYMENT LEVELS; BELOW AVERAGE WEALTH
Unemployment rates have improved, declining to 7% in March 2013 from 9.1% a year prior, and are now more in line with state and national averages. The improvement is a result primarily of job growth, as the labor force remained constant. Wealth levels are moderately below state and national levels.
FINANCIAL PERFORMANCE REMAINS SOUND
Results for fiscal 2012 came in slightly better than expected and the district continues to maintain a satisfactory unrestricted general fund balance. The district used $18.3 million of general fund reserves, primarily from one-time federal monies received in fiscal 2011, and ended the fiscal year with an unrestricted fund balance of $44 million, or 10.3% of general fund spending.
The district's goal and policy are to maintain unassigned reserve levels at 5% and 3% of revenues, respectively, to which it continues to adhere. The 3% policy is in accordance with state guidelines, which Fitch believes provides only a modest cushion against financial volatility. Fitch would view with concern a decline in unrestricted reserves below the higher 5% goal.
The general fund budget for fiscal 2013 was 1.7% less than fiscal 2012's reflecting the continuing trend of overall revenue losses despite a slight increase in general state funding. The budget maintained unassigned general fund reserves at 5.7%, slightly above management's goal. However, management reports that only a modest change from the fiscal 2012 fund balance levels is expected due to conservative revenue projections, personnel reductions and continued expense monitoring. Fitch considers this projection to be reasonable based on the district's historical conservative budgeting practices. Student enrollment was slightly below projections by approximately 1% and future projections show similar annual declines.
FISCAL 2014 BUDGET DEFICIT ADDRESSED
The district faced a $19 million structural deficit for fiscal 2014. The expiration at the end of fiscal 2013 of a four-year, .25 mill voted critical needs levy, contributed $6.4 million (1.4% of fiscal 2013 general fund budget) to the imbalance. A referendum last November asking voters to approve a replacement critical needs levy of 1 mill to be in place for the next four years, was not approved.
Other factors included mandatory class size compliance costs of $5.3 million, higher pension funding costs ($5.9 million) and increased health insurance costs ($2.5 million). The most recent proposed budget closes this gap while protecting student instructional programs through a combination of the privatization of certain services, a reduction in office staff, utilities savings and a planned use of $7.8 million in unassigned fund balance. Even with this budgeted use of fund balance, unassigned fund balance would remain at or above the district's 5% fund balance goal based on projected fiscal 2013 results.
DEBT LEVELS ARE MODERATE AND RETIREE COSTS ARE MANAGEABLE
Overall debt levels are low at $1,001 per capita and 1.8% of AV. Amortization of district debt is above average with 57% of outstanding principal repaid in 10 years. Total carrying costs for debt service charges, district paid pension and other post-employment benefit (OPEB) pay-go of $67.6 million equal a moderate 12.7% of total governmental expenditures (less capital).
Declining enrollment has led to reduced capital spending in recent years. No new construction is anticipated as the district expects to meet enrollment demands, including the state mandated class size requirements, with its current facilities for the foreseeable future. No additional debt is contemplated for the near term.
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 Global Insight, Zillow.com, 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
U.S. Local Government Tax-Supported Rating Criteria
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