|[May 20, 2014]
Fitch Rates Volusia County Schools, FL's, Refunding COPs 'A+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has assigned an 'A+' rating to the following Volusia
County School Board, Florida (the district) certificates of
--$117,195,000 refunding COPs, series 2014B.
The COPs are scheduled to price on May 28, 2014. Proceeds will be used
to refund a portion of the district's outstanding series 2006A COPs for
In addition, Fitch takes the following rating actions:
--$289 million outstanding COPs (series 2007, 2006A, 2005C, and
crossover refunding series 2005B), affirmed at 'A+';
--Implied unlimited tax general obligation (ULTGO) affirmed at 'AA-'.
The Rating Outlook for the COPs and implied ULTGO is Stable.
--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
KEY RATING DRIVERS
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 in prior years 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.
ECONOMY AND TAX BASE IMPROVING: The local economy is heavily influenced
by tourism and retail activity, and is now recovering from significant
stress from the fallout of the housing market. Significant economic
development is creating new job opportunities and helping boost tax base
values. Income levels are below-average.
LOW OVERALL DEBT LEVELS: Overall debt ratios are low and are not
expected to change materially.
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 (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 496,950 in 2013, up 10% since
FINANCIAL PERFORMANCE REMAINS SOUND
Financial performance exceeded expectation in fiscal 2013 and the
district continues to maintain a satisfactory unrestricted general fund
balance. The district generated a surplus after transfers of $3.1
million (0.8% of spending) and ended the fiscal year with an
unrestricted fund balance of $46.4 million, or 11.2% of general fund
spending. Revenues increased due to an increase in Florida Education
Finance Program (FEFP) funding and expenditures were conservatively
budgeted and lower than anticipated due to a reduction in teaching and
support staff positions.
The district continues to adhere to its goal and policy of maintaining
unassigned reserve levels at 5% and 3% of revenues, respectively.
Although the 3% policy is in accordance with state guidelines, Fitch
believes it provides only a modest cushion against financial volatility.
Fitch would view with concern a decline in unrestricted reserves below
the higher 5% goal.
FISCAL 2014 BUDGET DEFICIT ADDRESSED
The fiscal 2014 general fund budget of $466 million closed a $33 million
current services deficit caused in part by the expiration of a
four-year, .25 mill voted critical needs levy. Voters did not approve a
1 mill replacement levy at a November 2012 referendum. The expired levy
contributed $6.4 million to the imbalance.
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 final approved budget closed
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 $25 million of fund
balance (leaving a 5.4% general fund cushion).
State sources account for 61% of the original budget with 38% coming
from local sources and 1% from federal sources. Eighty percent of the
budget is used to cover employee compensation and benefits.
FISCAL 2014 PROJECTIONS BETTER THAN BUDGET
Management has indicated that fiscal 2014 results to date are exceeding
budget reducing the need to use the appropriated fund balance. The
district received higher FEFP revenues of $4.3 million due to growth in
enrollment, and employee and utility savings were experienced in certain
areas. Mid-year budget amendments were made to accommodate recurring
salary increases of $3.6 million that were approved for certain
non-instructional staff and additional teachers were hired during the
year, offsetting some of these savings. Fund balance levels are expected
to remain at satisfactory levels and in excess of the district's 5% goal.
The fiscal 2015 budget is still in preliminary stages but management
predicts a slight increase in student enrollment, higher FEFP funding
and an increase in health insurance costs due to the Affordable Care Act.
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.
ECONOMIC GROWTH EXPECTED
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, with phase 1 completed this past month; a
new Hard Rock Hotel in Daytona; $400 million in planned renovations to
the Daytona International Speedway; and the county approved One Daytona
entertainment complex project for which construction could start later
this year. These projects and others are expected to boost sales tax
growth and improve employment opportunities in the county. Notably, home
prices are up 15.7% year over year through March 2014 according to
IMPROVED UNEMPLOYMENT LEVELS; BELOW AVERAGE WEALTH
Unemployment rates have improved, declining to 6.3% in March 2014 from
7.5% a year prior, and are in line with state and national averages. The
improvement is a result of both job and labor force growth. Wealth
levels are moderately below state and national levels.
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 was statutorily 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). The district
requires a manageable 0.924 mills to fund 2014 COPs debt service, with
the remainder providing a moderate source of pay-go capital funding.
The district's tax base increased moderately for fiscal 2014 by 4.1% to
$36.6 billion and the preliminary estimates suggest around 5% growth for
the fiscal 2015 tax roll. This growth follows a period of decline in
assessed values of 36% from fiscal 2008 through 2013 due primarily to a
stressed housing market. As tax base values improve, the millage rate
required to pay COP debt service will decline resulting in additional
funds for capital expenses. COP debt service is level.
The pledged assets supporting the COPs under the master lease consist of
16 schools and three additions to schools that served 31% of the
district's 61,234 enrolled students during fiscal 2014. Pursuant to the
master lease structure, all of these assets would be relinquished if the
district failed to appropriate the required funds.
DEBT LEVELS ARE MODERATE AND RETIREE COSTS ARE MANAGEABLE
Overall debt levels are low at $923 per capita and 1.3% of market value.
Amortization of district debt is above average with 55% of outstanding
principal repaid in 10 years. No new debt is contemplated in the near
term. 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 fiscal 2013 governmental expenditures.
Declining enrollment prior to this fiscal year has led to reduced
capital spending in recent years although certain of the district's
schools are in need of roof and structural repairs due to aging. To
accommodate these and other needs, including school security and
technology improvements, the district is seeking voters' approval this
August to extend the half-cent sales tax for another 15 years, beginning
in 2017. The sales tax revenues could only be used for capital needs.
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, 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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