TEXT - Fitch revises Florida's Manatee CSD outlook to negative

Fri Feb 1, 2013 1:47pm EST

Related Topics

Feb 1 - Fitch Ratings has downgraded the following ratings on the Manatee
County School Board, Florida (the district): 

--Implied general obligation (GO) bond rating to 'BBB+' from 'A+'; 
--$213.8 million of certificates of participation (COPs) to 'BBB' from 'A'; 
--$24.5 million sales tax revenue bonds, series 2003 and 2005 to 'BBB+' from 
'A+'. 

The Rating Outlook is revised to Negative from 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 sales tax revenue bonds are secured by the proceeds of the local government 
half-cent sales tax collected within the county, and distributed between the 
county and its incorporated municipalities based on a population driven formula.
Limited additional security is also provided by a debt service reserve account 
satisfied by a surety bond. 

SENSITIVITY/RATING DRIVERS

UNANTICIPATED OPERATING AND RESERVE DEFICIT: The district's already limited 
financial flexibility has been greatly compromised following a significant 
unbudgeted deficit in fiscal 2012, leaving the district with a negative year-end
general fund balance. 

INTERNAL CONTROL DEFICIENCIES:  The district's rapid fiscal deterioration is 
attributed to a series of failed budgeting practices and lack of oversight; 
corrective action is being spearheaded by a new superintendent and chief 
financial officer.   

ACTION PLAN INTRODUCED: The fiscal 2013 budget targets compliance with statutory
reserve requirements. Revenue and expenditure assumptions appear realistic and 
management reports year-to-date results are on track, but Fitch remains 
concerned about the district's ability to meet its budget based on recent 
events.    

SALES TAX CAPPED AT GO: The rating on the sales tax revenue bonds is capped by 
the implied GO rating. Sales tax revenues increased modestly in fiscal 2012 
improving coverage to about 1.4 times.   

COP APPROPRIATION RISK: The one-notch distinction between the implied GO and COP
ratings reflects risk to annual appropriation. 

WHAT COULD TRIGGER A RATING ACTION 

RECURRENCE OF FINANCIAL INSTABILITY: Fitch will take additional negative rating 
action should the district fail to demonstrate operational stability and 
progress in improving financial reserves.   

POOR DISCLOSURE: Maintenance of the Fitch rating is dependent on the receipt of 
timely and accurate information.

CREDIT PROFILE

Manatee County is located on Florida's Gulf Coast, approximately 45 miles south 
of Tampa. The school district is coterminous with the county and has a current 
enrollment of about 45,000. 

FISCAL 2012 CONCLUDES WITH NEGATIVE FUND BALANCE

Unaudited results for fiscal 2012 depict an operating deficit (after transfers) 
of $10.2 million resulting in a year-ending general fund balance deficit of $3.5
million or -1.1% of spending. The fiscal 2012 budget had forecast an operating 
surplus of $3.3 million that would have increased reserves to close to $10 
million and narrowly maintained compliance with state statutory guidelines for 
general fund reserves. 

 

Liquidity levels remain on the low side with total of cash and investments 
across governmental funds of $51.8 million or 0.9x total liabilities. Management
expects to issue tax anticipation notes this spring at about the same level as 
prior years - approximately $50 million or a sizable 15% of revenues. 

OPERATING DEFICIT UNDETECTED UNTIL YEAR-END

Several factors contributed to the draw on reserves, most notably the absence of
a position-control module and payroll encumbrance process to properly account 
for employee wages and benefits. According to district management and a report 
of an independent forensic auditor, the fiscal 2012 operating deficit was not 
detected by management until after the close of the fiscal 2012 year. The 
district superintendent and assistant superintendent for business services have 
since resigned. 

Under the direction of the interim superintendent and chief financial officer 
(hired in May 2012) a series of software programs to monitor employee positions,
payroll encumbrances, and requisitions are in the process of implementation. A 
series of short-term fixes have been introduced to help prevent additional 
overspending in the interim, the effectiveness of which is difficult for Fitch 
to assess.  

FISCAL 2013 BUDGET RESTORES RESERVES TO MINIMUM REQUIREMENT

Under Florida law school districts are required to maintain an unrestricted fund
balance equal to at least 2% of general fund revenues. Any district that fails 
to meet this requirement may have a financial emergency board imposed by the 
Commissioner of Education unless it can submit an action plananticipated to 
avoid a financial emergency (including the non-payment of debt). The district 
has submitted a plan, which has reportedly been accepted as valid by the 
commissioner. 

At the end of fiscal 2013 the district is projecting a fund balance equal to 
$6.6 million or 2.1% of revenue (also equal to 2.1% of spending). The budget 
plan centers on a $6.9 million or 2.1% reduction in spending including $3.3 
million in plant operation and maintenance and $1.2 million in instructional 
services. Revenues are expected to increase $3.3 million or 1% due to higher 
enrollment and an increase in the state funding formula. Management reports the 
budget is on track to date, but concerns exist given recent failed projections.
FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.