TEXT - Fitch affirms Florida's Flagler CSD COPs

Feb 26 - Fitch Ratings has affirmed the ratings on the following Flagler
County School Board, Florida (the district) obligations:

--$51.2 million outstanding certificates of participation (COPs), series 2005A,
at 'A+';

--$11.3 million outstanding refunding COPs series 2005B, 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 master
lease requires the district to appropriate funds for all outstanding sub-leases
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.

RATING DRIVERS

ADEQUATE FINANCIAL FLEXIBILITY: The district's financial results have been
strong and reserve levels remain adequate despite pressures due to volatility in
state funding and large declines in assessed value (AV).

STRONG MASTER LEASE PROVISIONS: The 'A+' rating on the COPs is based on the
district's general creditworthiness and the obligation to make lease payments
subject to annual appropriation. The master lease structure is sound requiring
an all or none appropriation and the 1.5 mill capital millage outlay typically
used for lease payments provides more than sufficient revenues to meet debt
service requirements.

LOW CARRYING COSTS: Carrying costs including debt service, pension and other
post-employment benefits (OPEB) are very manageable and no material changes are
expected.

LIMITED LOCAL ECONOMY: The district's economic base remains somewhat limited and
exhibits average levels of income and high unemployment.

RATING SENSITIVITY

STABLE OPERATIONS: The district's ability to achieve and maintain structural
balance will be key to maintaining the current rating level.

CREDIT PROFILE

Flagler County, whose boundaries are coterminous with those of the district, is
a largely residential area located on the northeast coast of the Florida. The
county encompasses approximately 570 square miles with a year round population
of approximately 97,000.

STRONG FINANCIAL OPERATIONS

The district benefits from a strong financial management team that practices
multi-year financial forecasting and as a result has experienced consistent
operating surpluses and sound reserve levels despite recent AV and state funding
declines. Fiscal 2011 ended with an $854,000 general fund operating surplus (1%
of expenditures), increasing the unrestricted fund balance to $5.3 million or an
adequate 5.6% of total expenditures. Unaudited fiscal 2012 results show a $1.5
million draw down of reserves as federal stimulus revenues are exhausted, which
is in line with the district's budgeted forecast. Despite this planned use of
reserves, unrestricted fund balance is expected to grow to $7.1 million (7.5% of
expenditures) as a result of a reclassification of some reserves from assigned
to unassigned.

FISCAL 2013 AND FUTURE CHALLENGES

The district budgeted a $1.8 million drawdown of general fund reserves in fiscal
2013. However, management indicates actual results to date are better than
budgeted and the projected drawdown will be in the range of $0.5 million to $1
million. The use of available reserves will reduce the total general fund
balance to approximately 6.8% of expenditures, which remains above the informal
target of 5% and which Fitch believes provides an adequate amount of financial
flexibility.

The district's board is restructuring its schools over the next five years to a
K-8 format which will consolidate 10 school administrations to eight. The
consolidation is expected to produce significant administrative and operational
savings. In addition to the consolidation, the district is seeking approval
from voters of a 0.50 mill operational levy to replace the 0.25 mill critical
needs levy which expires in fiscal 2013. Management is optimistic that the
millage will be approved as voters have not denied a referendum in at least 15
years. Additional flexibility to reduce the budget exists as management has
avoided major expenditure reductions to date.

Total general fund balance is expected to remain above the district's policy
level of 5% of expenditures given the planned restructuring, revenue raising and
expenditure reduction opportunities available to the district. The Stable
Outlook is based on Fitch's expectation that management will take the necessary
measures to maintain stable operations without relying on general fund reserves
or other one-time revenue sources.

MANAGEABLE CARRYING COSTS

Overall debt levels are low at 2% of market value and $1,730 per capita.
Amortization of direct debt is above average with 60% of principal retired
within 10 years. Debt levels are expected to remain stable as no additional
long-term debt is presently contemplated.

Pensions are provided through the state-run Florida Retirement System (FRS) and
total annual pension contributions were manageable at 4.5% of general fund
expenditures in 2011. FRS is well funded at 80% and as such costs are not
expected to increase materially.

OPEB is currently funded on a pay-go basis and the unfunded liability represents
a very low 0.01% of AV. Carrying costs including debt service, pension, and
OPEB were a very manageable 9% of total fiscal 2011 expenditures.

LIMITED LOCAL ECONOMY

Flagler County's unemployment rate remains elevated at 11.2% as of December
2012; the state and national rates for the same month were 7.9% and 7.6%,
respectively. The county's economy is limited with some concentration in
government and retail, reflecting the residential nature of the county. County
wealth levels were average when compared to the state and nation.

The local housing market has exhibited volatility with large AV declines
averaging 15% in each year from fiscals 2010 through 2012. The 5.8% decline in
2013 is a concern. However, data from the county appraiser indicates a flat to
1% increase in the next year supported by increasing values at beachside
properties. Case-Shiller data for the second quarter 2012 showed home prices
increasing 2.1% in the county over the prior year.

While Fitch notes that Florida school districts are less dependent on the tax
base than other local entities, tax base losses do lessen revenues available for
capital needs as well as critical discretionary millage revenues.

STRONG MASTER LEASE PROVISIONS

Lease payments are payable from any legally available source, although on a
budget basis payments are made from the district's capital millage outlay, which
can be levied up to 1.5 mills for lease payments for COPs issued before 2009. In
fiscal 2012, the 1.5 mill levy provided ample revenues to meet maximum annual
debt service. While the lease payments are subject to appropriation, the
all-or-none payment requirement under the master lease would result in the loss
of all or parts of over 30% of the district's schools, which are covered under
the lease should the district fail to appropriate. The all-or-none appropriation
feature provides significant enhancement to the credit.