Jan 31 - Fitch Ratings has upgraded the following ratings for Okaloosa
County School Board, FL's (the district) bonds:
--Implied general obligation (GO) rating to 'AA+' from 'AA';
--$2.8 million refunding and revenue bonds, series 2011 (state sales tax revenue
bonds) to 'AA+' from 'AA';
--$63.4 million certificates of participation (COPs), series 2003, 2006 and 2007
to 'AA' from 'AA-'.
The Rating Outlook is Stable for the implied GO and COPs. The Rating Outlook is
Negative for the revenue bonds.
The revenue bonds are secured by an annual distribution of sales tax pursuant to
Florida statutes section 212.20(6)(d).a. The annual distribution is equal to
debt service obligations.
The COPs are payable from lease payments made by the district and are subject to
annual appropriation of the school board under a master lease purchase
agreement. The district is required to appropriate funds for all outstanding
leases on an all or none basis. In the event of a non-appropriation, the
district must surrender possession of all leased facilities under the master
lease to the trustee for disposition by sale or re-letting of its interest in
IMPLIED GO UPGRADE: The upgrade of the implied GO to 'AA+' reflects the
district's strengthened financials, improved economic environment, and very low
debt levels. Fitch expects debt levels to remain modest given the district's
manageable capital needs.
REVENUE BOND RATING: The upgrade on the revenue bonds reflect their cap at the
lower of the school district implied GO (one notch below the state's GO rating).
At this time, one notch below the state's GO rating of 'AAA' with a Negative
Outlook is the lower of the two options.
COPS APPROPRIATION RISK: The one-notch rating difference between the district's
implied GO and the COPs recognizes the non-appropriation risk inherent in the
COPs structure. Master lease provisions including 'all or none' appropriation
requirement, a leasehold interest on a significant number of essential schools,
and reliance upon COPs financing serve to mitigate the potential for
LOW DEBT LEVELS: Overall debt levels are affordable while capital needs appear
manageable. Amortization of outstanding principal is rapid.
STABLE LOCAL ECONOMY: The Okaloosa County economy remains limited but stable,
anchored by Eglin Air Force Base and tourism along the Gulf of Mexico. Economic
indicators compare favorably to national averages, though the housing market
Okaloosa County School Board is coterminous with Okaloosa County, located on the
Gulf Coast of Florida's panhandle and bordered by Alabama to the north. The
district serves approximately 30,000 students and operates 37 schools.
AMPLE FINANCIAL FLEXIBILITY, MAINTENANCE OF STRONG RESERVES
Strong financial management is the hallmark of this credit, as reflected in the
district's ability to achieve net operating surpluses (after transfers) for five
consecutive years despite a pressured operating environment. Generating
surpluses each year from fiscal 2007 through 2011, the district augmented its
fund balance to from $63.6 million (31.6% of spending) from $47.5 million (20.8%
The unrestricted portion of fund balance was $51.6 million at the end of fiscal
2011 (equal to a high 25.7% of spending). Liquidity has also increased to high
levels over this time period. Cash and investments covered liabilities over 22
times at the end of fiscal 2011.
The district's success has been driven by its conservative budgeting habits and
ability to achieve structural balance. Unlike many school districts in the
state, Okaloosa County School Board has not undertaken layoffs, implemented
furlough days, decreased employee pay, or cut expensive student programs. As a
result, the district has ample flexibility to reduce spending further.
UNAUDITED FISCAL 2012, BUDGET FISCAL 2013
Unaudited results for fiscal 2012 show a modest $129,000 (0.1% of spending) net
operating surplus (after transfers). Despite surplus operations, unrestricted
fund balance decreased marginally to $50.2 million (a still strong 24.5% of
The district plans to draw down total fund balance in fiscal 2013 by $8 million
(3.4% of spending) as part of a planned use of education jobs funds.
Unrestricted fund balance is expected to increase by $500,000 regardless of the
planned drawdown. Fitch does not believe that this reduction in total reserves
will materially decrease financial flexibility.
STABLE MILITARY-BASED AND TOURISM ECONOMY, POSITIVE ECONOMIC INDICATORS
The area economy of Okaloosa County (implied ULTGOs rated 'A+' by Fitch) is
somewhat concentrated but stable, anchored by Eglin Air Force Base, which plays
a major role in national defense. The base serves as home to over 10,000
military and 4,000 civilian personnel, as well as 3,000 contractors. Eglin
recently added the seventh special-forces group, with approximately 6,000
military and dependents and the F35 training center. Significant downsizing at
the base is unlikely in the near term given its size and import.
The district's location along the Gulf of Mexico makes tourism the second
leading income producing source for the county. Residents and tourists are
attracted by the natural attractions and recreational activities within the
county including several miles of beaches along the gulf. The tourism sector
within the county continues to recover from the Gulf oil spill in 2010.
County unemployment rates (5.7% as of October 2012) have remained consistently
below state and national levels (8.2% and 7.5%, respectively) through the
economic downturn. The county has experienced some loss of population over the
past few years, although the rate of decline appears to be lessening. Wealth
levels are slightly higher than state and national averages.
LOW RISK DEBT PROFILE, AFFORDABLE CARRYING COSTS
Overall debt levels are low at 1% of market value (MV) and $787 per capita, with
no new debt planned. Debt service for fiscal 2012 totaled $9.2 million or an
affordable 3.7% of general and other governmental funds spending. Amortization
of outstanding principal is rapid with over 95% retired in ten years. The
district has no exposure to variable-rate, derivative or short-term debt
The fiscal 2013-2017 CIP totals $126.2M (an affordable 0.9% of MV) and focuses
on maintenance and repair projects. The district believes it has sufficient
capacity over the next few years to accommodate projected enrolment growth (200
students per year through fiscal 2016). As such, the district has no near-term
plans to build additional schools.
Debt service and retirement costs for fiscal 2012 represent 7% of spending, a
burden that Fitch deems manageable. The district is a member of the
state-administered Florida Retirement System and provides an implied subsidy for
its other post-employment benefits (OPEB).
STATE REVENUE SOURCE FOR SALES TAX BONDS
The revenue bonds are payable solely from an annual distribution of $190,750 to
the board of state sales tax revenue, pursuant to Florida statute. The revenue
is a substitute for racetrack revenues previously distributed. The district
receives the annual fixed-dollar distribution from a portion of the 6% state
sales tax, which is collected by the Florida Department of Revenue. The
legislature of the state may not lawfully modify the statutory scheme for the
distribution of sales tax revenues in a manner that would impair the receipt by
the board of sufficient pledged revenues to pay debt service on the bonds.
Coverage of maximum annual debt service (MADS) by the annual distribution is
approximately 1.0 times (x), as is typical of debt secured by fixed sales tax
distributions. Additional parity bonds are allowed to be issued as long as MADS
does not exceed the $190,750 annual distribution. Fitch believes that the slim
current coverage will prevent any further leveraging of the security.
LOW DEBT SERVICE LEVY FOR COPS
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 levy is authorized by state law up to 1.50 mills. Currently, up to
three-fourths of the proceeds of the capital outlay levy is available 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 prior to this date). An additional 0.25
mills may be levied in lieu of an equivalent amount of the discretionary mills
for operations determined annually by the legislature (currently 0.748 mills).
Like all Florida schools, the district levied 1.5 mills for capital outlay in
fiscal 2012, of which 0.56 mills are used for lease payments. The capital outlay
levy necessary to service the district's lease payments is considered low by
Fitch. This provides capacity for pay-as-you-go financing of capital projects.
LIMITED APPROPRIATION RISK
Fitch believes the district has a strong incentive to appropriate for lease
payments. In the event of non-appropriation, the district must surrender all
leased facilities to the trustee. Approximately 18% of the district's
educational facilities, such as elementary schools and high schools, are
included under the master lease.
Fitch also notes that an event of non-appropriation could impair the district's
ability to issue additional COPs. These debt instruments serve as the district's
primary mechanism for funding long-term capital needs, representing 89% of its
total direct debt burden.
Additional information is available on www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
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, 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