Feb 12 - Fitch Ratings has assigned an 'A+' rating to the following St.
Lucie County School Board, Florida's (the board or district)
--$75 million refunding certificates of participation (COPS) series 2013A.
The bonds are expected to sell via negotiation during the week of February 18th.
In addition, Fitch affirms the following ratings:
--$105.4 million COPS series 2005, 2011A and 2011B at 'A+';
--$108.8 million sales tax revenue bonds, series 2006 at 'A';
--Implied unlimited tax general obligation bonds at 'AA-'.
The Rating Outlook is Stable.
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.
The sales tax bonds are secured by the proceeds of half cent school capital
outlay sales tax.
KEY RATING DRIVERS
FINANCIAL FLEXIBILITY: The district benefits from a strong experienced
management team which practices conservative budgeting and prudent fiscal
planning. Adequate reserves and options for spending cuts provide the district
with satisfactory financial flexibility.
STRONG MASTER LEASE PROVISIONS: The 'A+' rating on the COPS is based on the
district's general creditworthiness and the COPs' sound legal structure and
available capital millage. The master lease structure requires 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
ADEQUATE SALES TAX COVERAGE: Sales tax revenues have improved over the past two
years and the 'A' rating reflects the narrow but adequate coverage levels on the
LOW CARRYING COSTS: Carrying costs including debt service, pension and other
post-employment benefits (OPEB) are very manageable and no material changes are
LIMITED LOCAL ECONOMY: The district's economic base remains somewhat limited
despite recent diversification and exhibits below average levels of income and
STRUCTURAL IMBALANCE: If the district is unable to eliminate the fiscal 2014
structural deficit and maintain reserves at close to forecast levels, there
could be negative rating action.
St. Lucie county, whose boundaries are coterminous with those of the school
district, is located along the east coast of Florida and has a year round
population of approximately 280,000. Encompassing 76.7 square miles, the largest
city in the county is Port St. Lucie (Fitch rated 'AA' with Stable Outlook) with
a population of 164,000.
PROACTIVE FINANCIAL PLANNING
The district benefits from a strong and knowledgeable management team which
prudently focused on building reserves in the anticipation of upcoming budgetary
shortfalls. Over the two year period of fiscal 2010 and 2011 the district added
$18 million to reserves by implementing a nearly $30 million expenditure
reduction, increasing transfers from the capital improvement fund, and the
levying a temporary 0.25 mill critical needs millage (expires in fiscal 2013).
As a result of these measures as well as the receipt of Federal stimulus funds,
general fund balance grew to approximately $28 million (11.7% of expenditures)
in fiscal 2011. Unaudited fiscal 2012 results indicate an operating deficit of
just under $4 million (1.4% of expenditures) and a still ample unrestricted
general fund balance to spending of 9.8%.
FINANCIAL CHALLENGES AHEAD
Consistent with its budget, the district plans on using $13 to $15 million of
general fund balance in fiscal 2013 as Federal stimulus funds dry up and the
district reduced transfers in to the general fund from the capital improvement
fund to their former levels. The use of available reserves will reduce total
general fund balance to approximately $17 million (6.1% of expenditures) at the
end of fiscal 2013, which remains above the informal target of 5% of
expenditures which Fitch believes provides an adequate amount of financial
flexibility for the rating level.
The district faces a $15 million revenue shortfall in fiscal 2014. Management
has identified over $20 million in possible expenditure reductions including
privatization of custodial services, a 10% reduction in board contribution to
employee health insurance and the closure of two schools. The identified
reductions do not need voter approval and the board's past willingness to
implement the necessary reductions makes it reasonable to believe that the board
will act prudently to restore fiscal balance to the general fund.
The budget gap reflects increased costs as well as the redirection of
approximately $5 million from the capital improvement fund that had supported
operations (general maintenance and other projects) in recent years and the loss
of revenue from the 0.25 mill critical needs levy in 2014 ($3.75 million).
The district plans to implement budget cuts in order to maintain total general
fund balance at or slightly below the informal policy level of 5% of
expenditures. The Stable Outlook is based on Fitch's expectation that management
will implement sufficient expenditure reductions to fund operations going
forward, preserving the districts stable financial position.
CARRYING COSTS ARE MANAGEABLE
Overall debt levels are moderate at 3.5% of market value and $2,566 per capita;
amortization of direct debt is average with 54% 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 a manageable at 5% of expenditures in
2011. FRS is well funded at 80% and as such costs are not expected to increase
OPEB is currently funded on a paygo basis and the unfunded liability represents
a very low 0.04% of market value. Carrying costs including debt service, pension
and OPEB were a very manageable 12% of total fiscal 2011 expenditures.
IMPROVEMENT IN SALES TAX REVENUES
Fiscal 2012 sales tax receipts increased 2.2% over the prior year to $12.7
million or 1.25 times (x) maximum annual debt service (MADS). Collections peaked
at $15.1 million or 1.5x MADS in fiscal 2006 then declined through fiscal 2010
due to the poor economic conditions. With the uptick in economic activity, Fitch
expects sales tax to continue to expand over the next two or three years.
The debt service reserve account which had been satisfied by a surety from
National Public Finance Guarantee, formerly MBIA has been replaced with a Letter
of Credit from JP Morgan which will expire in 2014. The district has a balance
of $411 thousand in surplus sales tax collections that, if retained, can be used
to meet debt service or other capital needs.
LIMITED LOCAL ECONOMY
The county's economy, historically driven by its sizable residential base, is
also led by service sector activities with concentrations in tourism and
construction. The county was hard hit by the housing downturn beginning in 2007.
Home values dropped by over 60% from 2006, the largest decline of any county in
Florida according to Case Schiller. More recent data indicates tentative
stabilization in the housing market, but home values remain well below their
The opening of the Torrey Pines Institute of Molecular Studies in Port St. Lucie
in 2008 has fostered a small but growing biotech hub in the area, providing both
jobs and diversification to the underlying economy. Recent developments include
the opening of Martin Memorial Health Systems and the Vaccine and Gene Therapy
Institute with additional biomedical projects scheduled to open in 2014.
Income levels are below average, with per capita money income equal to 87% of
the state average and 83% of the national. Unemployment rates remained high at
10.5% in November 2012 above both the state (8%) and nation (7.4%) in the same
month. Improvements in year over year unemployment were mainly attributable to a
decline in the labor force.
ASSESSED VALUE DECLINES ARE SLOWING
The district experienced large assessed value (AV) declines reflecting the
housing meltdown; however the pace of tax base devaluation has slowed more
recently to 4.2% and 1% in fiscals 2012 and 2013, respectively. Fitch believes
that tax base stabilization is imminent as housing begins to rebound. 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. Property tax
collection rates remain slightly above the 96% budgeted rate, despite
significant economic pressures.
STRONG MASTER LEASE PROVISIONS
Lease payments are payable from any legally available source; however, 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.
For bonds issued post 2009, state law limits the amount to be used for COPs
repayment to 75% of the 1.5 mill levy or 1.125 mills. In fiscal 2012, the 1.5
mill levy provided ample revenues to meet MADS. 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 nearly 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.