--Implied general obligation at 'A+'.
The Rating Outlook is Negative.
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.
KEY RATING DRIVERS
NEGATIVE OUTLOOK MAINTAINED: The Negative Outlook reflects Fitch's concern over the district's inability to regain structural balance, despite the implementation of cost savings. Measures taken in fiscal 2014 are projected to restore unassigned fund balance to a minimally satisfactory level while not materially improving the district's financial position.
FAVORABLE ARBITRATION DECISION: A favorable arbitration outcome enabled the district to institute furlough days which generated a large share of expenditure savings. Further labor concessions will be necessary to realize additional savings in fiscal 2015.
LOW DEBT, AFFORDABLE CARRYING COSTS: Debt levels are low and likely to remain so given the district's rapid amortization schedule and manageable capital needs. Retiree benefit costs do not pressure district finances, and overall carrying costs constitute a relatively small share of governmental fund spending.
LIMITED ECONOMY: The local economy is primarily residential and somewhat limited. Wealth levels are above average, and unemployment approximates state and national averages.
COPS APPROPRIATION RISK: The one notch rating distinction on the district's COPs is based on the risk of non-appropriation inherent in the lease structure. The appropriation risk is not tempered by the master lease structure as only one school, a middle school, is subject to the lease.
ADEQUATE FUND BALANCE: Failure to maintain unassigned reserves at the minimum state required level through balanced operations will lead to a downgrade.
The district is coterminous with
REPORTING INACCURACIES REVEAL WEAK POSITION
The district's credit was challenged by financial reporting inaccuracies in fiscal 2012 which significantly overstated reserve levels and underpinned Fitch's
Reserves were overstated in fiscal 2012 by
BUDGETARY SURPLUS; WEAKENED LIQUIDITY
Restatement of the district's fiscal 2012 results occurred late in fiscal 2013 hampering the district's ability to adjust spending to offset the lower reserve levels before year-end. The fiscal 2013 budget included a planned operating deficit of approximately
Liquidity has tightened but remains adequate. The district issued and repaid
EXPENSE CONTROL MUST DRIVE FISCAL RECOVERY
The district's new management team implemented a plan for restoration of unassigned general fund balance to 3% of spending as part of the fiscal 2014 budget process. The solution must largely be driven by expenditure control given the school districts' lack of revenue control. The plan includes measures to trim spending, such as furlough days, program cuts, and department reorganization. These efforts are projected to yield
The district projects an operating deficit (after transfers) of
District projections for fiscal 2014 unassigned fund balance reaching the state minimum required 3% of budgeted spending results from rearranging funding categories within its existing fund balance. Future rating stability will reflect the district's demonstrated ability to maintain this cushion through balanced operations.
LOW DEBT BURDEN; AFFORDABLE CARRYING COSTS
The district's overall debt levels are very low at
The district participates in the state-run Florida Retirement System (FRS), which Fitch estimates to be adequately funded at 78.9% based on the 7% investment rate of return used by Fitch. The district's actuarial required contribution (ARC) was
Other post-employment benefits (OPEB) are limited and currently funded on a pay-as-you-go basis. The unfunded liability represents a manageable 0.8% of market value. Carrying costs including debt service, pension ARC, and OPEB contribution were a low 7.4% of governmental fund spending in fiscal 2013.
LIMITED ECONOMY; RECOVERING TAX BASE
The district is home to a large retiree population which contributes to a healthy per capita income 30% to 35% higher than state and national averages. The local economy is based mainly in health care, agriculture, and tourism, stabilized by a large government presence, which constitutes 50% of jobs among top employers. The largest private sector employer in the county is
The housing market shows signs of recovery following recessionary tax base declines. Property value losses through fiscal 2013 have been consistent but moderate, declining 13% since fiscal 2009. Signs of stabilization are evident, as the district's taxable assessed value (TAV) grew by a modest 1.5% in fiscal 2014 following four years of recessionary contraction. Management projects stronger growth of approximately 6% in fiscal 2015, as per the state.
SOUND LEASE PROVISIONS
Lease payments are payable from any legally available source, although on a budget basis payments are made from the district's capital outlay millage. The capital millage can be levied up to 1.5 mills for lease payments for COPs issued before 2009 and 1.125 mills for COPs issued post 2009. The district uses a very low 0.159 mills of the levy to meet MADS leaving considerable flexibility.
The lease payments are subject to appropriation and a failure to appropriate would require the district to surrender use of the one middle school (out of 27 district facilities) covered under the master lease.
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,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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