Fitch Affirms Various Lake County School Board, Florida Ratings; Outlook Stable

NEW YORK--(BUSINESS WIRE)--In the course of routine surveillance, Fitch Ratings has taken the following action on the Lake County School Board, Florida's bonds:

--$287.4 million certificates of participation (COPS) affirmed at 'A+';
--$35.6 million infrastructure sales tax revenue bonds affirmed at 'A+'.

In addition, Fitch assigns an 'AA-' implied general obligation (GO) rating.

The Rating Outlook is Stable.

RATING RATIONALE:
For the implied GO and COPs:
--Expenditure reductions, coupled with management's historically conservative budget, have enabled the district to maintain a consistent level of fund balance and financial cushion despite the weakened revenue environment.

--Debt levels should remain affordable as the district reports no new money borrowing plans for either security.

--The district's economy is limited but bolstered by its proximity to Orlando.

Lease payments for the COPs are subject to appropriation and in Fitch's view the school board has a strong incentive to appropriate given the large share of educational facilities captured under the master lease program and its reliance on certificate indebtedness to finance capital needs.

For the infrastructure sales tax bonds:
--The 'A+' rating on the infrastructure sales tax bonds incorporates the sound debt service coverage provided by pledged revenues as well as recent volatility in the revenue stream and the general credit characteristics of the district.

KEY RATING DRIVER:
--Fitch will monitor the district's ability to address potential revenue declines and spending pressures through the introduction of recurring solutions that minimize the impact on reserve levels.

SECURITY:
The COPs are secured by lease payments made by the district to the trustee, as assignee of the Lake County School Board Leasing Corp., which is a not-for-profit corporation created to assist the district in lease-purchase financing. Lease payments are subject to annual appropriation.

The infrastructure sales tax bonds are secured by the district's portion of the local option one-cent infrastructure sales tax. Revenues are collected within the county with the district receiving 1/3 of gross revenues according to an interlocal agreement. The tax is set to sunset three months after the bonds mature. The debt service reserve requirement is fulfilled by a surety from Ambac (not rated by Fitch).

CREDIT SUMMARY:
Located in central Florida, Lake County (limited GOs rated 'A+' by Fitch) is coterminous with the district and has historically been concentrated in citrus with some recent diversification in light manufacturing.

Many residents commute to nearby Orlando, which serves as central Florida's economic anchor with a broad and diverse economy. The largest employer is the school district followed by the Villages of Lake-Sumter, Inc. and Lessburg Regional Medical Center. Unemployment rates have declined to 10.2% as of April 2011 from 11.5% a year prior due to employment growth (2.5%) outpacing labor force growth (1.3%).

Assessed value (AV) losses have been sizeable but relatively manageable in recent years. AV declined 8.2% in fiscal 2010, 10% in fiscal 2011 and the district expects an additional 8% decline for fiscal 2012. Rapid population growth has historically driven corresponding enrollment growth rates in the district while recent enrollment growth has leveled off with a 1% increase in fiscal 2010. The district expects moderate enrollment growth of 9% through 2014. Wealth levels remain below regional, state and national averages.

Financial operations for the district have historically been sound and consistent. Unreserved fund balances regularly exceed the district's 4% policy minimum. At fiscal year-end 2010 the general fund recorded a net operating surplus totaling $12.97 million or 5% of total spending. The unreserved fund balance in the general fund was $31.8 million or a healthy 12.3% of spending and includes approximately $8 million from the education jobs bill which will be spent on fiscal 2012. A modest surplus is projected for year-end 2011 positioning the district as it readies itself for revenue pressures in fiscal 2012 and 2013. Although the fiscal 2012 budget is as yet to be adopted, management does not anticipate utilization of reserves for budget balance beyond the aforementioned $8 million due to the implementation of expenditure reductions. The school board will likely face budgetary challenges in fiscal 2013 given the use of one-time measures to balance the fiscal 2012 budget, and reduced expenditure flexibility given reductions made in prior years.

While the district is allowed to use any legally available revenue for COPS debt service, the district has historically paid this with revenue from its capital outlay millage. Florida school districts have traditionally been allowed to levy 2 mills for capital outlay, with 3/4 of the levy allowed to be used for COPS debt service. Over the past few years, the state has lowered this levy to 1.5 mills since fiscal 2010. As part of the state legislation, a waiver was implemented on the 3/4th limit on use of proceeds for COPS debt service. The district required 1.09 mills for COPS debt service in fiscal 2011. Based on taxable AV projections for fiscal 2012, the district will need 1.18 mills for COPS debt service.

Sales tax revenues, which exhibited significant volatility over the past few years, have begun to stabilize with a return to moderate growth over the past year. Fiscal 2010 revenues improved, ending the year a moderate 2.74% above fiscal 2009 levels, resulting in 1.9x maximum annual debt service (MADS). Fiscal 2011 year-to-date results show the recovery continuing with revenues as of May 2011 up 7.8% from a year prior. If the current year to date growth rate is annualized, coverage would improve to over 2 times MADS.

The fiscal 2011-2015 capital improvement plan (CIP) totals $276.6 million, slightly higher than the $212 million fiscal 2009-2013 plan. The plan does not include the issuance of any additional debt and is mostly funded with property tax revenues. Overall debt is moderate and is expected to remain so given no additional borrowing plans. The district contributes to the Florida Retirement System Pension Fund which is well-funded.

Additional information is available at www.fitchratings.com.

In addition to the sources of information identified in the 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, Zillow.com, National Association of Realtors, Underwriter, Bond Counsel, Underwriter Counsel, Trustee, and the U.S. Federal Government

Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566

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