Fitch Affirms Clay County School Board, FL's COPs at 'A+' & State Sales Tax Revs at 'AA-'

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has taken the following rating action on Clay County School Board, Florida's bonds:

--$33 million certificates of participation (COPs), series 2005a and 2005b, affirmed at 'A+';

--$2.25 million state sales tax revenue bonds, series 2010, affirmed at 'AA-'.

In addition, Fitch assigns an 'AA-' implied general obligation unlimited tax rating to the Clay County School Board.

The Rating Outlook is Stable.

SECURITY

COPS are secured by undivided proportionate interest in lease payments made, subject to appropriation by the Clay County School Board, to the issuer under the master lease purchase agreement. In the event of non-appropriation the school board 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 such facilities.

Revenue bonds are secured by an annual distribution of sales tax pursuant to Florida statutes sections 288.162 and 212.20(6)(d)7.a. The annual payments are equal to the debt service requirements.

KEY RATING DRIVERS

RATING CAP: The revenue bond rating is capped by the lower of the school district general obligation (GO) rating or one notch below the state GO rating. The school district has an implied GO rating of 'AA-' with a Stable Outlook, and the state is rated 'AAA' with a Negative Outlook.

FAVORABLE MASTER LEASE PROVISIONS: The school board is required to appropriate for all or none of the lease payments under a master lease program, and the leased assets are subject to surrender in the event of a non-appropriation.

STRONG FINANCIAL MANAGEMENT: Management has been effective in implementing cost saving measures to offset declining revenue streams and other budgetary pressures resulting in adequate financial flexibility to weather possible further declines.

DEBT, PENSION AND OTHER OBLIGATIONS MANAGEABLE: Overall debt levels are low with average amortization and other obligations including pension are manageable.

LIMITED BUT SOUND LOCAL ECONOMY: The county is largely residential, and the economy benefits from its proximity to Jacksonville as many residents commute to the city.

CREDIT PROFILE

STATE REVENUE SOURCE FOR SALES TAX BONDS

The revenue bonds are payable solely from an annual $223,250 distribution to the board of state sales tax revenue, pursuant to Florida statutes; the revenue is a substitute for racetrack revenues previously distributed. The county 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 $223,250 distribution is only slightly greater than 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 greater of $210,000 or if the amount of sales tax revenues distributable to the board has been increased above $223,500, 90% of the amount of sales tax revenues distributable to the board. Fitch believes that the slim current coverage will prevent any further leveraging of the security.

COPS

Florida school districts may levy 1.5 mills for capital outlay, with 3/4 of the levy allowed to be used for COPs debt service. The district's taxable assessed value (TAV) declined 5% in fiscal year (FY) 2010 and 12.5% in FY 2011; however, the resulting .60 mills of the capital outlay levy required for COPs repayment of MADS is low, leaving ample flexibility under the cap. The district has no plans to issue additional COPs and maintains that there are other funds available to meet COPs obligations if necessary including impact fees moneys.

STRONG FINANCIAL MANAGEMENT

The district's financial operations have historically been sound but somewhat volatile as the vast majority (72% in fiscal 2010) of general fund revenues are from state sources. School board management has been actively controlling expenses in light of lower state revenues and achieved significant savings both in fiscal 2010 and 2011. Staff reductions through attrition were a substantial source of savings for the district, reducing expenditures by approximately $3 million in fiscal 2011 with another $8.5 million in savings expected in fiscal 2012. In addition to expenditure reductions the board adopted a 0.25 mill critical needs levy in 2009 which has been re-adopted in each year since.

The district's financial position is strong with adequate reserves within policy levels. Fiscal 2010 ended with an unreserved fund balance equal to 5.1% of spending, which is on target with the board's internal policy of 5% and higher than the state required 3%. Unaudited fiscal 2011 general fund results indicate a surplus of $5.8 million which increases the unreserved balance to approximately 7.4% of spending. Unaudited results for the district have been historically accurate and it is likely that audited financials will show similar results. The fiscal 2012 budget is balanced and no material changes to fund balance are expected.

DEBT, PENSION AND OTHER OBLIGATIONS MANAGEABLE

Overall debt levels are low at $823 per capita and 1.5% of TAV; amortization is average with 57% of principal retired within 10 years. The board has no plans for additional debt in the immediate future. Pensions are provided through the Florida Retirement System (FRS) which covers all regular employees of the district. The district is required to make contributions in accordance with rates established by the Florida Legislature and has annually met the annual required contribution; contributions represent a manageable 7% of general fund expenditures. Other post employment benefits are provided by the district on a pay-go basis and the unfunded liability is a low 0.06% of market value.

LIMITED BUT SOUND LOCAL ECONOMY

Clay County is located in the north-eastern part of the state bordering on Jacksonville. The county is mainly residential, serving as a bedroom community for nearby Jacksonville; historically the local economy has been based in mining and agriculture with recent concentrations in retail, construction and real estate. The county unemployment rate was 8.9% in November 2011, which was lower than state rate of 9.8% but slightly higher than the national rate of 8.2%. TAV declined by nearly 18% over two years, down from its 2009 peak; however 2012 values indicate a small recovery of 2%. Fitch believes the board's expectation for modest TAV growth going forward is reasonable as IHS Global Insights is predicting a strong recovery for the metro area beginning in 2012.

Additional information is available at '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, Zillow.com, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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