NEW YORK--(BUSINESS WIRE)--Fitch Ratings affirms the following ratings on Hernando County School Board, FL's (the district) certificates of participation (COPs):
--$130 million outstanding COPs at 'A+'.
In addition Fitch affirms the district's implied unlimited tax general obligation (GO) rating at 'AA-'.
The Rating Outlook is revised to Stable from Negative.
The COPs are secured by lease payments made by the district to the trustee pursuant to a master lease purchase agreement. Lease payments are payable from legally available funds of the district, subject to annual appropriation. The district is required to appropriate funds for all outstanding leases on an all or none basis. In the event of non-appropriation, all leases will terminate, and the district would, at the trustee's option, have to surrender all lease-purchased projects for the benefit of owners of the COPs which financed or refinanced such projects.
KEY RATING DRIVERS
OUTLOOK CHANGE REFLECTS STABILIZED FINANCIAL PROFILE: The revision of the Rating Outlook to Stable from Negative reflects management's continued conservative budgeting practices and cost saving measures, as well as an improvement in state funding, which have resulted in generally stable operations and the maintenance of reserves.
BETTER THAN BUDGETED RESULTS PROJECTED: Management projects better than budgeted results for fiscal 2013, consistent with historical practices.
RESERVES EXPECTED TO REMAIN ADEQUATE: Reserve levels remained sound in fiscal 2012 and are expected to improve in fiscal 2013.
LOW TO MODERATE DEBT LEVELS: Overall debt burden is low and should remain so given the district's limited capital needs and the absence of additional issuance plans.
BELOW-AVERAGE ECONOMIC PROFILE: The economy remains limited with major industries centered in lower-wage agriculture, limestone mining, and cement production. Unemployment rates are consistently higher than state and national averages.
COPS SUBJECT TO APPROPRIATION: The 'A+' COPs rating reflects the district's general credit quality, its obligation to make annually appropriated lease payments under a master lease structure, and the essentiality of leased assets.
STABLE PERFORMANCE EXPECTATIONS: The Stable Outlook anticipates a trend of generally balanced operations and maintenance of satisfactory reserves over the near term.
Hernando County School District is coterminous with Hernando County and is a mainly residential area. The county has a 2011 population of 173,064 and is located on the central-west coast of Florida, north of Tampa Bay.
BUDGET CHALLENGES MET WITH CONTROLLED SPENDING AND CUTS
The district, similar to other Florida school districts, has recently undergone fiscal challenges due to a combination of the discontinuation of federal stimulus monies, cuts in state aid, and lower tax collection rates due to economic pressures and its declining tax base. Management acted accordingly and built up reserve balances in fiscals 2010 and 2011 to help offset the loss of these monies. Management has also made significant budget cuts in fiscal 2011 through 2013 and had successfully negotiated temporary union concessions. Spending continues to be controlled throughout the year helping the district achieve better than budgeted results.
FISCAL 2012 RESULTS STRONGER THAN EXPECTED
The district's fiscal 2012 budget had assumed a $15.9 million reduction in the district's total general fund balance to $4.3 million (2.9% of fiscal 2012 spending). Through conservative budgeting practices, employee concessions, and expenditure savings, the district limited its general fund deficit to $3.8 million (2.6% of spending). The districts unrestricted fund balance (assigned plus unassigned) at fiscal end 2012 was $14.4 million or an adequate 9.8% of spending.
FISCAL 2013 PROJECTIONS STRONGER THAN EXPECTED
The district's $160 million fiscal 2013 general fund budget was based on a $5.8 million (4.3%) increase in its Florida Education Finance Program allocation, and assumed the use of $10.3 million in reserves. The reserves were used to offset the $11.4 million or 7.7% year over year increase in total general fund expenditures, mostly a result of increasing employee salaries and benefit costs. To help meet class size mandates the district hired certified teachers as long term substitutes versus full-time instructors with benefits helping reduce costs. Through continued cost controls and a combination of lapsed salaries and benefits, management is projecting a general fund net surplus of approximately $0.9 million, after transfers, and a total fund balance of $17.8 million or a sound 11% of spending.
FISCAL 2014 TENTATIVE BUDGET REFLECTS INCREASED STATE AID
The tentative budget for fiscal 2014 includes a 4.4% increase in revenues, primarily due to increased state funding, and a use of $12.9 million in reserves. General fund balance is projected to decline to $4.9 million, roughly 3-4% of revenues. General fund appropriations are up 5% (or $8 million). Fiscal 2014 pressures include increases in salaries and benefits costs for employees and higher pension contributions required by the state (up $2.5 million from fiscal 2013). Departments were once again asked to make up to 5%-10% cuts to help balance the budget.
The district typically uses a large percentage of general fund balance in its budget and budgets to a 3%-4% ending fund balance. Notably, results have historically been better than budgeted. Fitch expects this practice to continue based on management's conservative budget practices.
CONTINUED DECLINES IN TAX BASE
The property tax roll for Hernando County (the county) decreased approximately $209 million, or 2.6%, lowering the fiscal 2014 tax roll to $7.98 billion. This follows a 7% decline in fiscal 2013 and is the fifth consecutive year the tax roll declined, reflecting the still pressured housing market in the county. Property values had grown steadily by double digit rates since 2004, but the current decline puts the county back to pre-2007 values.
LOW TO MODERATE DEBT LEVELS
Overall debt ratios including county sales tax supported bonds are low to moderate at only $1,167 per capita and 2.5% of net taxable value. No new debt is anticipated in the near term. While the district may use any legally available revenue for COPs debt service, the district has historically allocated revenue for this purpose from its capital outlay millage. The capital outlay millage is authorized by state law up to 1.5 mills.
Due to recent declines in assessed value, the district now requires a high 1.26 mills to fund COPs assuming a 96% tax collection rate. The remaining $1.82 million in revenues is used to support capital improvement and maintenance needs.
PENSION COSTS TO RISE; MANAGEABLE OPEB COSTS
The district's contribution to the state's retirement system is increasing in fiscal 2014 to $8.1 million compared to $5.6 million in fiscal 2013 due to the state's required increase in contributions from school boards. The fiscal 2014 contribution equates to a manageable 4.8% of the fiscal 2014 general fund budget. The district does not explicitly subsidize post-employment healthcare. However, the district recognizes an unfunded actuarial accrued liability (UAAL) associated with retirees' participation in the district's healthcare plan at the group rate. The liability was $8.6 million at July 1, 2010. The district funds this liability on a pay-as-you-go basis, which was $234,317 or a low 0.1% of spending in fiscal 2013.
Total carrying costs for COP debt service, pensions and pay-go OPEB was a manageable 12.2% of fiscal 2012 governmental fund spending less capital.
LIMITED ECONOMY WITH BELOW AVERAGE SOCIOECONOMIC INDICATORS
Located north of Tampa on the central-west coast of Florida, the county is mainly residential. The district, which is coterminous with the county, experienced rapid enrollment growth in the first half of the decade as the county's population increased over 5% annually before tapering off in the past few years.
The county serves as a bedroom community due to its proximity and direct access via the Suncoast Parkway to the City of Tampa. The area economy remains fairly narrow with concentrations in agriculture, citrus products, cattle production, limestone mining and cement production. The county's job base has expanded by 4.1% during the past 12 months ending July 2013 although unemployment rates remain high. The county unemployment rate was 8.9% (July 2013) compared to 11.5% a year prior. Per capita income for 2011 was 81% of the national rate.
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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and 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