Fitch Rates Seminole County Schools, FL COPs 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AA-' rating to the following Seminole County School Board (the district), FL certificates of participation (COPs):

--$20.245 million, series 2014A.

In addition, Fitch affirms the following ratings:

--$151.8 million of parity COPs at 'AA-';

--Implied unlimited tax general obligation (ULTGO) bonds at 'AA'.

The bonds are scheduled to sell the week of October 20 via negotiated sale. Proceeds will be used to advance refund the series 2006A COPs for level savings over the life of the bonds.

The Rating Outlook is Stable.

SECURITY

The district's COPs are secured by lease payments made to the trustee and pursuant to a master lease purchase agreement. Lease payments are payable from legally available funds of the district (subject to annual appropriation by the Seminole County School Board). 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

VOTER SUPPORT FOR SCHOOLS: District financial position is adequate, marked by strong

expenditure control. Recent passage of tax referendums enhances financial flexibility.

LOW LONG-TERM LIABILITIES: Key debt ratios are very low and are expected to remain so given moderate capital needs and absence of borrowing plans. Pension and other long-term liabilities are a low percentage of spending.

STRENGTHENING ECONOMIC PROFILE: Recovery from the downturn is evidenced by

employment growth and tax base expansion. Seminole County's economy is marked by diverse

employment opportunities, low unemployment, and above-average wealth.

COPS APPROPRIATION RISK: The one-notch distinction between the implied ULTGO and COPs rating incorporates risk to annual appropriation. Tempering this risk is the all-or-none appropriation feature of the master lease, the sizable number of schools under the master lease and the essential nature of leased assets that are subject to surrender in the event of non-appropriation.

RATING SENSITIVITIES

WEAKENING OF OPERATING RESERVES: The rating is sensitive to the district's ability to maintain structural balance. Failure to maintain reserve levels in fiscal 2015 could pressure the rating.

CREDIT PROFILE

The school district, which is coterminous with Seminole County, is located in the central portion

of the state near the Atlantic coast and is in the Orlando metropolitan statistical area (MSA). The

county's 2013 population is 430,838.

SOUND FINANCIAL POSITION

District financial position has weathered the economic downturn well with moderate draws on

reserves. The district tax base turned the corner in fiscal 2014. Together with voter approvals for

added real property tax and sales tax revenue, this helps support the expectation of continued sound financial position.

The district incurred operating deficits of $12.3 million (2.9% of spending) and $3.4 million (0.8%) in fiscal years 2012 and 2013, respectively. The fiscal 2013 general fund unrestricted balance of $41.8 million represents a satisfactory 9.9% of spending. The district's general fund balance policy calls for the unassigned fund balance to equal 4% of total recurring expenditures. At the close of fiscal 2013 the unassigned balance was 7.7% of expenditures.

Unaudited fiscal 2014 general fund results are essentially balanced: a small $2.5 million (0.5% of spending) fund balance reduction for prior period adjustment is related to accrual of certain medical benefit and utility expenses. The amended fiscal 2014 budget included a $22 million appropriation of general fund balance, thus results compare very favorably to budget.

Unaudited fiscal 2014 general fund revenues increased 11.5 % over the prior fiscal year, largely reflecting increased state aid for teacher salary increases as well as collection of the new voter approved, one-mill increase in property taxes. The one-mill levy ($26.8 million) is dedicated for repair and maintenance of school buildings as well as outlay needs. The fiscal 2014 unaudited general fund year-end unrestricted balance of $40.8 million represents 8.7% of spending (including transfers). Effective Jan. 1, 2015, the district is shifting to medical self-insurance for cost containment, and in fiscal 2014 the general fund transferred $7.5 million to a new self-insurance fund.

The fiscal 2015 general fund budget is balanced with a $12.4 million use of fund balance, although given the district's practice of conservative budgeting, Fitch expects a more moderate use of reserves. The budget includes a 1.5% increase for salaries, although overall expenditures budgeted for salaries decreased by $3 million primarily due to retirements.

Voters also approved, by a 52% margin, a 10-year one-cent sales tax increase, bringing the countywide sales tax from six cents to seven cents. Total sales tax revenue to the school over the 10 years is an estimated $158 million and is dedicated to infrastructure. The tax goes into effect Jan. 1, 2015 and the district will receive 25% of the tax revenue, budgeted at $7.9 million for the first half year of collections. The district pledged to voters to reduce property taxes by the amount of sales tax expected each year. Consequently the discretionary, one-mill authorization was reduced to 0.7 mills in fiscal 2015. The district intends to further reduce this real property tax millage over the four-year authorization.

SATISFACTORY REVENUES FOR COPS DEBT SERVICE

The district has historically paid COPs debt service with revenue from its statutorily authorized capital outlay real property tax revenue, although all legally available revenues are available for this purpose. The 1.5 mill capital outlay tax, with the fiscal 2015 assessed value and a 96% collection rate, generates $40.83 million. A relatively modest 0.82 mills is needed to fund the estimated maximum annual debt service (MADS) of $22.45 million, leaving a satisfactory cushion beneath the state cap. None of the district's leases are subject to the 75% limitation on the use of the capital outlay millage for lease payments.

The master lease structure on the district's COPs is strong, requiring an all-or-none appropriation. In the case of non-appropriation, the trustee is authorized to require the district to surrender use of all facilities under the master lease, which includes 13 schools and additions to seven schools. Presently the district has a total of 63 operational schools. Based on the district's full-time equivalent enrollment, approximately 40% of students utilize facilities in the master lease. Fitch considers the essentiality of the facilities a strong incentive to appropriate.

LOW LONG-TERM OBLIGATIONS

Overall debt levels are very low at 1.0% of market value (MV) and $813 per capita. Debt service

amortization is rapid with 78% of outstanding debt retired in 10 years. Debt levels are expected to

decline as the district has no plans to issue additional debt.

The district's fiscal 2015-2025 capital improvement program includes project needs of $410 million and does not necessitate any long-term borrowing. Sales taxes are projected to provide $159 million of the needed revenues. School facility needs are manageable and capacity is satisfactory. The

majority of projects are for building renovations.

Pension obligations are limited to the district's participation in the statewide multiple-employer

pension plan (FRS), a plan which is fairly well-funded. For fiscal 2013, the district's annual

contribution totaled $13.4 million to the defined benefit plan and $1.4 million to the defined

contribution plan.

The district offers an implicit subsidy for other post-employment benefits (OPEB) as required by

state law. The district funds the liability on a pay-as-you-go basis with a fiscal 2014 contribution of

$1.9 million. Total fiscal 2013 carrying costs (debt service, pension and OPEB payments) were a

moderate 10.6% of total government spending.

RECENT ECONOMIC AND TAX BASE STRENGTHENING

Seminole County is home to the corporate headquarters of the American Automobile Association

(AAA), Mitsubishi Power Systems, Scholastic Book Fairs, and Sears Home Improvement Products.

Large private employers within the MSA include Walt Disney World, Florida Hospital, Publix Super

Markets, Universal Studio - Florida, Orlando Regional Healthcare, and Lockheed Martin.

Verizon constructed a new finance and accounting hub adding approximately 300 new jobs which

together with general economic recovery has contributed to robust countywide job growth.

Consequently, the county's unemployment rate has fallen over the past year. As of July 2014,

unemployment was 5.8%; below the state (6.6%) and national levels (6.5%) rates. In August 2014 Deloitte announced the opening of a new technology facility in the county which will create up to 1,000 jobs over the next four years, thus further improvement in the county's unemployment rate is likely. Income levels are favorable, slightly higher than the state and U.S., and the poverty level is lower.

In addition to job growth, recovery is also evident in the district's real property tax base. Taxable

assessed value (TAV) fell almost 24% from peak to trough, but is now showing sustained

improvement with 2.7% and 5.7% growth in fiscal years 2013 and 2014, respectively.

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, 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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=898374

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Contacts

Fitch Ratings
Primary Analyst
Patricia McGuigan
Director
+1-212-908-0675
Fitch Ratings, Inc.,
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Larry Levitz
Director
+1-212-908-9174
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1-212-908-1833
or
Media Relation:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Patricia McGuigan
Director
+1-212-908-0675
Fitch Ratings, Inc.,
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Larry Levitz
Director
+1-212-908-9174
or
Committee Chairperson
Michael Rinaldi
Senior Director
+1-212-908-1833
or
Media Relation:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com