Fitch Rates School Board of Pasco County, Florida $140MM COPs 'A'
NEW YORK--(BUSINESS WIRE)--Fitch Ratings assigns an 'A' rating to the School Board of Pasco County, Florida's (the district) approximately $74.4 million certificates of participation (COPs), series 2007A, and $65.3 million variable-rate COPs, series 2007B. The series 2007B COPs are being issued as variable-rate securities, either as auction-rate or as floating-rate notes, depending on market conditions at the time of pricing. In addition, the district will enter into an interest rate swap on the series 2007B COPs with the notional amount equal to par, and with Citibank N.A. (rated 'AA+' by Fitch) as the counterparty. The Rating Outlook is Stable.
Both series of COPs are scheduled to sell June 13, 2007 via negotiation with a syndicate led by Citigroup and will be insured by Financial Guaranty Insurance Company, whose insurer financial strength is rated 'AAA' by Fitch. Ford & Associates, Inc., serves as the district's financial advisor. Proceeds from the series 2007A-B COPs will fund the construction of three new elementary schools, one new middle school, one new high school, and additions on another facility. At this time, Fitch also affirms the underlying 'A' rating on approximately $219.5 million in outstanding COPs.
The 'A' rating on the school board's COPs reflects sound lease provisions and the district's underlying credit quality. Credit characteristics include sound financial performance, healthy tax-base growth and moderate debt levels. Credit risks include a limited economy with below-average wealth levels and the district's capital improvement plan, a substantial portion of which lacks a dedicated funding source.
The COPs are secured by lease payments made by the district to the trustee as assignee of the Pasco County School Board Leasing Corp., which is a not-for-profit corporation created to assist the district in lease-purchase financing. The obligation of the district to make lease payments is a limited obligation, payable solely from funds appropriated by the district from available revenues. The 2007 COPs are being issued pursuant to a master lease agreement, which provides strong incentives for appropriation. In the event of non-appropriation, the board must surrender all leased facilities to the trustee. Approximately 24% of the district's school facilities are included under the master lease. Following this issuance, the district will leverage slightly less than 1.0 mill of the 2.0 mill capital outlay levy available for COPs repayment. The district currently levies 1.5 mills and adheres to an informal policy limiting repayment of COPs to 1.0 mill.
Pasco County is located centrally on the west coast of Florida, approximately 30 miles northwest of Tampa. The county serves as a tourist destination given its proximity to the Gulf Coast, though eastern portions of the county remain agriculturally-based. The county is also largely a retirement destination with approximately one-quarter of residents aged 65 or older. County unemployment rates - measured at 4.0% in March 2007 - have been above state levels but equal to or below national levels since 2002. Per capita income in 2005 equaled 90% and 88% of state and national averages, respectively. Enrollment growth averaged a strong 5% annually since academic year 1999-2000 and stands at 63,976 students, an increase of almost 1,900 students over the prior year. Projected student enrollment growth rates through academic year 2010-2011 are more modest at 2% annually.
Financial management is sound, leading to stable operations and solid reserve levels. The district ended fiscal 2006 with a healthy undesignated, unreserved general balance of $22.7 million, equal to 5.7% of general fund spending and transfers out. The district targets an unreserved general fund balance of at least 5% of expenditures. Despite underestimating enrollment growth by approximately 600 students in the current 2006-2007 school year resulting in approximately $3 million less in state funding than originally budgeted for, the district expects to end fiscal 2007 with at least balanced operations. State revenue sources generated roughly 67% of district general fund revenues in fiscal 2006, making the district somewhat vulnerable to fluctuations in state funding, typical for most Florida school districts. Growth in taxable assessed valuation (TAV) has been strong, averaging 18% annually over the last five years.
The district's overall debt levels, including the current offering, are moderate at $1,120 per capita and 2.0% of TAV. While the district's five-year, capital improvement plan (CIP) appears manageable, totaling $684 million, funding sources for only 60% of the plan have been identified. The CIP will address renovations and general maintenance, as well as construct 18 additional schools and additions to six more. The current offering together with a recent sales tax revenue bond issue, impact fees and state support account for the CIP funding sources identified to date.