Fitch Rates Brevard County School Board, FL's Refunding COPs 'AA-'; Outlook Stable

NEW YORK--()--Fitch Ratings assigns an 'AA-' rating to the following certificates of participation (COPs) issued on behalf of the Brevard County School Board, Florida (the district):

--$62,020,000 refunding COPs, series 2014.

The COPs are scheduled to sell via negotiation the week of Sept. 15. The COPs will be used to refund certain of the district's outstanding COPs for savings and no extension of maturity.

In addition, Fitch affirms its ratings on the following district obligations:

--Approximately $487 million outstanding COPs, at 'AA-';

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

The Rating Outlook is Stable.

SECURITY

COPs are secured by an undivided proportionate interest in lease payments made, subject to appropriation, by the Brevard County School Board under a master lease purchase agreement.

KEY RATING DRIVERS

STRONG FINANCIAL MANAGEMENT: The district's conservative budgeting practices and policies have contributed to historically sound operations and adequate reserves. These results have occurred even as revenues have declined due to prior year's decreases in property values and volatile levels of state funding. The 'AA' implied ULTGO rating reflects the district's satisfactory financial performance and expected maintenance of adequate reserves.

IMPROVED TAX BASE VALUES: The district's tax base has seen a rebound in taxable values due to new development and growth in property values after a period of significant declines. Fitch expects moderate tax base growth to continue as a result of economic development underway in the county.

LEVERAGED CAPITAL OUTLAY MILLAGE: The district's capital outlay millage, used for debt service payments and capital funding, is still highly leveraged although leverage has lessened after two years of improved tax base growth. No additional debt is planned for the near term.

MODERATE DEBT LEVELS: Overall debt ratios are moderate and Fitch does not expect these to change materially. Total carrying costs for debt, pensions and other post-employment benefits (OPEB) are low as a percentage of total governmental funds spending.

AVERAGE ECONOMIC INDICATORS: Unemployment rates, although decreasing, remain high, and wealth levels are in line with state averages. The economy appears to be making a recovery from major job losses in 2011 and is anchored by tourism and an aerospace industry which has grown more diverse following the completion of the space shuttle program.

COPS SUBJECT TO APPROPRIATION: The 'AA-' 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.

RATING SENSITIVITIES

RESERVE LEVEL DECLINES: The maintenance of ample reserves has traditionally provided the district with a good degree of financial flexibility. A notable decline in reserves could result in rating pressure.

CREDIT PROFILE

Brevard County (implied ULTGO rated 'AA' by Fitch), home to Cape Canaveral, is located along Florida's eastern seaboard. The boundaries of the school district are coterminous with the county's.

DIVERSE ECONOMY WITH IMPROVING EMPLOYMENT

The area economy was historically anchored by the federal government's space program, with ancillary defense and aerospace contractors including Harris Corporation, Northrop Grumman and Boeing playing a significant role in the economy. The county experienced significant job losses during calendar 2011 as a result of the retirement of the space shuttle program. Despite the setback, the area economy has been able to absorb the job losses and is currently experiencing a notable recovery. Businesses have opened or expanded and taken advantage of the skilled workforce that still exists in the county and new housing and retail developments have rebounded after a lull during the recession.

Year-over-year employment is up 1.4%, and the unemployment rate, at 7.1% as of July, is down from 8.3% last year but still above that of the state (6.6%) and nation (6.5%). Major employers include Health First (9,700), the district (9,400), and Harris Corporation (6,000).

Tourism also represents a sizeable portion of the area economy, driven by the area's numerous beaches, the Kennedy Space Center, and Port Canaveral. The port serves as base operations for Disney Cruise Lines and supports other major cruise companies. Port activity has been robust with expansions underway which Fitch believes could spur new development.

Student enrollment declines peaked in fiscal 2009 with a loss of 1,235 students (down 1.7%), but have begun to trend upward with growth of 0.7% year over year to 73,127 recorded through the beginning of fiscal 2015. The district projects slight growth to continue in future years based upon demographic trends and development in progress.

Population growth was strong during the early part of the last decade but has slowed since 2006, standing at 547,307 in 2013. Per-capita income and median household income levels are slightly above state averages but equal 98% and 93% of national levels, respectively.

The county experienced a significant decline in property values with taxable assessed values (TAV) declining 32% from 2008-2013. This resulted in a corresponding reduction in revenue from the district's discretionary operating and capital outlay millage. The drop in values has appeared to have bottomed out as TAV has improved notably by 4.6% in fiscal 2014 and 8.8% in fiscal 2015. The latter increase was due primarily to the newly reconstructed Florida Power and Light power plant coming on line. Management expects TAV to improve 4%-5% annually over the next few years, which Fitch believes is reasonable as economic development has rebounded in the county. Recent home pricing indicators support this notion as the home value index improved 10.5% year over year through July according to Zillow, Inc.

PRUDENT MANAGEMENT PRACTICES

Financial management is strong as evidenced by historically prudent management of reserves despite volatility in state funding. Additionally, the district successfully eliminated a $30.7 million budget gap for fiscal 2014.

The imbalance was due in part to a failed sales tax referendum submitted in November 2012 in which the district sought approval for a half-cent sales tax to help subsidize capital needs. Projected revenues were estimated at $32 million and were expected to provide partial budget relief for the district, as the operating fund was funding a portion of capital needs. Additionally, the district's 0.25 mill critical-needs millage, which provided roughly $8.9 million in revenues, expired at the end of fiscal 2013.

Management quickly reacted to the failed sales tax proposal and closed three elementary schools and one middle school. It has also implemented a number of program cuts, staffing changes and other cost saving measures which resulted in elimination of the budget deficit.

POSITIVE RESULTS PROJECTED FOR FISCAL 2014

Fiscal 2014 unaudited results reflect surplus operations with a $6.2 million increase in fund balance. Conservative estimates on expenditure savings helped the district achieve these surplus results, as transportation, utility and departmental savings exceeded expectations. Unrestricted fund balance improved to $47.3 million or a solid 10% of spending.

The district's policy is to maintain a contingency reserve of at least 3.5% of revenues. Reserve levels have historically exceeded this threshold by a good margin, which has long been noted by Fitch as a credit strength.

FISCAL 2015 BUDGET REMAINS CONSERVATIVE

The district's fiscal 2015 budget is up slightly from fiscal 2014 and includes a moderate increase in state funding and an increase in pension and salary costs. The budget includes a small use of fund balance to help support salary increases as well as increased funding of its self-insurance fund. Fitch expects reserve levels to remain adequate due to management's history of conservative budget practices.

COP SECURITY IS STRONG BUT CAPITAL OUTLAY MILLAGE IS LEVERAGED

Legal provisions under the master lease are strong, requiring an all-or-none appropriation. The district would relinquish rights to approximately 75% of its facilities in the event of non-appropriation.

The district may use any legally available revenue for COP debt service, but 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. The district requires approximately 1.23 mills to fund COPs debt service (assuming a 96% tax collection rate), which is above average, but down from 1.47 mills two years ago as tax base values have increased.

SALES TAX REFERENDUM PLANNED FOR NOVEMBER 2015

Management has approved a half-cent sales tax referendum for this coming November. Estimated annual proceeds from the sales tax is $33 million, which would be dedicated to capital improvements. The term of the sales tax would be for six years. Fitch has reviewed the district's contingency plan in the event the referendum should fail to pass and the plan includes the closure of additional schools and cuts in programs. Fitch believes the plan to be reasonable and will monitor the results of the referendum in November.

DEBT LEVELS ARE LOW AND RETIREE COSTS MANAGEABLE

The district's overall debt levels are low at 2.2% of the district's $31.2 billion TAV and $1,239 per capita. Amortization is below average, with roughly 35% of debt being retired in 10 years.

Employees of the district participate in the state-administered Florida Retirement System (FRS). FRS is relatively well funded with an estimated funding ratio of 79% as of June 30, 2013 using Fitch's 7% discount rate.

The district provides an implicit subsidy for its retirees for health and prescription benefits.

Pension and OPEB obligations remain well-managed. Carrying costs for debt, pension and OPEB pay-go are manageable at 11% of total governmental expenditures.

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, and Zillow, Inc.

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=869514

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Contacts

Fitch Ratings
Primary Analyst
Kevin Dolan
Director
+1-212-908-0538
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Patricia McGuigan
Director
+1-212-908-0675
or
Committee Chairperson
Arlene Bohner
Senior Director
+1-212-908-0554
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Kevin Dolan
Director
+1-212-908-0538
Fitch Ratings, Inc.
33 Whitehall St.
New York, NY 10004
or
Secondary Analyst
Patricia McGuigan
Director
+1-212-908-0675
or
Committee Chairperson
Arlene Bohner
Senior Director
+1-212-908-0554
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526
elizabeth.fogerty@fitchratings.com