NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned an 'AA-' rating to the following Broward County FL School District's (the district) general obligation (GO) bonds:
--$163,855,000 GO bonds, series 2015.
Proceeds will be used to finance technology and school security related projects and school facilities improvements. The bonds are scheduled to sell competitively during the week of June 1.
In addition, Fitch affirms its 'A+' rating on approximately $1.5 billion outstanding Broward County FL School Board Leasing Corporation (the corporation) certificates of participation (COPs).
In addition, Fitch is withdrawing the corporation's implied general obligation rating due to the issuance of the series 2015 GO bonds.
The Rating Outlook is Stable.
SECURITY
The GO bonds are backed by the district's full faith and credit and unlimited taxing authority.
The COPs are secured by lease payments subject to annual appropriation by the Broward County School Board (the school board} under a master lease-purchase agreement with the corporation. Upon certain events of default or the school board's failure to appropriate funds, all leases under the master lease will terminate, and the school board is required to immediately surrender possession of all facilities subject to the master lease.
KEY RATING DRIVERS
PRUDENT FISCAL MANAGEMENT: Management's prudent budgeting practices have resulted in maintenance of reserves within state and district policy levels. Reserves remain adequate and are expected to rise gradually in the near term improving overall flexibility.
MODERATE DEBT LEVELS PROJECTED: Debt ratios are currently low but may become more moderate depending on the size of additional near-term issuances of the voter-approved GO debt. Additional GO debt is planned to be issued over the next six years and will support technology and school facility improvements.
ECONOMY CONTINUES IMPROVEMENT: Employment levels have risen at a steady pace over the last four years and unemployment remains lower than the state and nation. The economy exhibits good diversity, and benefits from extensive transportation and trade infrastructure and a reputation as a leading tourist destination. Income metrics are slightly above average.
TAX BASE EXPERIENCING GROWTH: The county-wide tax base experienced significant pressure during the recession and after stabilizing in fiscal 2013 has experienced upward growth the past two fiscal years. Growth is projected to continue in the near term.
COPS APPROPRIATION RISK: The rating incorporates the risk of annual appropriation by the school board. The all-or-none appropriation feature of the master lease and the essential nature of leased assets, which are subject to surrender in the event of non-appropriation, temper this risk.
RATING SENSITIVITIES
MAINTENANCE OF RESERVES: The district's continued ability to maintain adequate reserves while addressing operating and capital needs supports rating stability. A decline in reserves to levels below policy targets would pressure the rating.
CREDIT PROFILE
The district serves Broward County (GO bonds rated 'AAA' by Fitch), situated on Florida's Atlantic coast between Miami-Dade and Palm Beach counties. The county is home to 31 incorporated municipalities including Fort Lauderdale, Coral Springs, and Hollywood, and ranks as Florida's second largest county, with a 2014 population of over 1.8 million.
VOTERS APPROVED $800 MILLION IN GO DEBT FOR SCHOOL IMPROVEMENTS
The series 2015 bonds are the first of a series of GOs expected to be issued by the district pursuant to a November 2014 referendum approving the issuance of up to $800 million in GO bonds. The debt will be used to finance technology and school security related projects and school facilities improvements. The bonds were validated by Broward County Circuit Court on March 23, 2015; no appeals were filed. The district plans to issue the bonds in several tranches over the next six years. A separate debt service tax will be levied to service the debt and such tax is excluded from the calculation of the district's total tax levy and statutory 10-mill cap limitation.
POSITIVE 2014 RESULTS; GRADUAL RESERVE BUILD-UP
The district was forced to reduce expenditures in recent fiscal periods as state budget pressures resulted in cuts in state aid. These efforts have helped it maintain its reserves within state and policy levels.
The district currently maintains a fund balance policy that requires assigned and unassigned fund balances to be maintained at a minimum of 3% of revenues, excluding charter school revenues which flow through the district's general fund.
The district's fiscal 2014 general fund budget of $1.97 billion was up by 5.3% from the year prior. Fiscal 2014 operating results were positive and assigned and unassigned fund balance grew by approximately $11 million, which includes $4.3 million allocated for other post-employment benefit (OPEB) costs. The committed general fund balance grew by $54 million due to the planned transfer of self-insurance funds to the general fund from the internal service fund. Unrestricted fund balance grew to 6.8% of spending from a low 3.8% in fiscal 2013. Excluding the committed self-insurance funds, unrestricted fund balance grew to 4.1% of spending. Using the district's fund balance calculation, assigned and unassigned fund balance represent 4.8% of revenues.
The district has stated its intention to increase uncommitted fund balance to at least 6% and expects to do so over the next few years. Fitch believes that gradual growth in fund balance is achievable based on projections of student enrollment growth, the potential for increased state aid and management's monitoring of expenditure growth. The maintenance of adequate fund balance levels is a key rating factor.
FISCAL 2015 BUDGET INCLUDES SMALL SURPLUS
The fiscal 2015 general fund budget was up modestly compared to the fiscal 2014 budget. No use of general fund balance was appropriated again in fiscal 2015 and a small increase was instead projected into the budget. In addition to implementation of performance pay and salary increases, management prudently included approximately $7 million in combined contingencies for hurricane emergencies, any potential mid-year holdback of funding by the state (due to unbudgeted growth in state enrollment figures), and potential class size penalties.
Management reports that operations are tracking to budget and a small operating surplus of roughly $2 million (0.1% of spending) and a corresponding increase in fund balance is being projected for fiscal-end 2015. Management's history of prudent fiscal controls suggests that the district's projections appear reasonable and its sound financial profile will be maintained.
NO MATERIAL CHANGES FOR FISCAL 2016 BUDGET EXPECTED
The district's fiscal 2016 budget is in preliminary stages and no material adjustments are anticipated by management. Enrollment is projected to increase and the district anticipates additional state student funding. As per Florida law, the adoption of a tentative budget for fiscal 2016 is expected in July.
CONTINUED GROWTH IN TAXABLE VALUES
After a 24% decline in taxable assessed property values from fiscal 2008-2012, the tax base has since improved. Values were up marginally for fiscal 2013 but increased 4.1% for fiscal 2014 and 8.1% for fiscal 2015. Management reports that values are projected to increase another approximately 7.5% for fiscal 2016.
According to the Zillow Home Value Index, the growth in home values in Broward County was up 10.7% year over year through March.
DIVERSIFIED COUNTY SUPPORTS SOLID WEALTH LEVELS
The county has a diversified economy with a balance among technology, manufacturing, financial, tourism, construction and retail trade. The top employers include the district and the county as well as Memorial Healthcare System, Broward health and Nova Southeastern University. County wealth levels are slightly above state and national averages. The county's unemployment rate of 5.3% for February 2015 compares favorably to Florida's unemployment rate of 5.6% and the nation at 5.8% for the same period. The county's job growth rate since 2011 has ranged between 2.6% and 4.0% through 2014 and the labor force has grown over the same period by 1.8% to 3.2%.
LOW DEBT RATIOS; AVERAGE AMORTIZATION
Overall debt ratios remain low at 1.3% of market value and $1,471 per capita. If the district were to issue the remaining $636 million of authorized GO bonds within five years and maintain its amortization rate, Fitch estimates direct debt outstanding would grow from the current $1.86 billion to $2.08 billion. Debt ratios are not expected to change materially. Par amortization is average at 53% in 10 years. No additional COPs are planned for issuance at this time.
The district has $179 million in outstanding variable-rate COPs directly placed with three banks. The directly placed COPs are on parity with the district's other outstanding COPs issued under the corporation's master lease purchase agreement. Fitch believes that school districts are more vulnerable to the risks of variable-rate debt than other issuers given their lack of revenue autonomy.
The district is not exposed to risks associated with liquidity agreements, as the series 2014A COPs (which refunded the series 2004D COPs) and series 2006B COPs are index-linked direct placements. Interest rate risk is synthetically fixed via swap contracts with limited termination risk and no collateral posting requirement for the district. The mark-to-market was a negative $45 million as of May 11, 2015.
RETIREMENT COSTS ARE MANAGEABLE
All district employees participate in the state-operated retirement system which Fitch considers adequately funded. Pension and OPEB costs are affordable. Total carrying costs for pension, OPEB pay-go and debt service equaled a low 11% of total fiscal 2014 governmental spending.
LIMITED COP APPROPRIATION RISK
Fitch believes the district has a strong incentive to appropriate for lease payments. An event of non-appropriation would terminate all current leases under the master lease. Approximately 42% of the district's total assets are pledged under the master lease.
While any legally available revenue can be used for COPs debt service, the district has historically made payments from the 1.5-mill capital outlay tax. The district requires a slightly above-average 1.03 mills to fund fiscal 2015 COP debt service and 1.07 mills to fund maximum annual debt service, assuming a 96% tax collection 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, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (August 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (August 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=984976
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