Fitch Ratings assigns an 'A+' rating to the following certificates of
participation (COPs) issued on behalf of the Pasco County School Board,
--$27,275,000 COPs series 2016A.
The COPs are scheduled to sell via negotiation on Jan. 13. Proceeds from
the sale of the COPs will finance the acquisition and construction of a
new high school facility.
Fitch also affirms the following ratings:
--$140.9 million in outstanding COPs, series 2005B, 2007A, 2009, 2013A,
and 2015A at 'A+';
--$96.72 million sales tax bonds, series 2013 (issued by the Pasco
County School District) at 'A+';
--Implied unlimited tax general obligation at 'AA-'.
The Rating Outlook is Stable.
The COPs are payable from lease payments made by the district, subject
to annual appropriation, pursuant to a master lease purchase agreement.
The district is required to appropriate funds for all outstanding leases
under the master lease on an all or none basis. An event of
non-appropriation would result in the termination of the master lease
and the surrender to the trustee of all lease-purchased projects under
the master lease.
The sales tax bonds are payable by the district's share of a voter
authorized 1% sales surtax levied within Pasco County (the Penny for
Pasco) and distributed pursuant to an interlocal agreement.
KEY RATING DRIVERS
COPs RATING NOTCHING: The rating on the COPs is based on the district's
general creditworthiness. The single-notch distinction from the implied
ULTGO rating reflects the appropriation risk given the strong incentives
to appropriate under the master lease structure.
SOUND FINANCIAL MANAGEMENT: The 'AA-' implied ULTGO rating principally
reflects the strength of the district's financial management team, a
conservative budgeting approach, and maintenance of an adequate reserve
MANAGEABLE LIABILITY POSITION: Debt ratios are expected to remain low
despite new issuances for school facility construction, remodeling, and
improvements. Pension benefits are offered through the Florida
Retirement System (FRS) which is adequately funded. The district's debt
service, pension and other post-employment benefits (OPEB) expenses are
a manageable percentage of total spending.
TAMPA PROXIMITY FUELS GROWTH: The southern portion of Pasco County
benefits from its proximity about 20 miles from downtown Tampa fueling
population and tax base growth. Construction, retail, tourism, and
retirement-based activity are the primary drivers of the local economy,
supporting a median household income moderately below regional norms and
susceptibility to high unemployment and tax base volatility in periods
of economic decline.
SATISFACTORY SALES TAX COVERAGE: Coverage of maximum annual debt service
(MADS) is expected to decline to 1.59x from 2.08x with the issuance of a
$30 million bank loan this month secured on parity with the series 2013A
sales tax bonds. Despite the additional leverage, Fitch expects the
sales tax to continue to provide satisfactory coverage in various stress
scenarios, given the lack of parity borrowing plans, a relatively stable
sales tax collection history, and ongoing improvement in the local
FINANCIAL STABILITY: Weakening of the district's financial profile could
pressure the rating absent evidence of a reasonable plan of corrective
SALES TAX COVERAGE: Recent additional leverage has increased the sales
tax revenue bond rating's sensitivity to changes in debt service
coverage related to changes in economic conditions and sales tax
collections and/or the issuance of additional parity indebtedness.
Pasco County (coterminous with the district) is a 745 square mile area
located on the west coast of the state approximately 20-30 miles
northwest of Tampa. The county has a 2014 population of 485,331
representing an increase of 14% since 2006. New Port Richey and
Zephyrhills are the largest cities in the county by population. The
district operates 75 traditional schools and three alternative/technical
schools with a combined student enrollment of 66,406 (an additional
3,585 students attend one of eight charter schools located in the
district) and is the largest employer in the county with 9,362 employees.
STRONG FINANCIAL MANAGEMENT
District finances remain well managed and stable. The district concluded
fiscal 2014 with an operating surplus (after transfers) in the general
fund totaling $7.1 million or 1.5% of spending. The unrestricted general
fund balance registered $44.4 million or a favorable 9.5% of spending.
Fiscal 2015 results are unaudited but point to another operating surplus
equal to $1.2 million or 0.3% of spending. Management expects to
generate a similar modest surplus in fiscal 2016 based on year-to-date
results. The district targets an unrestricted fund balance equal to 5%
of recurring revenue for emergencies (above the 3% statutory
requirement), which it has met dating back to at least fiscal 2002.
Revenue performance is largely predicated on the level of per pupil
funding established by the state legislature and allocations through the
Florida Educational Finance Program (FEFP) as independent revenue
raising capacity at the district level is essentially nonexistent. FEFP
funding has improved over the last several years with the state economy
and revenue outlook. District spending has increased in turn, with the
general fund budget up 4.9% on the year in fiscal 2015 and 5.0% in
fiscal 2016 driven by increased instructional spending and negotiated
wage increases after many years without raises. Salaries and benefits
represent nearly 80% of the general fund budget; wages are subject to
annual reopeners offering management the ability to assess affordability
based on expectations of FEFP funding. During prior periods of flat or
declining state aid management has proved it can effectively control
costs to preserve its financial position, which is an important factor
in Fitch's consideration of risk associated with a high dependence on
MANAGABLE DEBT LOAD
Fitch estimated debt levels remain low at 2.0% of market value or $1,212
per capita following the current offering and sales tax bank loan. The
2015-2020 five-year capital plan is manageable totaling $237 million or
0.8% of market value. New debt is not being contemplated outside of a
possible $25 million borrowing to purchase compressed natural gas buses.
The lease payments/debt service on the district's COPs is level at
approximately $27-28 million (4% of current governmental spending)
before declining significantly in fiscal 2034. COPs lease payments are
payable from any legally available source, but in practice they are paid
from revenue generated by the 1.5 mill capital outlay levy which is
estimated at $34 million in fiscal 2016 based on a 96% collection rate.
While the lease payments are subject to appropriation, the 'all or none'
payment requirement under the master lease would allow the bond trustee
to cause the district to surrender possession of 31% of the district's
schools that are covered under the master lease should the district fail
The district's variable-rate debt outstanding totals $103.2 million
($30.5 million series 2005B auction rate COPs and $72.7 million series
2008C privately held COPs) or 20% of projected direct debt. The variable
rate debt exposure is balanced somewhat by the low level of debt service
to budget and good liquidity with $391.2 million in cash and investments
government wide in fiscal 2014. The district's variable rate series
2008C certificates are hedged with a derivative contract with Bank of
America, N.A. The swap has a current negative net mark-to-market value
of $19.5 million; however, the district faces limited risk of collateral
posting and termination.
GOOD SALES TAX COVERAGE
Projected fiscal 2016 sales tax collections of $25.8 million equals
1.59x projected MADS on the series 2013A sales tax bonds and the series
2016 bank loan. Debt service will be level through final scheduled
maturity of both obligations, which is prior to the Dec. 31, 2024
expiration of the sales tax. The additional bonds test (ABT) is based on
a fairly permissive 1.25x coverage requirement. Management has indicated
it has no plans to leverage the sales tax after issuance of the bank
note; additional leverage could pressure the 'A+' rating absent
commensurate revenue growth.
Coverage from current pledged revenues holds up well to various Fitch
revenue scenarios. Sales tax collections declined only 7.0% in aggregate
from fiscal 2008-2012; a similar decline against budgeted fiscal 2016
revenue would lower coverage to a still adequate 1.4x MADS. Furthermore,
revenue would need to decline by close to 34% before MADS coverage falls
below 1.0x. Actual sales tax collections have performed well over the
last several years. Fitch anticipates continued moderate sales tax
revenue growth over the near term based on ongoing improvement in the
local economy and population growth.
RETIREE LIABILITIES NOT A PRESSURE
Pensions are provided through the state run Florida Retirement System
(FRS) and costs are manageable. FRS is well funded at a reported 86.6%
on a reported basis as of July 1, 2014 or an estimated 80.8% when
adjusted by Fitch to assume a 7% rate of return, and as such costs are
not expected to increase materially. The district administers an early
retirement plan that it contributes to on an actuarial basis. The plan
is only 62% funded but its unfunded liability is not a significant
dollar amount, and the plan will be closed to new participants effective
June 30, 2018. OPEB is currently funded on a pay-go basis, and the
unfunded liability of $104 million Jan. 1, 2014 is a very low 0.4% of
market value. Combining the cost of retiree liabilities and debt, the
district's fixed cost burden is estimated at a manageable 10% of
MODERATE GROWTH ON THE HORIZON
The series 2016A COPs and series 2016 sales tax bank loan are primarily
being offered to meet school facility construction and renovation needs,
and to alleviate overcrowding issues along the district's southern
border. New construction activity and enrollment growth have been
concentrated here given its very close proximity to downtown Tampa.
District officials anticipate an uptick in enrollment after mostly flat
growth from fiscal 2008-2015. The Florida Office of Economic &
Demographic Research forecasts enrollment growth of about 1% per year
through 2020, and an almost 10% increase in population over the same
period. For the current year all but a single district school was fully
compliant with class size legislation requirements.
Home prices in New Port Richey and Zephyrhills are up 4.9% and 6.7%,
respectively, for the year according to Zillow Group, but mortgage
delinquency rates and the number of homes with negative equity remain
above average. Taxable values grew 0.9%, 5.0%, and 4.7% in fiscal years
2014-2016, after a peak to trough decline of almost 30% during the
recession. Tax base performance is particularly important with respect
to the generation of capital outlay revenue, which is outside the FEFP
funding formula and the primary source from which the district makes
COPs lease payments.
Median household income is about 10% below the MSA norm but on par with
the state. Tax collection rates remain fair averaging 96.8% over the
last decade, whereas the district assumes a 96% collection rate in
accordance with state requirements. Pasco County is principally rural
and suburban in nature and its economy has proven to be more susceptible
to job loss and high unemployment in prior economic downshifts when
compared to the MSA and the state. Economic activity is driven by the
retail, healthcare, and construction sectors and a high preponderance of
retiree-aged residents. Job and labor force growth have been solid since
2011 and the county's preliminary October unemployment rate registered
5.4%, slightly higher than the Tampa-St. Petersburg-Clearwater MSA
(4.8%) and the state (5.1%).
Additional information is available at 'www.fitchratings.com'.
Fitch recently published an exposure draft of state and local government
tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating
Criteria, dated Sept. 10, 2015). The draft includes a number of proposed
revisions to existing criteria. If applied in the proposed form, Fitch
estimates the revised criteria would result in changes to fewer than 10%
of existing tax-supported ratings. Fitch expects that final criteria
will be approved and published by Jan. 20, 2016. Once approved, the
criteria will be applied immediately to any new issue and surveillance
rating review. Fitch anticipates the criteria to be applied to all
ratings that fall under the criteria within a 12-month period from the
final approval date.
In addition to the sources of information identified in the applicable
criteria specified below, this action was informed by information from
IHS Global Insight and Lumesis.
Exposure Draft: U.S. Tax-Supported Rating
Criteria (pub. 10 Sep 2015)
Rating Criteria (pub. 14 Aug 2012)
Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
Dodd-Frank Rating Information Disclosure Form
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