Fitch Rates Broward County School Board, Florida $216MM COPs 'A+'

Business Wire, Dec 12, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 12, 2002

Fitch Ratings assigns its 'A+' rating to the School Board of Broward County, Florida's (the district's) approximately $215,930,000 certificates of participation, series 2003A. The certificates are scheduled to sell on or about February 4 through negotiation led by Bear, Stearns & Co. Fitch also affirms its 'A+' rating on the district's approximately $645 million in outstanding certificates of participation under the master lease, and its 'AA-' rating on the district's $153 million in outstanding general obligation bonds.

The 'A+' rating assigned to the district's certificates of participation is based on strong project essentiality enhanced by the master lease structure, as well as the district's low debt burden on the county's rapidly growing tax base, diverse economy, and adequate fund balance levels. Financial operations have been pressured in recent years due to state revenue fluctuations and sizable growth-related expenditure increases. However, after several years of operating deficits, unaudited fiscal 2002 year-end results show the district increasing fund balance at year-end. Capital needs remain significant, although the expanding county tax base and sizable resources available for capital should keep debt levels moderate.

The certificates are secured by lease payments made by the district to the trustee, as assignee of the Broward School Board Leasing Corp., which is a not-for-profit corporation created to assist the district in lease financing. The obligation of the district to make lease payments is a limited obligation, payable solely from funds appropriated by the school board from available revenues. The 2003 certificates 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 almost all leased facilities to the trustee. After this issuance, approximately 20% of the district's schools will be included in the master lease program.

The district's financial operations appear to have stabilized after several years of operating deficits. The absorption of growing maintenance costs in the general fund, along with state funding shortfalls related to increasing immigrant enrollments, were the main cause of these general fund balance reductions. Faced with a $41 million funding shortfall from the state (about 2.8% of revenues) in fiscal 2002, the district reduced non-educational program costs and increased the transfer from the capital project fund to the general fund by $25 million, to end the year with a $3.1 million operating surplus. The district plans on increasing the transfer from the capital project fund in years with tight budgetary balance, such as in fiscal 2002, to provide increased financial flexibility. This transfer has been reduced by $5 million in the fiscal 2003 budget. Fiscal 2002 unaudited results show unreserved fund balance equal to $71.6 million, or 4.9% of expenditures and transfers out. The district targets maintenance of approximately 3%-4% in unreserved fund balance. The district did not issue tax anticipation notes in fiscal 2002 as it had in the prior two years.

The district is the nation's fifth largest school system, with 2002 enrollment of slightly more than 260,000 students. According to district officials, the sizable growth in school enrollment appears to have peaked, as the county gets closer to build-out and migration from Miami-Dade County slows. The district's $1.1 billion capital improvement plan, net of debt service, is mostly funded with certificate proceeds and the 2-mill capital outlay levy. The district's debt levels are low to moderate, due in part to continued growth in taxable property values. Tax base growth has been strong, increasing at the annual average rate of 8.7% over the last five years, with stronger 12% growth in fiscal 2003. Series 2003A proceeds will be used to fund the construction of one new high school and various additions and replacements to existing schools.

The district, which is coterminous with Broward County, is located on the southeast coast of Florida and contains the City of Fort Lauderdale. Wealth levels are above average, and the unemployment rate, at 5.8% in October 2002, is above state and national levels of 5.3% and 5.7%, respectively.