Fitch Rates Polk County Schools, Florida $30.4MM COPS 'A'

Business Wire, Oct 25, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 25, 2002

Fitch has assigned its 'A' rating to the Financing Corporation for the School Board of Polk County, Florida's approximately $30,445,000 refunding certificates of participation (School Board of Polk County, Florida, Master Lease Program), series 2002A. The certificates are scheduled to sell October 29 through a syndicate led by Salomon Smith Barney. The certificates are expected to be insured by Financial Security Assurance, Inc., whose insurer financial strength is rated 'AAA' by Fitch. The underlying 'A' rating is also affirmed on the corporation's approximately $174 million in outstanding parity certificates. The 2002A certificate proceeds will be used to refund all of the series 1993A certificates maturing on and after January 1, 2004.

The 'A' rating is based on Polk County School District's (the district) general credit characteristics as well as the strong legal features of the master lease-purchase agreements related to this issue as well as all prior certificates. Credit strengths include sound financial management resulting in consistently maintained adequate fund balance levels, and a diversifying economy. The district's primary challenge will be to maintain financial stability while sufficiently funding capital demands related to enrollment growth and infrastructure upkeep.

The current certificates are issued through a not-for-profit corporation, whose sole purpose is to provide for the leasing, financing, and constructing of school projects. The obligation of the district to make lease payments is a limited obligation, payable solely from funds appropriated by the school board from available revenue. The 2002A 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 all leased facilities to the trustee.

Polk County School Board has managed to maintain adequate general fund balances and healthy cash positions despite state funding reductions. Faced with an $11 million funding shortfall from the state (about 2.6% of revenues) in fiscal 2002, the district implemented cost-savings measures, including reducing vacancies and adjusting down the costs of certain programs, to end the year with a $621,000 operating surplus. Fiscal 2002 unaudited results show unreserved fund balance equal to $13.7 million, or 3.2% of expenditures and transfers out. Unreserved fund balance levels have been in the adequate 3%-5% range for the last several years. A $3.6 million fund balance drawdown in fiscal 2001 was in large part due to an above-budgeted salary increase for teachers.

A capital needs assessment conducted by an independent consultant identified $514 million in capital projects over the next 10 years, split evenly between growth-related needs and infrastructure upkeep. The district has only identified $97 million in funding sources over the 10-year period. The district is currently considering a spring 2003 referendum for either a capital outlay sales tax or an operating millage increase to help fund capital projects. Overall debt levels are moderate and amortization is slightly below average, with 45% of principal retired within 10 years. The district plans on issuing about $50 million in additional certificates before the end of the calendar year.

Historically known for its citrus and phosphate mining industries, Polk County's economy continues to grow and diversify. Benefiting from its location between the rapidly growing Tampa and Orlando areas and good transportation links, the county is increasingly attractive as a light manufacturing and distribution center. The county is also home to several power companies and continues to attract new power plant projects. Per capita income is below average, equal to approximately 84% of state and 79% of national averages.