Fitch Rts Palm Beach County School Board, Florida's $195.3MM COPs 'A+'

Business Wire, Oct 30, 2002

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 30, 2002

Fitch Ratings assigns its 'A+' underlying rating to the School Board of Palm Beach County, Florida's (the district) $195,270,000 certificates of participation, series 2002D. The certificates, which are expected to be insured, are scheduled to sell within the next few months through a syndicate led by Salomon Smith Barney. Fitch affirms its 'A+' rating on the district's approximately $878 million in outstanding certificates of participation and its 'AA-' rating on the district's $170 million in outstanding general obligation bonds.

The underlying 'A+' rating reflects strong lease provisions, the essentiality of leased assets, and the School Board of Palm Beach County's underlying credit quality. District credit characteristics include sound financial management and a low, although increasing, burden of debt on Palm Beach County's vast and growing tax base. The board stepped up its fiscal discipline several years ago with the establishment of a contingency fund, and the board has now reached its target of 3% of expenditures. A challenge facing the district going forward is to control expenditures in light of the district's tight budgetary balance and susceptibility to state funding declines.

The certificates are secured by lease payments made by the district to the trustee, as assignee of the Palm Beach School Board Leasing Corp., which is a non-profit corporation created to assist the district in lease purchase financing. The 2002D 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. After this issuance, about 30% of the district's schools will be included in the master lease program.

Financial management is sound, although updated unaudited fiscal 2002 results show general fund expenditures exceeding revenues by $6.9 million, net of the $6.1 million upfront payment on a swap agreement conducted in fiscal 2002. A $26.8 million increase to general fund balance in fiscal 2002 was due to a one-time $33.7 million residual equity transfer from the combining of former internal service funds and an enterprise fund into the general fund. Because much of this one-time revenue was budgeted to be spent in fiscal 2002 and fiscal 2003, the district will need to address the potential shortfall in fiscal 2004. The unreserved fund balance and the reserve for board contingency, totaling $64.5 million at the end of fiscal 2002, represented about 7% of spending. The district plans to keep the board contingency, which is currently at 3.2% of spending, above the 3% level.

Future challenges to keep up with enrollment growth continue to demand the district's attention. Medium-range planning for land and capital facility needs appears superb. The district's proposed fiscal 2003-2007 capital improvement plan totals $1.5 billion and includes funding for the construction of new schools, as well as improvements to existing facilities. Options for fully funding identified capital improvements beginning in fiscal 2004 include levying a sales tax for school purposes or seeking voter approval for new general obligation bond issuance. 2002D certificate proceeds will fund the construction of three new middle schools, the modernization of one middle school and four elementary schools, site acquisition for future schools, and the replacement of portables. With the issuance of the 2002D certificates, the district plans on entering into a swap on $100 million of the certificates which involves the district receiving a percentage of LIBOR and paying BMA less a fixed spread. The 2002D certificates will remain fixed rate.

Palm Beach County's (the county) large, diverse economy is a major factor in both the school district and the county's bond ratings. Fitch rates the separate county government's general obligation bonds 'AAA'. With its warm climate and coastal location, the county traditionally has been a top tourist and retiree destination. The economic base is diversified, balancing tourism and technology manufacturing in the coastal areas with agriculture in the western portion of the county. Palm Beach County is the wealthiest county on a per capita basis in the State of Florida.