Fitch Rates School Board of Lee County, Florida $206MM COPs 'A+'

Business Wire, Dec 18, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--Dec. 18, 2003

Fitch assigns an underlying 'A+' rating to the School Board of Lee County, Florida's (the district) approximately $155 million certificates of participation, series 2004A and $50 million certificates of participation, series 2004B. The bonds are expected to be insured by Financial Security Assurance, Inc., whose insurer financial strength is rated 'AAA' by Fitch Ratings. The series 2004A certificates and the series 2004B auction-rate certificates are scheduled to price on or about January 13 through syndicates led by Morgan Stanley. Fitch also affirms its 'A+' rating on the district's approximately $234 million in outstanding certificates under the master lease structure. The Rating Outlook is Stable.

The 'A+' rating is based on the district's strong financial management resulting in robust general fund balance levels, Lee County's (the county) diversifying economy, and project essentiality enhanced by the master lease structure. Sizable capital needs are likely to cause debt levels to increase substantially over the next several years. This risk is partly mitigated by strong tax base growth in the district. Overall debt amortization has slowed and is now below average, with only 30% of principal retired within 10 years.

The series 2004 certificates are secured by lease payments made by the district to the trustee, as assignee of the Lee County School Board Corporation (the corporation), a Florida not-for-profit corporation. Prior certificates issued pursuant to the master-lease agreement were secured by lease payments made by the district to the trustee, as assignee of the Florida School Boards Association (the association). With the issuance of the series 2004 certificates, the district is creating the corporation. The association will assign to the corporation all of its right, title and interest under the master lease structure. The obligation of the district to make lease payments is a limited obligation, payable solely from funds appropriated by the school board. The master lease program structure provides strong appropriation incentives for the district, since non-appropriation would force the school board to surrender all leased assets to the trustee, except for certain designated equipment. Currently, all or part of 34 schools of the district's total of 74 schools are financed under the master lease.

Strong financial management has resulted in operating surpluses in each of the past four years. The unreserved general fund balance has increased from $7.9 million in fiscal 1999 (2.6% of spending) to $37.1 million in fiscal 2002 (11.2% of spending), a sizable fund balance for a Florida school district. Unaudited fiscal 2003 results show the district ending the year with a $12.3 million operating surplus, in part due to higher than expected property tax revenue and lower than expected salary and health insurance costs. The district expects to draw down about $3 million of general fund balance for non-recurring expenditures in fiscal 2004.

School district enrollment has increased at the annual average rate of 4.2% over the last three years to reach 62,568 students in school year 2002-2003, and growth is expected to continue at this rate going forward. The district's fiscal years 2004-2008 capital improvement plan totals $988 million, and includes the construction of 28 new schools, including the five schools funded with this issuance. While funding sources for $366 million of the plan have not yet been determined, the district is currently only using 0.76 mills of the capital outlay levy for debt service on the district's certificates, providing financial flexibility to fund capital improvements. The district is currently evaluating its funding options for the remainder of the plan.

The county's economy is diversifying from its traditional tourism and retirement-related industries, and tax base growth continues to be strong. The county is home to both Southwest Florida International Airport (revenue bonds rated 'A' by Fitch) and Florida Gulf Coast University. Downtown Fort Myers is the business and finance center for southwest Florida. The county unemployment rate consistently outperforms that of the state and nation. As of September 2003, the county's unemployment rate equaled 4.3%, compared with state and national levels of 5.5% and 6.1%, respectively.