Fitch Rates Polk County Schools, Florida $72MM COPS 'A'

Business Wire, July 1, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--July 1, 2003

Fitch Ratings assigns an underlying 'A' rating to the School Board of Polk County, Florida's (the district) approximately $53,265,000 variable-rate certificates of participation (School Board of Polk County, Florida Master Lease Program), series 2003A and approximately $19,035,000 refunding certificates of participation (School Board of Polk County, Florida, Master Lease Program), series 2003B. The series 2003A certificates, expected to be insured, are scheduled to sell in mid-July through negotiation with Citigroup. Prior to closing, the series 2003A certificates will receive a short-term rating based on the liquidity support provided by Dexia Credit Local in the form of a standby purchase agreement. The series 2003B certificates, expected to be insured, are scheduled to sell the week of July 7 through negotiation with Citigroup. In addition, Fitch affirms the 'A' rating on the district's $205 million in outstanding certificates of participation. The Rating Outlook is Stable.

The 'A' rating reflects sound lease provisions, the essentiality of leased assets, and the district's underlying credit quality. District credit characteristics include sound financial management resulting in consistent maintenance of satisfactory general fund balance levels, a diversifying economy, and slow debt repayment. While funding capital demands remains a challenge for the district, the recent passage of an additional half cent sales tax and the imposition of impact fees for school capital projects are steps towards obtaining funding for the district's capital plan. The certificates are secured by lease payments made by the district to the trustee, as assignee of the Financing Corporation for the School Board of Polk County, Florida, which is a not-for-profit corporation created to assist the district in the leasing, financing, and constructing of school projects. The 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. Over 10% of the district's schools are included in the master lease program.

Polk County School Board has managed to maintain sound 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 unreserved fund balance equaled $13.7 million, or 3.2% of expenditures and transfers out. The district is projecting a sizable $5-$6 million increase to general fund balance in fiscal 2003. The fiscal 2004 state budget recently approved by the legislature provides a smaller increase for school funding than the fiscal 2003 budget, and earmarks certain funds for class size reduction. The district's proposed budget for fiscal 2004 is balanced and includes $6 million to hire additional teachers to comply with the class size amendment.

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 recent passage of an additional half-cent sales tax and the imposition of impact fees for school capital projects beginning in fiscal 2004 will provide an estimated $340 million over the 10-year period. Together with the $97 million in funding sources previously identified, these additional sources will provide funding for most of the projects in the 10-year capital plan.

Overall debt levels are moderate and amortization is well below average, with only 32% of principal retired within 10 years. Series 2003A certificate proceeds will fund the construction of one new high school, one new elementary school, and expansions to three additional schools. With the issuance of the series 2003A certificates, the district plans on entering into a swap to synthetically fix the interest rate on the certificates. The district will receive an upfront payment estimated to be $3 million in exchange for the counterparty's option to cancel after a five-year period. The district does not plan to use this payment for operations. Series 2003B certificate proceeds will refund the district's series 1994 certificates maturing on and after Jan. 1, 2005.

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. Per capita income is below average, equal to approximately 83% of state and 79% of national averages.