Fitch Rts $60MM Sch Brd of Volusia County, FL Sales Tax Bds 'A+'

Business Wire, April 13, 2004

Business Editors

AUSTIN, Texas--(BUSINESS WIRE)--April 13, 2004

Fitch Ratings has assigned an 'A+' rating to the $60 million sales tax revenue bonds, series 2004, of the School Board of Volusia County, Florida. In addition, Fitch has affirmed the 'A+' rating on the board's (or the district's) $138.8 million in parity sales tax bonds outstanding, as well as an 'A' rating on its $94.7 million in certificates of participation (COPs) outstanding. The bonds are scheduled to sell on or about April 27 via negotiation to a syndicate managed by Citigroup. The Rating Outlook is Stable.

The bonds will mature Oct. 1, 2005-2016 and will be subject to optional redemption prior to maturity. Security for repayment is provided by a prior lien upon and pledge of the levy and collection of a one-half-cent discretionary sales surtax. Proceeds will be used to finance the acquisition, construction, and renovation costs of capital improvements and educational facilities within the district.

The 'A+' rating is based upon the continued growth in sales tax collections, the district's prudent fiscal stewardship and conservative revenue projections, adequate legal provisions, and sufficient debt service coverage and reserves. Although this issue further leverages the revenue stream and diminishes coverage, collections continue to rise within the county, and reserves are available should the situation reverse, offsetting concerns of susceptibility to cyclical variations. Additional retail outlets are being established within the county, complementing the tourism component of the economy, as well as residential construction, all of which add to sales tax receipts.

The county of Volusia is located in the eastern part of the state, approximately 40 miles northeast of Orlando, including Daytona Beach. District boundaries are co-terminus with those of the county. The 47 miles of beaches on the Atlantic Ocean serve as a draw to a reported ten million visitors annually. Just over one-third of taxable sales within the county are attributed to tourism. In addition to tourism and retail trade, other significant sectors of the economy include heath care and education. Unemployment rates have generally been below those of the state and nation, as are income indicators. The cost of living for county residents is about 5% below that of average state levels.

In October 2001, county voters approved a discretionary sales surtax within the district in an amount of one-half percent per dollar. Long distance telephone charges are excluded, as are the portions of personal property sales over $5,000. The approval is effective for a period of fifteen years, which commenced Jan. 1, 2002 and its use is limited to the capital costs of educational facilities, including bond debt service.

Enrollment had been growing modestly in recently years, but projections anticipate a more rapid pace, particularly as the southwest portion of the county develops as a bedroom community to Orlando. The district's capital plan focuses on construction of new schools, renovations at existing schools, and technology and equipment. In addition to sales tax revenue bonds, funding for the plan includes proceeds of a two-mill levy for capital outlay, public education capital outlay state funds, and impact fees. The two-mill levy provides for the repayment of the COPs.

The five-year capital plan totals $438.4 million in expenditures, including $91.5 million for the current fiscal year 2004. Approximately $140 million will be for new construction, while another $157 million will improve existing facilities. A significant portion of the plan will be funded on a pay-as-you-go basis from surplus sales tax revenues and proceeds of the two-mill levy. The next debt issue for the district will be COPs in fiscal 2005.

Debt service coverage on parity sales tax bonds will drop to just under 1.5 times (x) from the 2.5x on the initial bond issue. However, the coverage is still appropriate for the rating level, considering the conservative revenue forecast of 2% annual growth versus the actual growth rate projected to be between 6%-7% for this fiscal year, as well as the unreserved fund balance in the sales tax fund. Since the sale of the series 2002 sales tax revenue bonds, the district has entered into a fixed- to variable-rate interest rate swap in a notional amount of $50 million, which is in effect until the final maturity of the bonds in fiscal 2017.

Legal provisions include a 1.25x additional bonds test, including the additional bonds, and a reserve requirement of maximum annual debt service. The flow of funds, in priority order, is to the interest account, principal account, bond amortization account, reserve account, and unrestricted revenue account. Amounts in the unrestricted revenue account are available for any lawful purpose, which, in effect, is pay-as-you-go capital funding.