Fitch Rts Pasco County Schools, FL $67MM COPs 'A'

Business Wire, Feb 20, 2004

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 20, 2004

Fitch Ratings assigns an underlying 'A' rating to the School Board of Pasco County, Florida's (the district) approximately $67 million certificates of participation, series 2004A. The bonds, expected to be insured, are scheduled to price on or about March 10 through a syndicate led by UBS Financial Services, Inc. and Citigroup Global Markets, Inc. Fitch also assigns the 'A' underlying Long-term rating to the district's approximately $97.5 million in outstanding certificates under the master lease structure, and affirms its 'A ' rating on approximately $24.3 million in outstanding general obligation debt. The Rating Outlook is Stable.

The 'A' rating is based on Pasco County school district's historical sound financial management resulting in healthy general fund balance levels, robust residential tax base growth, and project essentiality enhanced by the master lease structure. Also taken into consideration are the county's below-average wealth levels and limited economy. Sizable capital needs related to enrollment growth could pressure operations. The district's credit quality is dependent on the maintenance of adequate reserve levels in future years.

The certificates of participation (certificates, or COPs) are secured by lease payments made by the district to the trustee, as assignee of the Pasco County School Board Leasing 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 2004A certificates the district is creating the corporation. The association will assign to the corporation all of its rights, 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 some of twelve schools of the district's total of 59 schools are financed under the master lease.

Solid financial management has resulted in operating surpluses in each of the past five years. The unreserved general fund balance increased from $12.4 million in fiscal 1999 (5.3% of spending) to $23.8 million in fiscal 2003 (8.2%), a sizable fund balance for a Florida school district. However, district officials anticipate drawing the unreserved general fund balance down to about 4% of spending in fiscal 2004, a sizable drawdown in reserves. The district plans to increase fund balance levels beginning in fiscal 2005, based on an informal policy to maintain the unreserved general fund balance at 5% of spending going forward.

School district enrollment has increased at an annual average rate of 4.5% over the last five years, to reach 56,419 students in school year 2003-2004, and growth is projected to continue at approximately 3% per year. The district's fiscal years 2004-2014 capital improvement plan totals $858 million, significantly higher than the $91 million of capital needs identified in the fiscal 2000 five-year capital plan. The fiscal 2004-2014 plan covers the construction costs of 20 new schools, including the two schools funded with this issuance. Five schools needed to comply with state-mandated class size reductions are not included in the funding for the capital plan. A March 9 referendum is planned for a countywide one-cent sales tax, the proceeds of which will be shared between the county, the school district, and six municipal governments. The school district will use its 45% share to fund components of its capital plan. If the referendum fails, the ten-year capital plan will include approximately $100 million of unfunded projects.

The county's economy is largely rural and residential based, but significant development has been occurring in the southern portion of the county, due to its proximity to Tampa. The county unemployment rate consistently has been lower than that of the state and nation, and wealth levels average approximately 85% of state and national levels.