Fitch Rates Hillsborough County Schools, Florida's $47.3MM Rfdg COPs 'A+'

Business Wire, Feb 16, 2005

NEW YORK -- Fitch Ratings assigns an underlying 'A+' rating to the School Board of Hillsborough County, Florida's (the district) approximately $47.3 million refunding certificates of participation (COPs) (School Board of Hillsborough County, Florida Master Lease Program), series 2005A. The COPs, expected to be insured by MBIA Insurance Corp., are scheduled to price Feb. 23 via negotiation with a syndicate led by Citigroup. The COPs mature July 1, 2005-2026, and proceeds will be used to partially refund outstanding series 2000 certificates for savings equal to an estimated 3.3% of the refunded par. Fitch also affirms the 'A+' underlying rating on the approximately $780 million outstanding COPs under the master lease program. The Rating Outlook is Stable.

The underlying 'A+' rating reflects the district's sound financial management, a rapidly growing tax base, and a stable and diverse local economy, as well as the strong legal features of master lease-purchase agreements related to this issue and all prior certificates. The district is facing significant capital need to meet the demands of enrollment growth and class size reduction mandates; however, capital planning efforts are strong. Susceptibility to state-funding declines is somewhat mitigated by its continued success in controlling expenditures and the utilization of conservative budgeting practices.

The COPs are secured by lease payments made by the district to the trustee, as assignee of the Hillsborough School Board Leasing Corp., which is a not-for-profit corporation created to assist the district in lease-purchase financing. The obligation of the district to make lease payments is a limited obligation, payable solely from funds appropriated by the district from available revenues. The 2005A COPs 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. Approximately 36% of the district's school facilities are included under the master lease.

Financial operations of the district are sound. For fiscal 2004, audited results show a $25.2 million general fund surplus that resulted from hiring freezes, expenditure controls, and a change in the district's inventory reserve policy that increased the amount reserved to $5.1 million from $1.6 million in fiscal 2003. The undesignated general fund balance equaled 3.9% of spending and transfers out at the close of fiscal 2004, an adequate level of reserves for a Florida school district. Given its limited revenue-raising flexibility and sizable expenditure pressures, the district remains susceptible to state-funding declines; in fiscal 2004 state funding accounted for 68% of general fund revenues.

Capital planning efforts are strong; the fiscal years 2005-2009 capital improvement plan (CIP) totals $1.1 billion and includes projects needed to comply with the state-mandated class size reduction amendment. Funding sources have been identified for $855 million of projects and include COP issuance (33% of the funded portion of the plan), carry-forward of funding from projects in progress (35%), state-funding sources (16%), and pay-as-you-go from a variety of cash sources (16%). The unfunded portion of the plan represents projects needed to comply with state-mandated class size reduction, for which the district anticipates receiving funding from state sources. The district amortizes its debt slowly to maintain debt service on outstanding COPs below 1 mill of the capital outlay levy. Based on fiscal 2005 budgeted revenues the district will use approximately .98 mill of the levy for debt service on outstanding COPs.

Hillsborough County's economy is diversified, with the services and trade sectors accounting for the largest components of the employment base. The school district is one of the nation's largest, with approximately 179,933 students. Enrollment growth has averaged 3.1% annually over the past four years and is expected to continue at a rapid pace. Tampa is home to numerous regional headquarters and multinational finance and insurance companies. Resident wealth levels are on par with those of the state and nation, and unemployment rates are low, totaling 3.1% in December 2004.