|[February 18, 2014]
Fitch Affirms Hillsborough County, FL Schools' Ratings; Assigns Sales Tax Revs Positive Outlook
NEW YORK --(Business Wire)--
Fitch Ratings affirms the following ratings for the Hillsborough County
School District, FL (the district):
--Implied unlimited tax general obligation (ULTGO) at 'AA+';
--$827 million outstanding Hillsborough School Board Leasing Corp.
certificates of participation (COPs) at 'AA';
--$197 million outstanding community investment tax (CIT) sales tax
revenue bonds at 'BBB+'.
The Rating Outlook is revised to Positive from Stable for the sales tax
bonds. The Rating Outlook is Stable for the implied ULTGO and COPs.
The COPs are secured by lease payments made by the district to the
trustee pursuant to a master lease purchase agreement. Lease payments
are made from legally available funds of the district, subject to annual
appropriation. In the event of less than full appropriation, the trustee
may force the district to surrender possession of all leased facilities
under the master lease to the trustee for disposition by sale or
re-letting of its interest in such facilities.
The sales tax revenue bonds are secured by the district's share of a
one-half cent local infrastructure sales tax or CIT, levied and
collected by Hillsborough County (the county). The CIT was approved by
voters for a 30-year period ending Dec. 1, 2026, two months after the
final maturity of the bonds. According to an interlocal agreement
between the county and the district, the district receives 25% of total
revenue collected within the county.
KEY RATING DRIVERS
IMPROVING SALES TAX COVERAGE: The Outlook revision on the CIT sales tax
revenue bonds reflects strengthening debt service coverage, with fiscal
2013 CIT revenues generating 1.20x MADS coverage. Revenues have
experienced a three-year upward trend and are reportedly trending higher
in fiscal 2014 as well.
STRONG FINANCIAL MANAGEMENT: The district's adherence to its fiscal
policies, combined with conservative budgeting and expenditure controls,
have contributed to sound reserves despite fluctuations in property tax
revenues and state funding.
DIVERSE ECONOMY: The county serves as the economic anchor of western
Florida, with significant employment in the professional and business
services and education and health services. Signs of economic
stabilization are evident as employment levels have improved and sales
tax revenues continue an upward trend.
LOW DEBT BURDEN: The district's debt burden is low, and debt service
requirements do not pressure the financial profile. The district has no
immediate near-term borrowing plans.
DEPENDENCE ON (News - Alert) STATE REVENUES: Like most Florida school districts, the
district remains dependent upon state funding which has fluctuated in
RESIDUAL SALES TAX REVENUES MAINTAINED BY DISTRICT: The district
continues to hold in reserve a significant amount of residual sales tax
revenues, which it has indicated it would utilize if necessary to
compensate for any deficiency in pledged revenues.
COPS SUBJECT TO APPROPRIATION: The 'AA' COPs rating reflects the
district's general credit quality, the district's obligation to make
annually appropriated lease payments under a master lease structure, and
the essentiality of leased assets.
INCREASING PLEDGED CIT REVENUES: The sales tax bonds' rating is
sensitive to debt service coverage from pledged revenues. A continued
positive trend in CIT revenues and coverage likely would result in an
upward revision to the rating.
CONTINUED STRONG FINANCIAL MANAGEMENT: The rating is sensitive to shifts
in fundamental credit characteristics, including the district's strong
financial management practices and maintenance of adequate reserves. The
Stable Outlook on the COPs and implied ULTGO reflects Fitch's
expectation that such shifts are unlikely.
The district is coterminous with Hillsborough County and is located on
central Florida's western coast and includes the city of Tampa.
NARROW BUT IMPROVING SALES TAX COVERAGE
CIT sales tax revenues have continued the upward trend that began in
fiscal 2011, with annual increases of 3.7%, 4.2% and 4.5% through fiscal
2013. Fiscal 2013 revenues covered MADS by 1.20 times (x) versus 1.15x
for the previous fiscal year; annual coverage for fiscal 2013 was
comparable at 1.22x.
Fiscal 2014 monthly sales tax collections through December are
reportedly 4.3% higher than the same period for fiscal 2013. The
revision in the Rating Outlook to Positive reflects this upward trend in
revenues and coverage, and continuation of this trend likely would
result in an upgrade.
District residual CIT revenues total $38.8 million, up from $33 million
one year ago. These residual revenues are available if necessary to
compensate for any deficiency in the current year's pledged revenues,
although they are not pledged to bondholders.
Bond documents restrict additional debt through a 1.20x pro forma MADS
additional bonds test. The debt service reserve is funded by a surety
policy from Ambac (not rated by Fitch).
BROAD EMPLOYMENT BASE RECOVERING
Hillsborough County (GO bonds rated 'AAA' with a Stable Outlook by
Fitch) serves as the economic center for Florida's Gulf Coast. Major
economic sectors include business services, health care and education.
Signs of recovery from the recent recession for this historically strong
and diverse economy are evident. An uptick in employment has driven down
the December 2013 unemployment rate to 5.7%, a healthy improvement from
7.6% last year. Wealth levels are slightly above the state average and
just below national levels.
Rapid population growth has historically driven corresponding enrollment
increases in the district. Recent enrollment growth has become more
moderate with a 1.8% increase in fiscal 2013. The district expects
moderate enrollment gains to continue for the next few years.
RESERVE LEVELS LOWER BUT SOUND
The district has managed a decline in state funding and the recently
imposed unfunded state operating mandates through the use of built up
reserves and expenditure cuts. Financial performance for fiscal 2012 and
2013 resulted in deficit operations and a drawdown on general fund
reserves, most of which were planned. This followed two fiscal years of
surplus operations and a buildup in reserves.
During fiscal 2012, the state cut school aid to districts statewide as
it grappled with its own financial pressures. Many districts, including
Hillsborough County, relied on federal stimulus and American Recovery
and Reinvestment Act (ARRA) monies they received during fiscal 2011 to
manage the cuts in state aid. The district ended fiscal 2012 with an
unrestricted general fund balance of $268.2 million (18.6% of spending)
down from $331.2 million (24% of spending) in fiscal 2011.
During fiscal 2013 the district experienced a $29.4 million net
operating deficit due to a combination of one-time expenses associated
with equipment, technology and security, as well as various
state-mandated expenditures. The district ended fiscal 2013 with an
unrestricted fund balance of $233.7 million, or a still sound 16% of
general fund spending. This total handily exceeded the district's fund
balance policy of maintaining an unassigned reserve equal to or greater
than 5% of total anticipated revenue for the following year plus
FISCAL 2014 BUDGET
The district benefited from the increases in the state's education
funding for fiscal 2014 over the prior year, which will pay for teacher
salary increases. The fiscal 2014 budget also includes new spending for
state mandated reading programs and security, which management will
absorb through teacher assignment and scheduling changes, as well as
certain temporary hiring freezes and the outsourcing of certain services.
Management has indicated its intention to maintain fund balance levels
in excess of its policy. The recent state-mandated spending is
generating some pressure on operations, but Fitch believes the district
retains the ability to adjust outlays to offset these directives.
Management's history of prudent fiscal controls suggests that the
district's sound financial profile will be maintained.
FAVORABLE DEBT PROFILE
Overall debt levels are low at $1,613 per capita and 2.5% of market
value. Variable rate debt equals a low 10% of total district debt, a
level that Fitch believes is manageable.
The district's facilities are reportedly in good shape, with capital
needs greatly reduced after a building push earlier in the decade driven
by escalating enrollment and state mandated class size requirements. The
district uses excess revenue from the 1.5 mill capital outlay levy,
after COPs debt service, for the majority of its capital and maintenance
needs. No additional borrowing is planned presently.
COPS DEBT SERVICE
While any legally available revenue can be used for COPs debt service,
the district has historically made payments from the 1.5 mill capital
outlay tax. With the district's taxable assessed value (TAV) for fiscal
2014 of $69.7 billion, a 1.024 mill rate generates sufficient revenues,
assuming a 96% tax collection rate, to cover fiscal 2014 COPs debt
service of $68.6 million.
The master lease structure on the district's COPs is strong, requiring
an all-or-none appropriation. In the case of non-appropriation, the
trustee is authorized to require the district to surrender use of all
facilities under the master lease, which would amount to approximately
20% of the district's facilities. Fitch considers this requirement a
strong incentive to appropriate.
RETIREMENT COSTS ARE MANAGEABLE
All district employees participate in the state operated retirement
system. Pension and OPEB costs are affordable. Total carrying costs for
pension, OPEB pay-go and debt service equaled an affordable 7.3% of
total fiscal 2013 governmental spending.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS (News - Alert) Global Insight, Zillow.com, and
the National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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