Fitch Ratings has assigned a rating of 'AA-' to certificates of
participation (COPs) to be issued by Palm Beach County School Board (the
--$166.3 million COPs, series 2014B.
The COPs will be priced on June 17 on a negotiated basis. The fixed-rate
COPs will be used to refund the variable-rate series 2011B COPs and will
fund a swap termination fee.
In addition, the following ratings are affirmed:
--$1.8 billion COPs at 'AA-';
--Implied general obligation (GO) rating at 'AA'.
The Rating Outlook is Stable.
The COPs are secured by lease payments subject to annual appropriation
by the Palm Beach County School Board under a master lease-purchase
agreement. Upon certain events of default or the school board's failure
to appropriate funds, leases for all 91 facilities under the master
lease will terminate and the district is required to immediately
surrender possession of all facilities subject to the master lease.
KEY RATING DRIVERS
SOUND MANAGEMENT: The key credit strength supporting the 'AA' implied GO
rating is the district's long track record of strong financial
management including conservative budgeting and maintenance of adequate
AFFORDABLE DEBT LEVELS: Fitch considers key debt ratios to be low.
Capital demands are manageable with no additional borrowing needs
FAVORABLE ECONOMIC PROFILE: Long-term economic prospects remain
favorable given the county's desirable quality of life, above-average
wealth indicators, strong population growth projections, and a
diversifying economy fueled by recent investments in the biotechnology
STRONG APPROPRIATION INCENTIVE: The district has a strong incentive to
appropriate lease payments given the large share of educational
facilities captured under the master lease program and its reliance on
certificate indebtedness to finance capital needs.
Fitch's key assumption supporting the Stable Outlook is the expectation
for adherence to a balanced budget in fiscal 2015 with no further draw
on reserves. Results inconsistent with this expectation could apply
negative pressure on the rating.
This district is located in south Florida on the Atlantic coast and
serves the entire county, which had a 2013 population of 1.4 million.
The district is the fifth largest in the state and the 11th largest in
ACCUMULATED RESERVES ENABLED FLEXIBILITY
The district's financial performance over the last few years has
benefited significantly from one-time revenues received in fiscal 2011
which built balances to a strong 12.3% of spending. The district has
executed planned draws on these higher reserves through fiscal 2014 to
weather the economic downturn. Fitch expects the district to maintain
its financial cushion longer term at roughly the same level estimated
for fiscal 2014, which is in excess of 6% of spending.
The fiscal 2013 budget was balanced with a $115 million draw on reserves
but audited results show a smaller $35 million decline equal to a
moderate 2.4% of spending. Conservative budgeting and cost controls
resulted in a smaller use of fund balance than anticipated. Unrestricted
general fund balance of $94.1 million was an adequate 6.7% of spending,
including the 3% contingency reserve required by board policy.
Fitch believes the district will be slightly more challenged in the
current fiscal year (2014) to significantly outperform its budget as the
district has begun budgeting for receipt of delinquent property taxes.
However, the budgeted use of $19 million, which represents 1.3% of
fiscal 2013 spending, should leave still adequate balances.
Fitch expects the district's fiscal 2015 performance to reflect stable
reserve levels. Failure to achieve budget balance and stabilize the
erosion of financial reserves would weaken credit quality. In November
of 2014, the district will be seeking voter approval to renew the .25
mills designated for the fine arts and choice programs; the four-year
millage expires after the levy for fiscal 2015. In fiscal 2014, the levy
is expected to raise $33 million (2.3% of revenue). The district states
loss of these revenues would result in elimination of the music, arts
and magnet programs funded with the dedcated millage rather than
erosion of financial position.
The district's overall level of financial flexibility should benefit
over time with increasing capacity under the capital outlay millage
capped at 1.5 by state law. Estimated maximum annual lease payments
district requires roughly 74% of the fiscal 2014 levy with the remainder
of the levy funding maintenance needs. Limited construction and debt
needs, and prospects for tax-base growth should result in declining
utilization of capital millage for debt service, freeing up additional
funds for maintenance related operations.
The tax base increased a sizable 4.5% for fiscal 2014 and the district
is assuming 7.6% tax-base growth in its fiscal 2015 budget preparation.
While a final budget is not yet adopted, the current proposal does not
include salary increases for employees.
Competition from charter school expansion as well as expenditure needs
from federal mandates contribute to the need for enhanced accountability
and responsiveness. The district is looking ahead to operational reforms
for fiscal 2016 to achieve these aims.
LOW DEBT; ABOVE-AVERAGE VARIABLE-RATE EXPOSURE
District debt ratios are expected to remain low given the absence of new
issue borrowing plans. Overall debt is just 1.6% of market value and
under $2,000 per capita. The district's fiscal years 2014 to 2018
capital improvement plan identifies $82 million in construction
projects, $78 million for non-construction capital needs, and $431
million for transfers to the general fund for maintenance improvements.
The district believes existing school capacity will serve the needs of
the district for at least the next 10 years.
Long-term liabilities related to pension and other post-employment
benefits (OPEB) are manageable. The district participates in the Florida
Retirement System, a relatively well-funded statewide defined benefit
Total county carrying costs (debt service, pensions and OPEB) are a low
10.8% of total government expenditures. The OPEB unfunded accrued
liability is $130.2 million, a modest .1% of fiscal 2013 market value.
The OPEB liability essentially calculates the implicit subsidy of
offering retirees the ability to purchase health insurance at the group
rate. The district does not otherwise fund retiree health insurance.
After the refunding the district will have $356 million in variable-rate
debt outstanding equaling 19% of total direct debt, structured as
floating-rate notes absent a put feature, eliminating the need for
liquidity support. Interest rate risk is hedged via three derivative
contracts with a notional amount of $356 million (post-refunding) and a
negative mark-to-market of -$74 million. The elevated variable-rate
exposure is mitigated by the district's active financial and debt
management practices and swap terms that do not require collateral
posting in any event.
SOUND ECONOMIC GROWTH PROSPECTS
The Palm Beach County economy continues to recover with favorable
employment gains in each of the past three years. The April 2014
unemployment rate of 5.6% is below the national rate of 5.9%. High
resident wealth levels help fuel recovery in service and retail sectors
and per capita wealth gains have outpaced growth statewide. The county
poverty rate of 13.3% trails the national rate of 14.4%. The county's
educational attainment levels exceed the national and state averages,
fostering the growth of more highly skilled, higher wage jobs.
Global Insights (GI) projects strong gains in population and healthy
consumer spending in South Florida, ahead of the national average for
the next five years, with employment growth driven by professional and
business services. The county's list of top employers is dominated by
health care networks such as Tenet Healthcare, Hospital Corporation of
America, Bethesda Memorial Hospital and Boca Raton Community Hospital.
Research within the healthcare sector is a growing presence, anchored by
the Scripps Research Institute (biomedical studies) and the Max Planck
Florida Institute for Neuroscience. The county's educational attainment
profile surpasses the state and nation, with a notable 12% of residents
holding advanced degrees.
LIMITED APPROPRIATION RISK
Fitch believes the district has a strong incentive to appropriate for
lease payments. An event of non-appropriation would terminate all
current leases under the master lease and allow the trustee to repossess
a total of 91 school buildings acquired pursuant to the master lease,
representing approximately 46% of the educational facilities space
available to the district. An event of non-appropriation could also
impair the district's ability to issue additional COPs, the primary
mechanism for funding long-term capital needs, with nearly $1.8 billion
in principal amount outstanding.
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 Global Insight, National
Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
[ Back To NFVZone's Homepage ]