|[November 14, 2012]
Fitch Affirms Monroe County School Board, FL's Sales Tax Revs at 'A+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms its 'A+' rating on the following Monroe County
School Board, FL (the district) sales tax revenue bonds:
--$39.6 million outstanding infrastructures sales tax revenue bonds,
The Rating Outlook is Stable.
The bonds are secured by the district's portion of the one-half-cent
discretionary local infrastructure sales surtax. The tax is currently
authorized by district voters to be levied through December 2015, three
months after the final maturity of the series 2005 bonds. The bonds are
senior to the district's series 2007 bonds (not rated by Fitch). The
debt service reserve fund is satisfied by an Ambac Assurance surety bond.
KEY RATING DRIVERS
SOUND SALES TAX COVERAGE: Pledged revenues have grown steadily in recent
years, providing sound coverage of 1.53 times (x) on fiscal 2012 senior
lien debt service and all-in coverage of 1.18x.
BUDGETARY BALANCE RESTORED: Positive operating results for fiscal 2011,
near break-even results for fiscal 2012, and the adoption of a balanced
budget for fiscal 2013 are expected to maintain an adequate level of
operating reserves. Management retains flexibility to cut spending or
raise recurring revenues to maintain budgetary balance.
LIMITED LOCAL ECONOMY: The area economy is limited, with concentrations
in government and tourism. Economic indicators are nonetheless positive
in comparison to state and national averages.
MANAGEABLE DEBT LEVELS: Overall debt levels are manageable, capital
needs are modest, and amortization of outstanding principal is rapid.
Carrying costs of debt service and employee benefits do not pressure
WHAT COULD TRIGGER A RATING ACTION
DECLINE IN FINANCIAL CUSHION: The inability to achieve budget
stabilization in current and forthcoming fiscal years could result in
overall financial margins that are no longer consistent with the implied
FAILURE TO IMPROVE FINANCIAL CONTROLS: Fitch views the district's weak
internal controls as a credit concern. Should future audits continue to
note material deficiencies that impede the district's path to financial
stability, there could be downward pressure on the district's implied GO
SALES TAX REVENUES SHOW SIGNS OF IMPROVEMENT
Fiscal years 2011 and 2012 sales tax receipts exhibited annual growth of
5% and 10%, respectively. As a result, maximum annual debt service
(MADs) coverage for the 2005 bonds has increased from 1.32 times (x) in
fiscal 2010 to a sound 1.53x (unaudited) for fiscal 2012. Debt service
on the series 2005 bonds is level, with MADs of $8.8 million occurring
in fiscal 2014. MADS coverage including the subordinate series 2007
bonds, sold privately, also improved from 1.02 in 2010 to 1.18 in fiscal
2012. The district projects continued growth in pledged revenues in
fiscal 2013 of about 5.2% based on fiscal year to date monthly receipts.
The district maintains excess sales tax revenues in its debt service
fund, totaling $4.5 million as of July 1, 2012, according to management.
Although not pledged to bondholders, these excess funds provide a buffer
against any unexpected decline in revenues. Bond covenants include an
additional bonds test of 1.25x MADS although no additional debt is
currently anticipated as the sales tax expires in December 2015.
ADEQUATE FINANCIAL CUSHION ANTICIPATED OVER NEAR TERM
The district has experienced some financial pressure beginning in fiscal
2009 as a result of state aid reductions and marginal declines in its
tax base and its decision to utilize fund balance to support operations.
As a result of these financial pressures, the district's unreserved
general fund balance declined from 8% of spending in fiscal 2008 to a
more modest 3.9% in fiscal 2010.
In fiscal 2011, the district receivd $2.5 million in Federal ARRA
monies, which helped it cover unbudgeted increases in employee salaries,
additional decreases in state aid, and increasing benefit costs. The
district was able to achieve an operating surplus (after transfers) of
$1.4 million (1.7% of spending) and ended the year with an unrestricted
fund balance (the sum of assigned, unassigned and committed as per GASB
54) equal to 4.8 million, or 5.2% of spending.
The fiscal 2012 budget decreased expenses modestly (0.1% relative to the
prior year's) and tax rates were decreased 10%. State aid increased by
$2.5 million (20%). Unaudited financial information for fiscal 2012
shows a marginal draw on reserves of $200,000 or 0.2% of spending,
bringing the unassigned fund balance to $4.2 million or 5.1% of
spending. These results represent a significant improvement over the
district's mid-year projection of a year-end fund balance below 3% of
spending. After alerting the Department of Education in December 2011 to
this possibility, the district amended its budget to implement mid-year
staffing cuts and reductions in its healthcare plan that in aggregate
cut $4 million in spending.
FISCAL 2013 BUDGET
The adopted fiscal 2013 budget is essentially flat compared to fiscal
2012, with a modest $600,000 (0.8% of spending) appropriated addition to
fund balance. Though the millage rate increased modestly to 3.16 mills,
the district's tax burden remains low relative to its peers and well
below the state's 10-mill statutory cap. Differing from fiscal 2011, the
district did not choose to levy the critical needs millage in fiscal
years 2012 or 2013. Fitch notes that the district retains flexibility to
implement deeper spending reductions given the moderate nature of cuts
Fitch views positively the district's plan in fiscal 2013 to adopt an
informal fund balance policy of 12% of spending, as well as its
intention to begin budgeting on a three year horizon. The district hopes
to grow its reserves gradually to achieve this goal; however, the
district has not yet formalized a plan or a timeline by which it will
achieve this fund balance target.
LIMITED ECONOMY, POSITIVE ECONOMIC INDICATORS
Monroe County, which is coterminous with the school district, is the
southernmost county in the nation, consisting primarily of the Florida
Keys. The area's economy is limited with heavy concentrations in
government and tourism. The sub-tropical climate and beaches help make
the Florida Keys and Key West, the county seat, a main tourist
Economic indicators for the county compare favorably to state and
national averages. Due to substantial annual employment gains of 7.2%,
the county's unemployment rate dropped to 5.0% as of September 2012 from
6.5% the year prior. The county's rate remains well below that of the
state (8.6%) and nation (7.6%), for the same period. Wealth levels are
high relative to state averages.
The county's tax base suffered a cumulative loss of 32% since fiscal
2008 due primarily to housing price declines, which is moderate relative
to other areas in the state. Though the county's total assessed value
(TAV) declined by 12.4% and 3.6% in fiscal 2011 and 2012, respectively,
modest growth was achieved in fiscal 2013 of 1.3%.
MANAGEABLE CARRYING COSTS
Overall debt levels are low to moderate as a percentage of market value
(0.5% of MV) and on a per capita ($2,058) basis. Seasonal fluctuations
in population due to tourism help to explain the relatively higher per
capita metric. Fiscal 2011 debt service for the district's certificate
of participation and sales tax bonds totaled $13.5 million or a moderate
14% of general and debt service funds spending. Amortization of
outstanding principal is a rapid 65% in ten years.
Capital needs are modest, as delineated in the fiscal 2011-2015 capital
improvement plan. The district has no future debt plans. The district is
an annual issuer of tax anticipation notes (TAN), with values ranging
from $8 - $18 million, for cash flow purposes. The district has no
exposure to variable rate debt or derivative instruments.
Employee benefits are manageable as a percentage of spending. The
district participates in the state-administered Florida Retirement
System, to which it contributed $5 million (or 6.3% of spending) toward
its annual required contribution (ARC) in fiscal 2011. Due to the
state's required 3% contribution from employees and a reduction in the
district's required contribution rate, the district's ARC fell to $1.9
million in fiscal 2012. The district funds its other post-employment
benefits (OPEB) on a pay-go basis, contributing $1.6 million in fiscal
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
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, and 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).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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