No Sales Tax Could Affect Brevard Schools Credit Rating
BREVARD COUNTY, Florida -- Fitch Ratings, at the request of the Brevard County School Board, has has affirmed its rating on the following certificates of
participation (COPs) issued on behalf of the Brevard County School
Board, Florida.
According to Fitch, "If the half-cent sales tax referendum is not approved in November, this could significantly impair the district's ability to fund capital needs. The potential reliance on reserves for such purpose could put pressure on the district's financial profile and ratings."
In a recent Brevard Times viewer poll conducted in July 2012, viewers opposed the half-cent sales tax 4-1 over support of the sales tax.
The Brevard County School Board maintains a 'AA-' rating in $512 COPs and a 'AA' rating in the district's implied unlimited tax general obligation (ULTGO). Fitch says the School Board's "conservative budgeting practices and policies have contributed to historically sound operations and adequate reserves even as revenues have declined due to significant decreases in property values and volatile levels of state funding. The 'AA' implied ULTGO rating reflects the district's satisfactory financial performance and expected maintenance of adequate reserves."
Fitch's outlook says that "The district's capital outlay millage, used for debt service payments and capital funding, is highly leveraged and is expected to remain so over the next few years. Passage of a proposed sales tax referendum in November would benefit the district and provide significant budget relief."
According to Fitch, "If the half-cent sales tax referendum is not approved in November, this could significantly impair the district's ability to fund capital needs. The potential reliance on reserves for such purpose could put pressure on the district's financial profile and ratings."
In a recent Brevard Times viewer poll conducted in July 2012, viewers opposed the half-cent sales tax 4-1 over support of the sales tax.
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The Brevard County School Board maintains a 'AA-' rating in $512 COPs and a 'AA' rating in the district's implied unlimited tax general obligation (ULTGO). Fitch says the School Board's "conservative budgeting practices and policies have contributed to historically sound operations and adequate reserves even as revenues have declined due to significant decreases in property values and volatile levels of state funding. The 'AA' implied ULTGO rating reflects the district's satisfactory financial performance and expected maintenance of adequate reserves."
Fitch's outlook says that "The district's capital outlay millage, used for debt service payments and capital funding, is highly leveraged and is expected to remain so over the next few years. Passage of a proposed sales tax referendum in November would benefit the district and provide significant budget relief."
Additional excerpts from the Fitch ratting follow:
CONTINUED DECLINES IN ASSESSED VALUE: If assessed values show additional
declines this could result in financial pressure on the operating fund.
CREDIT PROFILE
Located along Florida's eastern seaboard, Brevard County is home to Cape
Canaveral and is coterminous with the school district. The area economy
was historically anchored by the federal government's space program with
ancillary defense and aerospace contractors including Harris
Corporation, Northrop Grumman and Boeing playing a significant role in
the economy. Tourism also represents a sizeable portion of the area
economy, driven by the area's numerous beaches.
The county experienced significant job losses during calendar 2011 as a
result of the retirement of the space shuttle program. However,
year-over-year employment is up 2%, and the unemployment rate, at 9% in
May, is down from 10.7% last year, but still above that of the state
(8.5%) and nation (7.9%).
Student enrollment declines were high in fiscal 2009 at 1,235 (1.7%),
but much more moderate (down 522) through fiscal 2012, and in total were
not as significant as expected. Contrary to prior expectations,
enrollment has been projected to increase by 583 students (approximately
0.8%) for the upcoming school year, to 73,489.
Population growth has been steady, increasing 12% since the 2000 census
to 543,376 in 2010. Income levels are slightly above state averages.
ABOVE-AVERAGE LOSS IN PROPERTY VALUES
The county has experienced a significant decline in property values
resulting in a corresponding reduction in revenue from the district's
discretionary operating and capital outlay millage. Taxable assessed
value has declined 33% since 2008 but the most recent June 2012
assessment shows a 1% decline.
PRUDENT MANAGEMENT PRACTICES
Financial management is strong as evidenced by reserve levels remaining
sound despite recent volatility in state funding. Fiscal 2011 ended with
a $22.3 million general fund operating surplus after transfers. The
unrestricted fund balance (the sum of committed, assigned and unassigned
fund balance as per GASB 54) increased to $72.4 million or 15.5% of
spending, up from 10% of spending the previous year. The strong
financial results were driven by an increase in federal stimulus monies,
to be used in future years, and positive expenditure variances.
The district's policy is to maintain a contingency reserve of at least
3% of spending. Reserve levels have historically exceeded this threshold
by a good margin, which has long been noted by Fitch as a credit
strength.
FISCAL YEAR 2012 AND 2013 BUDGETS RELY ON BUILT-UP RESERVES
The fiscal 2012 operating budget remained relatively flat to fiscal
2011. The budget includes a reduction in retirement costs, accounting
for the newly implemented 3% contribution by employees, offset by higher
salary and supply costs. The budget also included $3 million for capital
improvements.
Fiscal 2012 revenues were projected to be down 4.8% due to the decline
in assessed value and a 4% reduction in state aid. The budget included
approximately $23 million in use of reserves, accounting for a bulk of
federal stimulus monies received by the district in fiscal 2011.
Management reports fiscal 2012 unaudited results are slightly better
than budget, with an expected decrease in total general fund balance of
$20 million, back to roughly where the district was at the end of fiscal
2010.
This would result in a projected unrestricted fund balance of $57
million, or an adequate 11.8% of general fund spending.
The preliminary budget for fiscal 2013 anticipates a notable $18 million
increase in revenue from the Florida Education Finance Program
allocation. The district's board will continue to levy the 0.25 critical
needs millage for operations providing $8 million in revenues. The
current 0.25 mill critical needs levy, approved by voters in November
2010, remains in effect through fiscal 2013. Management has appropriated
use of $8 million in unassigned reserves which if used would reduce the
district's fund balance to approximately 8%-10% of spending, which
remains adequate and consistent with historical reserve levels.
SALES TAX REFERENDUM TO PROVIDE CAPITAL SUPPORT
The district has approved a referendum for this November asking voters
to approve a half-cent sales tax to be used solely for capital needs.
The sales tax would be in place for no more than 10 years. Sales tax
revenues (estimated at $32 million annually) could not be used for
existing debt service, but the revenues would provide partial budget
relief for the district, as the operating fund is funding a portion of
capital needs.
If this referendum is not approved, the district financial profile could
become challenged as its capital improvement plan totals $240 million,
and current revenues from the capital outlay millage are almost entirely
allocated to paying debt service on the outstanding COPs.
COP SECURITY IS STRONG BUT CAPITAL OUTLAY MILLAGE IS LEVERAGED
Legal provisions under the master lease are strong, requiring an
all-or-none appropriation. In the event of non-appropriation, the
district would relinquish rights to approximately 60% of its facilities.
While the district may use any legally available revenue for COPS debt
service, the district has historically allocated revenue for this
purpose from its capital outlay millage. The capital outlay millage is
authorized by state law up to 1.5 mills. Up to three-fourths of the
proceeds of the capital levy is available for lease payments. Effective
July 1, 2012, the three-fourths limitation is waived for lease purchase
agreements entered into prior to June 30, 2009 (all of the district's
lease agreements were entered into prior to this date). Due to recent
declines in assessed value, the district now requires a high 1.45 mills
to fund COPs.
The district had further leveraged its capital millage outlay through
use of its revenue anticipation note (RAN) program (not rated by Fitch).
The program, which was originated to supplement the use of COPs, is
being unwound by the district with the last expected payment of $8
million due in April 2013. The district plans to use primarily capital
projects reserves to pay off this debt. The capital projects reserve
fund is projected to have a $51 million balance at fiscal end 2012.
DEBT LEVELS ARE LOW AND RETIREE COSTS ARE MANAGEABLE
The district's overall debt levels are low at 2% of the district's $35
billion market value and $1,260 per capita. Amortization is below
average, with roughly 33% of debt being retired in ten years. Pension
and other post-employment benefits obligations remain well-managed.
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 Global Insight, Zillow.com,
National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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SOURCE: Fitch Ratings via BusinessWire
