Fitch Ratings affirms the following ratings on the Manatee County School Board, Florida (the district):
--Implied unlimited tax general obligation (ULTGO) at 'BBB';
--$152 million certificates of participation (COPs), series 2005A, 2007, 2008A, 2009, and 2011A at 'BBB-';
--$11.7 million sales tax revenue bonds, series 2005 at 'BBB'.
The Rating Outlook is revised to Positive from Negative.
SECURITY
The COPs are payable from lease rental payments made by the district, subject to annual appropriation, pursuant to a master lease purchase agreement. Bondholders are further secured by a leasehold security interest in certain educational facilities.
The sales tax revenue bonds are payable from the proceeds of the local government half-cent sales tax collected within the county and distributed between the county and its incorporated municipalities based on a population-driven formula. Limited additional security is also provided by a debt service reserve account satisfied by a surety bond.
KEY RATING DRIVERS
FINANCIAL POSITION AND CONTROL IMPROVING: Unaudited results for fiscal 2014 indicate a sizable operating surplus, eliminating the negative balances reported in the previous two fiscal years. Actions taken to limit spending, improve internal controls and more accurately monitor district expenditures are credit positives. The improved controls and strengthened balance sheet account for the change in outlook to Positive from Negative.
IMPROVING ECONOMIC METRICS: Employment, taxable property values and population all show favorable growth rates.
LOW DEBT: Key debt ratios are low, capital needs are affordable, and no near term additional borrowing is expected.
SALES TAX CAPPED AT GO: The rating on the sales tax revenue bonds is capped by the implied GO rating. Sales tax revenues continue to increase, coverage is satisfactory at 1.86x (unaudited fiscal 2014) and there is essentially no risk of additional parity leveraging given the short remaining term of the sales tax authorization.
COPS NOTCHED OFF GO: A single-notch distinction between the implied GO and the COPs recognizes risk to annual appropriation, master lease provisions including 'all or none' appropriation requirement, and a leasehold interest on a significant number of essential school facilities.
RATING SENSITIVITIES
FINANCIAL STABILITY AND IMPROVEMENT KEY: Continued progress towards sustained budgetary control as well as rebuilding of operating reserves would place upward pressure on the rating.
CREDIT PROFILE
The Manatee County School Board shares the same geographic boundaries as Manatee County (the county), encompassing an area of 740 square miles on Florida's Gulf Coast, approximately 45 miles south of Tampa. The district operates 53 schools and has a current enrollment of approximately 46,600 students. The county has an estimated 2013 population of 333,951. The county seat and the largest municipality in the county is the city of Bradenton (implied Fitch ULTGO rating of 'AA').
FINANCIAL POSITION WEAK, BUT IMPROVING
The district had a poor financial profile with operating deficits in seven of eight years through fiscal 2013 and year end accumulated deficits in 2012 and 2013. Unaudited results for fiscal 2014 show a restoration of positive year end position. An operating surplus (after transfers) of $21.9 million (a sizable 6.7% of spending) was achieved through strong cost controls. The unaudited unrestricted fund balance of $11.1 million is a still-narrow 3.4% of general fund spending. Also, prior concerns regarding possible general fund reductions to restore questioned costs have reportedly been resolved.
Several factors contribute to the improved financial control: active state involvement, extensive work with an outside internal auditor, staff training, improved systems and an apparent improved culture of accountability.
Fiscal 2014 operations are a contrast to the prior year when the district grossly missed projected results. In fiscal 2013 the district had forecast a positive ending balance of $6.6 million in a financial recovery plan submitted to and approved by the Florida Department of Education (DOE) but failed to meet the plan and deepened the accumulated deficit. Florida school districts are required to submit this plan if their unassigned and assigned fund balance is less than 2% of revenue. The district had previously failed to meet the state fund balance requirement for three straight years.
CASH FLOW BORROWING HAS DECLINED
General fund liquidity levels have improved to a still-weak 53 days cash on hand, from less than 30 days at the close of fiscal 2012. Further strengthening of cash position is expected. Consequently, the district has reduced its reliance on tax anticipation notes. Typically issuing $50 million in July or August with payment the following in May, the district now has $35 million outstanding (less than 11% of fiscal 2014 revenues). State aid accounts for approximately 50% of total sources and is received somewhat evenly over the course of the year.
RESERVES BUDGETED TO INCREASE IN FISCAL 2015
The district is budgeting to increase the unassigned general fund balance by $2.1 million in fiscal 2015, from $10.1 million at the close of fiscal 2014. The district expects to at least meet budget. Positively, class size restrictions are being met and enrollment growth is likely to increase state aid receipts.
LOW DEBT BURDEN
Fitch estimates the district's overall debt burden at a low 1.7% of market value or $1,397 per capita inclusive of the outstanding obligations of underlying local government units and the county. Carrying charges related to district debt, payments to the adequately-funded Florida Retirement System for pension, and payments to a district plan for other post-employment benefits (OPEB) are a manageable 15.5% of total governmental fund spending.
The district's fiscal 2015-2020 capital plan totals a manageable $316 million, net of debt service. Of the total spending, $160 million is reserved for future projects. A capital needs assessment is being done by a third party to aid in long term planning. The district has no near term borrowing plans as the capital program relies on property tax and sales tax funding. The sales tax was approved by voters for capital spending for a 15-year period ending on Dec. 31, 2017. As the voter-approved sales tax comes to expire there is some concern that the district's history of fiscal problems could thwart any effort to gain voter approval for another sales tax.
SATISFACTORY SALES TAX COVERAGE; BONDS MATURE IN 2017
Sales tax performance has improved with ongoing stabilization of the local economy and employment base. Unaudited fiscal 2014 sales tax revenue of $28.8 million provide 1.86x maximum annual debt service (MADS) of $15.5 million. Sales tax revenues grew a hefty 22% in fiscal 2014, reflecting population growth, a strengthening economy and increased building activity. Fitch believes there is a safe cushion against stress events; revenue can fall 46% before coverage falls below 1.0x MADS, whereas the aggregate revenue loss from fiscal years 2007-2010 was less than 15%. The sales tax bonds mature Oct. 1, 2017, three months prior to expiration of the tax.
AMPLE CAPACITY TO MAKE LEASE RENTALS FROM CAPITAL OUTLAY LEVY
Lease rental payments securing the COPs are primarily paid from proceeds of the capital outlay levy (three-fourths of the 1.5 mill tax is available for such purpose under state law). Available fiscal 2014 capital outlay revenue totaled $29.1 million, compared to COP debt service of $18.9 million.
MASTER LEASE ENHANCES INCENTIVE TO APPROPRIATE
In Fitch's view the master lease structure mitigates risk to non-appropriation. Essentially the district must choose to make rental payments on all or none of the lease schedules under the master lease purchase agreement. An event of non-appropriation would result in the termination of the master lease, and the surrender to the trustee of all lease-purchased projects. District properties associated with the master lease include a total of 20 elementary, middle, and high schools, a technical institute, and a transportation and maintenance facility.
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, Zillow.com 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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=965575
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