OREANDA-NEWS. Fitch Ratings has assigned an 'AA+' rating to the following Hillsborough County School Board, FL's (the board) bonds:

--\$6,000,000 capital improvement and refunding revenue bonds, series 2015.

The bonds will be sold the week of Feb. 23rd on a negotiated basis. Proceeds will be used to refund outstanding racetrack revenue refunding bonds, series 1998 and provide funding for Hillsborough County School District (the district) capital projects.

The Rating Outlook is Stable

SECURITY

The revenue bonds are payable solely from an annual \$446,500 distribution paid directly to the board from state sales tax revenues, pursuant to Florida statutes; the revenue is a substitute for racetrack revenues previously distributed.

KEY RATING DRIVERS

RATING CAP: The distributions securing the bonds are derived from state sales taxes allocated to the board. Fitch caps the rating at the lower of the district's implied unlimited tax general obligation rating (currently 'AA+'/Stable Outlook) or one notch below the state of Florida's 'AAA' general obligation (GO) rating.

FIXED AND RELIABLE REVENUE SOURCE: Distributions to the board supporting debt service are fixed and derived from the state's considerable sales tax receipts, allowing for sum sufficient debt service coverage.

STRONG FINANCIAL MANAGEMENT: The district's adherence to its fiscal policies, combined with conservative budgeting and expenditure controls, have contributed to sound reserves despite recent declines due to certain state mandates, equipment purchases and security upgrades.

DIVERSE ECONOMY: Hillsborough County, which includes the city of Tampa, serves as the economic anchor of western Florida, with significant employment in the professional, business, education and health services. Recent signs of economic stabilization are evident as employment levels have seen significant improvement 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 its financial profile. The district has no immediate near term borrowing plans.

RATING SENSITIVITIES

CHANGE IN DISTRICT OR STATE RATINGS: A change in the credit quality of the district or the state of Florida as it pertains to the pledged revenue source could cause a change in the rating on the bonds.

CONTINUED STRONG FINANCIAL MANAGEMENT: The district's ratings are sensitive to shifts in fundamental credit characteristics, including the district's strong financial management practices and maintenance of strong reserves. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The district is coterminous with Hillsborough County (GOs rated 'AAA'/Stable Outlook) and is located on central Florida's western coast and includes the city of Tampa (implied ULTGO of 'AA'/Stable Outlook).

RELIABLE FUNDING SOURCE

The revenue bonds are payable from an annual \$446,500 sales tax distribution allocated by the state to each county. The county has directed the board to directly receive its distribution per state statute. Formerly derived from taxes on pari-mutuel wagers, the state in 2000 substituted the 6% state sales tax as the source of funding after pari-mutuel wagering suffered significant declines. The state legislature may not modify the statutory scheme for the distribution of sales tax revenues in a manner that would impair the receipt by the board of sufficient pledged revenues to pay debt service on the bonds.

Sales taxes constitute the state's largest revenue source, exceeding \$23 billion in fiscal 2014. The magnitude of sales tax receipts ensures more than sufficient funds will be available to cover the state's annual \$30 million racetrack revenue distribution obligation. The fixed nature of the distribution and the size of the revenue source mitigate Fitch's concerns regarding very tight 1.0 maximum annual debt service (MADS) coverage and weak legal requirements, including the lack of a debt service reserve fund and the 1.0x MADS additional bonds test.

Typical of other Florida credits secured by fixed sales tax payments, Fitch's methodology caps the rating at the lower of the district's implied ULTGO rating or one notch below the states GO rating.

BROAD EMPLOYMENT BASE CONTINUES RECOVERING

Hillsborough County 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 recession for this historically strong and diverse economy are evident. An uptick in employment has driven down the November 2014 unemployment rate to 5.6%, an improvement from 6.3% the prior 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 1.7% increase in fiscal 2015. 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 recently imposed unfunded state operating mandates through the use of built up reserves and expenditure cuts. Financial performance for fiscals 2012, 2013 and 2014 resulted in deficit operations and draws on general fund reserves, most of which were planned.

For fiscal 2014, the district experienced a nearly \$40 million net operating deficit due to a combination of expenditures for new equipment needed for various state required programs, replacement of aging school buses, and continued security upgrades. This loss followed a fiscal 2013 deficit of roughly \$30 million due to one-time equipment purchases, technology and security upgrades, and various state-mandated expenditures.

Despite the recent weak operating results, the district ended fiscal 2014 with an unrestricted general fund balance of \$193 million or a still solid 12.4% of spending. The district remains in compliance with its fund balance policy requiring maintenance of an unassigned reserve equal to or greater than 5% of total anticipated revenue for the following year plus carry-forwards.

FISCAL 2015 BUDGET

The district has benefited from an increase in state education funding for fiscal 2015, coupled with its growing enrollment. Employee costs and state mandated programs are the primary expenditure drivers. Recent expenditure control efforts include a continued 90 day hiring freeze for non-teacher staff and re-negotiation of vendor contracts.

Management has indicated its intention to maintain fund balance levels in excess of its policy target. 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 \$1,580 per capita and 2.2% of market value. Variable rate debt equals a manageable 18% of total district debt.

The district's facilities are reportedly in good condition, with capital needs greatly reduced after a building push earlier in the decade that was driven by escalating enrollment and state mandated class size requirements. The district uses excess revenue from a 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.

RETIREMENT COSTS ARE MANAGEABLE

All district employees participate in the state operated retirement system that Fitch considers adequately funded. Pension and OPEB costs are affordable. Total carrying costs for pension, OPEB pay-go and debt service equaled an affordable 8% of total fiscal 2014 governmental spending.