OREANDA-NEWS. Fitch Ratings has assigned an 'A+' rating to the following Volusia County School Board, Florida (the board) certificates of participation (COPs):

--\$29,390,000 refunding COPs series 2015A.

The COPs are scheduled to price during the week of March 30th. Proceeds will be used to refund a portion of the board's outstanding series 2005B COPs for savings.

In addition, Fitch affirms the following ratings:

--\$242.3 million outstanding board COPs (series 2014B, 2007, 2006A, 2005C, and 2005B) at 'A+';

--Implied unlimited tax general obligation (ULTGO) of the Volusia County School District (the district) at 'AA-'; and

--\$24.6 million outstanding sales tax revenue bonds series 2004 and 2006 at 'BBB+'.

The Rating Outlook is Stable.

SECURITY

The COPs are payable from lease payments, subject to annual appropriation, made by the district to the trustee, as assignee of the Volusia School Board Leasing Corporation, a Florida not-for-profit corporation. The sales tax revenue bonds are payable from proceeds of a one-half cent school capital outlay discretionary sales surtax. Standard debt service reserve accounts (DSRA) are funded from surety policies (providers not rated by Fitch). The series 2006 bonds' DSRA is additionally cash funded at \$3.057 million.

KEY RATING DRIVERS

SOUND FINANCIAL POSITION: The district's financial position remains sound even after draws on fund balance in two of the last three fiscal years. Fitch's rating assumes continued use of conservative budgeting practices and policies, including maintenance of adequate reserves.

COPS SUBJECT TO APPROPRIATION: The 'A+' COPs rating reflects the district's general credit quality, the district's obligation to make annually appropriated lease payments under a master lease structure, and the essentiality of leased assets which provides strong incentive to continue to appropriate.

ECONOMY AND TAX BASE IMPROVING: The local economy is heavily influenced by tourism and retail activity, and is recovering from significant stress from the fallout of the housing market. Significant economic development is creating new job opportunities and helping boost tax base values. Income levels are below-average.

LOW OVERALL DEBT LEVELS: Overall debt ratios are low and are not expected to change materially as the district currently has no additional debt plans.

ADEQUATE SALES TAX BOND COVERAGE: Sales tax revenues in the last four fiscal years have trended positively. Debt service coverage was 1.23x based on fiscal 2014 revenues. Fitch expects coverage to continue to improve due to a continuance of economic development from current projects underway or planned in Volusia County (the county).

RATING SENSITIVITIES

RETURN TO STRUCTURAL BALANCE: With economic indicators and state education aid showing improvement Fitch expects reserve levels to be stable to growing. A continued trend of a draw on reserves indicative of structural imbalance could put downward pressure on the district's COPs and implied ULTGO ratings. The Stable Outlook reflects Fitch's expectation that progress towards restoring structural balance will be made and reserve levels will be maintained at above policy levels.

STABILITY OF SALES TAX REVENUES: Fitch expects sales tax revenues to provide at least current debt service coverage as new economic development projects occur within the county.

CREDIT PROFILE

The district's boundaries are coterminous with the county's (Fitch implied ULTGO rating of 'AA' with a Stable Outlook by Fitch). The county is situated on the central east coast of Florida, 50 miles northeast of Orlando, and includes Daytona Beach. The county's 2014 population was 500,800, up 11% since 2000.

FINANCIAL PERFORMANCE REMAINS SOUND

The district ended with a fund balance drawdown but outperformed budgetary expectations in fiscal 2014. The original budget included the use of \$25 million (5.4% of budget) of fund balance to help offset a loss of approximately \$6.5 million in revenues from an expired voted .25 mill critical needs levy, mandatory class size compliance costs and higher pension and health insurance costs. The general fund had an operating deficit of \$5.5 million after transfers, reducing the unrestricted fund balance to \$41.3 million or a still sound 9.5% of spending.

Revenues were higher by 3.7% year over year mostly due to an increase in Florida Education Finance Program (FEFP) funding. Expenditures are conservatively budgeted and came in lower than anticipated particularly in instructional support and community services functions.

The district continues to adhere to its goal and policy of maintaining unassigned reserve levels at 5% and 3% of revenues, respectively, with fiscal 2014 unassigned balances at 6.5% of revenues. Although the 3% policy is in accordance with state guidelines, Fitch believes it provides only a modest cushion against financial volatility. Fitch would view with concern a decline in unrestricted reserves below the higher 5% goal.

FISCAL 2015 BUDGET REFLECTS HIGHER COSTS

Fiscal 2015 budgeted general fund appropriations were up by 5.7% compared to the prior year's actual spending. Growth in salary and health insurance costs and the hiring of additional teachers to meet class size requirements were the primary drivers. Total revenues were up 1.6% and reflect a slight increase in student enrollment, higher state FEFP funding and an increase in property tax revenues. The budget included the use of \$26.7 million in fund balance, but management's projections do not show the full use of this appropriation. Fund balance levels are projected by management to decline modestly but remain at satisfactory levels and in excess of the district's 5% goal.

Fitch views with some concern the district's use of reserves to fund operations given positive revenue and economic indicators. Continued structural imbalances causing a decline in reserves could result in negative rating action.

ECONOMY BENEFITS FROM TOURISM

Volusia County's economy has historically centered on tourism, serving as the home of several popular leisure destinations including Daytona Beach. The economy has diversified into the health care and education sectors providing new employment opportunities. The county is home to four major health care employers including Halifax Community Health System, the second largest employer in the county following the district, and three higher education institutions.

ECONOMIC GROWTH EXPECTED

A number of new economic development projects centered on tourism and retail are underway or in the works including the county approved One Daytona entertainment/retail complex project. Construction started on the project late last year and Bass Pro Shops has signed a lease to anchor the development. A new Hard Rock Hotel in Daytona Beach as well as other future planned beach front condo developments are close to starting construction. Additionally, the Daytona International Speedway has \$400 million in planned renovations. These projects and others are expected to boost sales tax growth and improve employment opportunities in the county.

Home prices continue to improve and are up 6.5% through January 2015 year over year, after increasing over 14% in 2013, according to the Zillow Group. The county's market values are up 3% and 9% for 2013 and 2014, respectively, reflective of this growth. This growth follows a period of decline in market values of 36% from fiscal 2008 through 2013 due primarily to a stressed housing market.

IMPROVED UNEMPLOYMENT LEVELS; BELOW AVERAGE WEALTH

Unemployment rates have improved, declining to 5.3% in December 2014 from 6.0% a year prior, and are just below state and national averages of 5.4%. The improvement is a result of sound job growth that exceeded labor force growth. Wealth levels are moderately below state and national levels.

COPS PAID FROM CAPITAL OUTLAY MILLAGE

Lease payments on COPs are generally paid from revenue of the capital outlay levy, but are ultimately payable from any legally available source. 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, but not pledged, for lease payments. Effective July 1, 2012, the three-fourths limitation was statutorily 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). The district requires a manageable 0.858 mills to fund COPs maximum annual debt service assuming a 96% tax collection rate, with the remainder providing a moderate source of pay-go capital funding.

The pledged assets supporting the COPs under the master lease consist of 11 schools and three additions to schools that served 23% of the district's 61,829 enrolled students during fiscal 2015. Pursuant to the master lease structure, all of these assets would be relinquished if the district failed to appropriate the required funds.

DEBT LEVELS ARE MODERATE AND RETIREE COSTS ARE MANAGEABLE

Overall debt levels are low at \$848 per capita and 1.1% of market value. Amortization of district debt is about average with 54% of outstanding principal repaid in 10 years. No new debt is contemplated in the near term. Total carrying costs for debt service charges, district paid pension funding, and other post-employment benefit (OPEB) pay-go equal a moderate 13% of total fiscal 2014 governmental expenditures.

SALES TAX DEBT SERVICE COVERAGE CONTINUES IMPROVEMENT

Coverage from pledged sales tax revenues improved in fiscal 2014 to 1.23x from 1.16x in fiscal 2013 due to a 6% increase in fiscal 2014 revenues. Additionally, sales tax revenue performance for 6 months ending December 2014 is up 6%, which if annualized would improve coverage to 1.30x for the final two fiscal years of debt service (bonds mature Oct. 1, 2016).

EXTENSION OF SALES TAX APPROVED BY VOTERS

The district was successful in obtaining voter approval to extend the half cent sales tax beyond 2016 for an additional 15 years. Revenues will be used to support a board approved project list which includes identified school replacements, security enhancements and technology upgrades. The sales tax proceeds can only be used for capital needs and will greatly assist the district in meeting its capital improvement plans. No new sales tax debt is currently contemplated by the district.