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

--\$32.96 million refunding COPs, series 2015B.

The COPs are scheduled for a negotiated sale on May 5. Proceeds will be used to refund a portion of outstanding series 2007B COPs for interest savings.

In addition, Fitch affirms the ratings on the following outstanding obligations:

--\$57 million outstanding COPs at 'A';
--Implied unlimited tax general obligation (ULTGO) rating at 'A+'.

The Rating Outlook is revised to Stable from Negative.

SECURITY

The COPs are payable from lease payments made by the district, subject to annual appropriation of the school board under a master lease purchase agreement. The district is required to appropriate funds for all outstanding leases on an all or none basis. In the event of non-appropriation, the district must surrender possession of all leased facilities under the master lease to the trustee for disposition by sale or re-letting of its interest in the facilities.

KEY RATING DRIVERS

IMPROVED FINANCIAL PROFILE: The revised Outlook to Stable from Negative reflects increased financial flexibility due to better than expected fiscal 2014 operating results and voter approval of an additional one mill property tax levy. The levy, which will be in place for four years, will enable the district to restore many programs previously cut.

LOW DEBT LEVELS: District debt levels are modest and are expected to remain so given the absence of any plans to issue new debt and rapid amortization of existing bonds. Carrying costs are affordable.

LIMITED BUT IMPROVING ECONOMY: The district's economic base remains somewhat limited and exhibits below-average income levels. Unemployment, while above-average, has improved significantly year-over-year.

COPS APPROPRIATION RISK: The one notch rating difference between the implied ULTGO and the COPs recognizes the non-appropriation risk inherent in the COPs structure. Master lease provisions including an 'all or none' appropriation requirement, a leasehold interest on a significant number of essential schools, and reliance upon COPs financing serve to mitigate the potential for non-appropriation.

RATING SENSITIVITIES

MAINTENANCE OF ADEQUATE RESERVES: The rating is sensitive to the district's ability to maintain unrestricted reserves consistently above the 3% minimum balance. Reduced operating pressure provided by the four-year infusion of additional property tax revenues will provide management some time to address recent structural budget issues.

CREDIT PROFILE

The district's boundaries are coterminous with Marion County, located in central Florida about 65 miles north of Orlando. The current estimated population is 337,000. The district experienced rapid population growth during the early and mid-2000s (fueled mostly by retirees), but growth has leveled off since. Currently enrollment is 41,891 students across 49 schools. Enrollment has demonstrated flat to moderate growth since 2011, and officials expect this trend to continue for the next several years.

FISCAL 2014 RESULTS BETTER THAN EXPECTED

Actual results for fiscal 2014 were much better than expected as the district reported a \$9.6 million general fund operating surplus. This result compares favorably against the budgeted drawdown of \$4 million. The positive variance was primarily due to lower than budget spending, stemming from unfilled vacant positions and \$1.7 million in deferred textbook spending. Even without the deferral, the surplus would still have been a healthy \$7.9 million. The surplus boosted the unrestricted general fund balance to \$19 million or an adequate 6.6% of spending.

District financial operations had deteriorated since fiscal 2009, pressured by declines in the two largest sources of revenue - property taxes and state aid. Despite severe spending cuts, the district reported four consecutive deficits between fiscals 2010 and 2013 which dropped the unrestricted general fund balance from \$25.5 million to \$11.2 million or 3.9% of fiscal 2013 expenditures and transfers out. The budgeted deficit for fiscal 2014 would have reduced unrestricted fund balance to the district's 3% minimum.

The fiscal 2015 budget included an average 2.2% salary increase on top of a 5% wage hike in fiscal 2014 and a state-authorized 7.4% jump in base student allocations. The budget proposed a \$14 million reserve drawdown, with fund balance to be used for non-recurring expenditures such as student management software and technology equipment.

Based on year-to-date results, management predicts a smaller \$7.4 million deficit. Revenues are performing as budgeted, while expenditures are projected to come in \$8 million below budget as officials again refrain from filling open positions. The projected year end unrestricted general fund balance of 5.3% of spending falls within the district's informal target of 5% to 7%.

Last November, district voters approved an additional one mill property tax levy for four years beginning in fiscal 2016. The one mill is forecast to generate approximately \$15 million annually and will be used to restore art, music and physical education to pre-recession staffing levels and to assist with class size, vocational programs and technology.

The recently increased reserve levels, combined with \$15 million of additional revenues, alleviate immediate financial pressure and considerably improve the district's near-term fiscal outlook.

LIMITED ECONOMY WITH SIGNS OF MODERATE IMPROVEMENT

The county's economy is somewhat limited, with about 60% of total acreage designated for agricultural purposes. The area has historically been a major center for thoroughbred horse breeding. Leading employers include the school board, Monroe Regional Medical Center, the state, and Wal-Mart.

The economy continues to experience a modest post-recession recovery. February 2015 county employment grew 1.2% year-over-year, which while below the state and national averages reduced the local unemployment rate to 6.7% from 7.8% the prior year. Unemployment rates remain above state and national averages, consistent with historical patterns.

Wealth indices are below average, with the 2013 median household income at 84% and 78% of the state and national benchmarks, respectively.

RECENT STABILITY IN TAXABLE VALUES

Taxable values grew by 4% in fiscal 2015, the first increase since fiscal 2008. During that six year period, taxable values fell by more than 30%. Management is also projecting modest tax base growth for fiscal 2016. The district's housing market is also in recovery mode after a steep recessionary descent. Housing values as of March 2015 were 8.8% higher than the previous year according to the Zillow Group, but they remain well below their pre-recession peak.

LOW DEBT BURDEN; AFFORDABLE CARRYING COSTS

The district's overall debt burden is modest at less than 1% of market value and \$673 per capita. Direct debt consists primarily of COPs issued under the master lease. Principal amortization is very rapid with 71% of principal retired within the next 10 years. Capital needs are manageable, and the district has no new money debt issuance plans.

All district employees participate in the Florida Retirement System, a statewide plan which administers two cost-sharing multiple employer retirement plans: a defined benefit plan and a defined contribution plan. The district's combined contribution to both plans for fiscal 2014 totaled \$13.5 million, which represented a moderate 3.7% of total governmental funds spending.

The district provides an implied subsidy for retiree healthcare benefits by allowing retirees to participate in the district's medical plan at the same rate as active employees. These costs are funded on a pay-go basis. Fiscal 2014 district retiree plan contributions represented only 0.4% of governmental spending. If the fiscal 2014 retiree healthcare ARC had been fully funded, the contribution would represent a still modest 1% of spending. Carrying costs (including debt service, pension requirements and other post-employment benefits [OPEB] costs) are very manageable at 8.6% of fiscal 2014 governmental fund spending.

MASTER LEASE STRUCTURE MITIGATES APPROPRIATION RISK

The COPs are payable from lease rental payments are subject to annual appropriation by the district, pursuant to a master lease structure. Legal provisions under the master lease are strong, requiring appropriation on an 'all-or-none' basis. In the event of non-appropriation, the district would relinquish rights to all or parts of nine schools subject to the master lease. The pledged schools accommodate about 19% of district students and include four of the eight high schools and many of the district's newer facilities.

The district's capital outlay millage is the primary revenue source for COPs payments. The capital outlay levy is authorized by state law up to 1.50 mills. Currently, up to three-fourths of the proceeds of the capital outlay levy is available for lease payments, although the three-fourths limitation is waived for lease purchase agreements entered into prior to June 30, 2009 (all of the district's lease agreements originally commenced prior to this date). Revenues generated by the capital outlay millage provide adequate coverage of maximum annual debt service (MADS) at 1.6x and .93 mills is the minimum levy required to pay MADS, based on fiscal 2015 assessed value.