OREANDA-NEWS. Fitch Ratings assigns the following rating to Duval County School Board, Florida's (the board) certificates of participation (COPs):

--\$119 million in series 2015B COPs 'AA-'.

Proceeds will be used to refund the series 2007 COPs for level savings. Sale is expected through negotiation the week of May 11.

In addition, Fitch affirms its 'AA-' rating on the \$328 million of series 2005, 2005A, 2007, 2009A, 2009B, 2013A COPs.

Fitch also affirms its 'AA' rating on the Duval County School Board implied unlimited general obligation (ULTGO).

The Rating Outlook is Stable.

SECURITY

The COPs are secured by lease payments made by the Duval County School District (the district) from any legally available funds, subject to annual appropriation. The COPs are issued pursuant to a master lease agreement, which, in the event of non-appropriation, requires the district to surrender all leased facilities to the trustee.

KEY RATING DRIVERS

ADEQUATE FUND BALANCES: Following a trend of growing annual general fund balances through fiscal year 2011, the district has drawn down reserves in recent years. Given the prospects for growth in state aid and taxable property values, together with the district's practice of conservative budgeting, reserves are expected to remain adequate.

SOUND ECONOMY: The local economy is sound, anchored by the presence of the U.S. Navy, and trade activity at the Port of Jacksonville. Taxable assessed value (TAV) is now showing growth and county employment trends are positive.

LOW CARRYING COSTS: Total expenditure levels associated with debt service, pension contributions, and other post-employment benefit (OPEB) payments are low. However, this is due in part to slow debt amortization.

STRONG LEASE STRUCTURE: The Florida master lease structure is strong, with the all-or-none appropriation provision affording solid incentive for timely repayment. There are 22 school properties (12 schools and 10 school additions) included under the lease structure out of a total 191 district schools.

RATING SENSITIVITIES

BUDGET BALANCE: The rating is sensitive to the district's ability to achieve structural operating balance with recurring revenues and maintenance of reserves to sustain future economic cycles. Fitch would expect with continuing economic recovery the district will enhance their financial flexibility.

CREDIT PROFILE

The district, which serves the City of Jacksonville, is located on the north-eastern coast of Florida. The district enrolls about 127,360 students in 191 elementary, middle and high schools. Annual student enrollment growth has been less than 1% recent years.

ADEQUATE RESERVES DESPITE DRAW-DOWNS
For fiscal years 2007 through 2011, the district incurred successive surpluses, raising the unrestricted fund balance to 16% of spending in fiscal year 2011. Federal stimulus funding contributed to the intentional build-up in reserves as the district prepared for recessionary pressures. Subsequent balance draw-downs were required to deal with reductions in state aid and state established taxation levels, even as the district implemented measures to control costs.

The district closed fiscal 2014 with unrestricted reserves at a still favorable 11.2% of spending. The district's operating deficit was a manageable 1.5% of spending. The original budget was balanced with a \$30 million use of reserves, although the district budgets conservatively and closed the year utilizing \$15 million of reserves.

The fiscal 2015 budget is balanced with a \$60.8 million appropriation and current estimates indicate a \$30 million use of reserves. The proposed fiscal 2016 budget has not yet been released, but the proposed budget is expected to be structured to maintain unassigned reserves at 5% of revenues. With the economic recovery underway, restoration of budget balance is a key credit factor.

ECONOMY SUPPORTED BY MILITARY PRESENCE
The area's diverse economic base is bolstered by its historical naval presence, large cargo port, major banking, insurance, health care, and manufacturing industries. Unemployment reached a high of 11.4% during the recession but with annual job growth outpacing labor force growth, unemployment has steadily declined. The February 2015 unemployment rate was 6%, minimally above the state and national rates.

After significant recessionary declines, the district's tax base saw the first year of growth in fiscal 2014, posting gains of 4.9%. Continued growth is projected. Residential properties, while improving in value, still show weakness as the percentage of homes with negative equity and in foreclosure exceed the national average. The \$54.4 billion taxbase is diverse, with the top 10 taxpayers accounting for a low 4% of the taxbase.

LOW CARRYING COSTS
Total debt service, required pension contribution, and OPEB payment requirements were a low 6.5% of spending in fiscal 2014. The district's debt ratios are average, with overall debt levels at \$3,082 per capita or 3.5% of market value. Amortization is slow at about 26% of outstanding principal repaid in 10 years. The district's five-year capital improvement plan identifies \$178 million in spending needs, largely for maintenance and largely funded with current revenues. COP issuance (\$40 million) is expected in fiscal 2019 for a new K-8 school.

While the district may use any legally available revenue for COPs debt service, it has historically paid with revenue from its capital outlay millage. Florida school districts are permitted to levy 1.5 mills for capital outlay. Of this, they may use 75% (1.125 mills) for new obligations entered into after June 30, 2009 and the full 1.5 mills can be used for leases originated pre-2009. For projected fiscal 2016 COP debt service, based on the restrictions on use of the 1.5 mills, the district may levy 1.35 mills for debt service, while estimated MADS utilizes only .62 mills.

The district provides pension benefits through the state-administered Florida Retirement System (FRS). Pension costs were a low 3.6% of total governmental spending in fiscal year 2014. While the district has historically made its required contribution to the plan, in fiscal years 2011 to 2013, FRS did not have participating entities make the actuarially determined required contribution. In fiscal 2014, FRS returned to an actuarially based contribution, resulting in increased pension costs for participants. The plan funded ratio as of June 30, 2014 was estimated at 80.8% (Fitch adjusted to a 7% rate of return).

OPEB payments were less than 1% of fiscal 2014 spending. The unfunded actuarial accrued liability at June 30, 2014 was a low \$62 million and represents the implicit subsidy from allowing retirees to purchase insurance at the group rate.