OREANDA-NEWS. Fitch Ratings has affirmed the following ratings for Martin County School Board, Florida (the district):

--\$33.1 million certificates of participation (COPs) at 'A';
--Implied general obligation at 'A+'.

The Rating Outlook is revised to Stable 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. The district is required to appropriate funds for all outstanding leases under the master lease on an all-or-none basis. 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 under the master lease.

KEY RATING DRIVERS

STABILIZING OPERATIONS IMPROVES OUTLOOK: The Stable Outlook reflects the district's stabilizing operating performance. Cost-saving measures taken in fiscal 2015 are projected to maintain adequate reserve levels through improved operations, despite state funding challenges.

LOW DEBT, AFFORDABLE CARRYING COSTS: Debt levels are low and likely to remain so given the district's rapid amortization schedule and manageable capital needs. Retiree benefit costs do not pressure district finances, and overall carrying costs constitute a relatively small share of governmental fund spending.

HEALTHY ENROLLMENT AND ECONOMY: The local economy is primarily residential with major employers in healthcare and government. Enrollment has exhibited healthy growth in recent years and the local tax base has continued to rebound following moderate recessionary declines, while remaining moderately concentrated in utilities.

COPS APPROPRIATION RISK: The one notch rating distinction on the district's COPs is based on the risk of non-appropriation inherent in the lease structure. The appropriation risk is not tempered by the master lease structure as only one school, a middle school, is subject to the lease.

RATING SENSITIVITIES

ADEQUATE FUND BALANCE: Failure to begin restoring available reserves in fiscal 2016 through balanced operations may lead to downward rating action. Positively, significant improvements in the district's reserve levels would be considered a positive rating factor.

CREDIT PROFILE

The district, which is coterminous with Martin County (implied ULTGOs rated 'AA' by Fitch), is a 556 square mile area located on the eastern coast of Florida approximately 45 miles north of Palm Beach. The county is home to approximately 151,000 residents in 2014 and is primarily residential with a somewhat limited economy concentrated in agriculture, healthcare and tourism.

STABILIZING FINANCES

The district has managed to restore fund balance in recent years following past accounting inaccuracies under a prior management team. Balance has largely been driven by prudent cost savings realized through employee concessions and attrition management.

Fiscal 2014 outperformed the district's operating deficit projection closing with an operating surplus (after transfers) of \$3.3 million, or 2.3% of spending. Unrestricted fund balance rose by \$2 million from fiscal 2013 levels to \$5.4 million, or an adequate 3.7% of spending.

The district conservatively projects unrestricted fund balance to remain relatively flat at approximately \$4.9 million, or an adequate 3.2% of spending in fiscal 2015. An operating deficit (after transfers) of \$3.3 million, or 2.2% of spending, reflects the intended spend-down of restricted revenues on one-time items and state-specific purposes. Operations remained essentially balanced in fiscal 2015 despite per-pupil state aid reductions, which fell short of district enrollment demands. The district continues to rely on transfers from the local capital improvement tax fund of approximately \$6.2 million (a moderate 4.3% of spending) to reimburse the general fund for capital expenditures in fiscal 2015.

Officials maintain that fiscal 2016 operations will be fiscally balanced, with additional future savings projected as a result of recent labor agreements with the district's teachers union, which include multi-year employee concessions. While the resultant concessions are considerable, the level of future savings will rely on settling favorable contracts with other bargaining units still under negotiation.

LOW DEBT BURDEN; AFFORDABLE CARRYING COSTS

The district's overall debt levels are very low at \$735 per capita and 0.47% of full market value. Amortization is average with 55% of outstanding principal repaid within 10 years. Debt levels are expected to remain stable as the district currently has no long-term borrowing plans.

The district participates in the state-run Florida Retirement System (FRS), which Fitch estimates to be adequately funded at 78.9% based on the 7% investment rate of return used by Fitch. The district's actuarial required contribution (ARC) was \$8.3 million, or an affordable 4.5% of governmental fund spending in fiscal 2014.

Other post-employment benefits (OPEB) are limited and currently funded on a pay-as-you-go basis. The unfunded liability represents a manageable 0.8% of market value. Carrying costs including debt service, pension ARC, and OPEB contribution were a low 8.8% of governmental fund spending in fiscal 2014.

SERVICES-BASED ECONOMY; RECOVERING TAX BASE

The district is home to a large retiree population which contributes to a healthy per capita income 30% to 35% higher than state and national averages. The district has experienced moderate-to-robust enrollment growth in recent years, including an increase of 6.2% in fiscal 2014 with further growth expected for fiscals 2015 and 2016. Management indicates that growth has been spurred largely by increased housing demand in the area among younger families. The local economy is based mainly in health care, agriculture, and tourism, stabilized by a large government presence, which constitutes 50% of jobs among top employers. The largest private sector employer in the county is Martin Memorial Health Systems, with 2,783 employees. The 5.3% unemployment rate in March 2015 was down from 6.3% a year prior, approximating the state (5.5%) and nation (5.6%).

The housing market shows signs of recovery following recessionary tax base declines. Property value losses through fiscal 2013 were moderate, declining 13% since fiscal 2009. Signs of growth are evident, as the district's taxable assessed value (TAV) expanded 3% in fiscal 2015 for the second consecutive year, though TAV remains modestly below its pre-recession peak. Management projects stronger growth of approximately 5% in fiscal 2016, as per the state.

SOUND LEASE PROVISIONS

Lease payments are payable from any legally available source, although on a budget basis payments are made from the district's capital outlay millage. The capital millage can be levied up to 1.5 mills for lease payments for COPs issued before 2009 and 1.125 mills for COPs issued post 2009. The district uses a very low 0.159 mills of the levy to meet MADS leaving considerable flexibility.

The master lease structure adds little to security as only one facility, a middle school, is subject to surrender should the district fail to appropriate lease payments in any fiscal year.