OREANDA-NEWS. Fitch Ratings has affirmed the ratings on the following Leon County School Board (the school board), Florida bonds:

--$14.4 million certificates of participation (COPs), series 2005 refunding at 'AA';
--$45.5 million COPs, series 2006 at 'AA';
--Implied general obligation (GO) at 'AA+'.

In addition, Fitch affirms the following ratings for the Leon County School District (the district) issued on behalf of the school board:

--$68.3 million sales tax revenue bonds, series 2014 at 'AA'.

The Rating Outlook is Stable.

SECURITY

The sales tax bonds are payable from the proceeds of a voted discretionary half cent sales surtax collected within the county.

The COPs are payable from lease rental payments made by the school board, subject to annual appropriation, pursuant to a master lease purchase agreement. The school board must 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 surrender to the trustee of all lease-purchased projects (three new schools, five additions plus portions of numerous other schools) under the master lease.

KEY RATING DRIVERS

SUPERIOR CREDIT RATING OF THE DISTRICT: The 'AA+' implied GO rating of the school board is based on strong financial management, modest debt load and stable underlying economy. The school board's retirement obligations are not considered to be a rating pressure.

SOLID FINANCIAL FLEXIBILITY: District management consistently uses conservative fiscal practices in order to preserve financial flexibility as evidenced by solid fund balances and strong liquidity. Carrying costs including debt service, pension, and other post-employment obligations (OPEB) are modest.

STABLE LOCAL ECONOMY: The district includes the state capital and several major universities, lending significant stability to the local economy. The economy continues to rebound from the recent slowdown evidenced by employment and housing value growth.

STRONG BOND COVERAGE: Sales tax receipts have grown consistently over the past five years, raising debt service coverage on maximum annual debt service (MADS) to a solid 2.7x based on fiscal 2015 collections.

ONE NOTCH DIFFERENTIAL ON COPS: The COPs are rated one notch below the implied GO, reflective of the strength of the master lease structure offset by the required appropriation of COPs payments by the district.

RATING SENSITIVITIES

CONTINUED FINANCIAL STRENGTH: The implied GO and COPs ratings are sensitive to shifts in fundamental credit characteristics including the school board's strong financial management practices.

SALES TAX RATING: The rating on the sales tax bonds is sensitive to major shifts in pledged sales tax revenue or sizeable additional leveraging. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE
The district is coterminous with Leon County, located in the northwestern part of Florida. The county is home to Tallahassee, the state capital. The school board consists of 44 schools with 33,683 students as of fiscal 2016. Enrollment declined slightly between fiscals 2008 and 2010 but has since been slowly but steadily expanding. The school board employs 4,515 employees, of which 2,389 are teachers.

STATE CAPITAL; HIGHER EDUCATION LEND STABILITY

The district is located in the Florida Panhandle and is home to the state capital complex in Tallahassee and three institutions of higher education: Florida State University, Florida Agricultural & Mechanical University and Tallahassee Community College. The significant public sector and higher education presence provides stability to the regional economy.

Leon County's (county) unemployment rate of 5.2% in August 2015 was equivalent to both the state and national rates of 5.1% and 5.4%, respectively. The county's job losses during the recession were minor compared with many Florida counties so the recovery has been somewhat muted. The local housing market also suffered from the recession with prices falling about 24% from mid-2007 through mid-2012. However, housing values have since been on the rise, according to Zillow.com and as of November 2015 were up 1.6% year over year.

Taxable value trends are mildly reflective of the housing market. The tax base declined steadily from fiscal 2009 through fiscal 2013 although the aggregate magnitude of the drop at 8.7% is modest compared with same period tax base trends of most Florida localities. However, since fiscal 2013, taxable values have experienced three consecutive years of expansion totaling 8.9%. Officials are projecting modest increases through fiscal 2019. Wealth levels are even with those of the state but below the national benchmarks, reflective of the dominance of government employment and a large student population. Since 2009, county median household income growth rates have exceeded those of both the state and nation.

SOUND FISCAL MANAGEMENT

School board management continues to demonstrate sound fiscal practices. Officials built up reserves in fiscals 2010 and 2011 through the levy of a 0.25 mill critical needs tax generating $4 million annually and banking one-time education jobs monies of $6.7 million in anticipation of the expiration of stimulus funds in 2012. The critical needs levy was not renewed in 2012.

The reserve build-up in fiscals 2010 and 2011 nearly doubled general fund balances from $26 million in fiscal 2009 to $50 million in fiscal 2011. With the cessation of the federal stimulus in fiscal 2012, the district has utilized some fund balance in fiscals 2013 and 2014, reporting general fund operating deficits of $4.4 million and $7.4 million, respectively. Despite the deficits, reserves remain solid with fiscal 2014 unrestricted general fund balance of $30 million representing 11.8% of spending.

The school board budgets are conservatively drawn with large projected drawdowns of reserves. Actual results typically outperform budget as total spending coming in at 80% to 90% of budget. The school board budgeted a $25 million general fund drawdown for fiscal 2015, which would have left reserves below the school board's minimum of 5% of spending. A $2.4 million increase in spending was driven in part by higher health insurance costs and additional support for four of the district's lowest performing schools. Unaudited fiscal 2015 results show a $1.4 million drawdown representing .5% of general fund expenditures. Actual spending of $258 million was 10% below the revised budget. Despite the drawdown, unrestricted fund balance increased by $1.7 million to $31.7 million or 12.4% of spending while restricted reserves declined by $3 million.

The fiscal 2016 general fund budget represents a 2.7% increase over the fiscal 2015 budget. The upturn in costs includes a $1 million rise in health insurance premiums and $4.5 million for the second half of an 8.2% teacher salary and benefit increase implemented initially in fiscal 2015. Much of the offsetting growth in funding was due to an increase of $6.8 million or 4.4% in state aid. Despite a budgeted $27.4 million use of fund balance, officials are expecting a modest year-end surplus.

AFFORDABLE LONG-TERM LIABILITIES

Pension benefits are provided through the Florida Retirement System (FRS), which covers all regular employees of the district. The district is required to make contributions in accordance with rates established by the Florida Legislature and has always met the annual required contribution; contributions represent a manageable 4% of general government expenditures. Other post-employment benefits (OPEB) are provided by the district on a pay-go basis and the unfunded liability of $25 million is a low 0.1% of market value.

Overall net debt is low at 1.5% of total market value and $1,292 per capita. Amortization of district debt is average with 55% of principal repaid within 10 years. Total carrying costs for fiscal 2015 including debt service, pension and OPEB payments are a very affordable 10.7% of government spending.

The school board's five year capital plan for fiscals 2016 through 2020 proposes approximately $86 million for maintenance as well as new projects. Funding derives from the 1.5 mill capital outlay millage after COPs debt service, state capital funds and the infrastructure sales surtax.

GOOD CUSHION UNDER CAPITAL OUTLAY LEVY TO FUND COPS

COPs are secured by any legally available school board revenue including excess infrastructure sales surtaxes; however, the school board has historically used revenue from its capital outlay millage to pay lease payments. The capital outlay levy is authorized by state law up to 1.50 mills. Florida school districts can levy up to three quarters (1.125 mills) of the 1.5 mills for COPs' debt service although the full 1.50 mills levy is available for debt service on COPs issued before 2009. About 60% of COPs debt service is attributable to pre-2009 COPs issuance. Nevertheless, one mill of the 1.50 mill levy would be sufficient to cover COPs debt service without taking into account federal interest subsidies on the school board's qualified zone academy bonds and qualified school construction bonds.

Security on the COPs is enhanced by the master lease structure in which the school board must appropriate lease payments for all leases or risk losing control of all of the facilities under the master lease. Currently, three of the school board's newer schools, including a high school, a middle school and an elementary school, five additions to existing schools and renovations to numerous other schools are subject to the master lease.

STRONG SALES TAX COVERAGE

The 'AA' rating on the sales tax bonds reflects strong debt service coverage; fiscal 2015 pledged infrastructure sales taxes covered MADS by a hefty 2.7x. Coverage has been enhanced by strong growth in infrastructure sales tax collections in each of the past five years, aggregating to 19.1%. The pace of growth has picked up since fiscal 2012 and averaging 4.7% annually over the past three years.

Legal protections include a somewhat weak 1.25x coverage of MADS although there are no immediate plans to further leverage this revenue stream. A cash-funded debt service reserve fund is also provided.

The district's 1/2 cent infrastructure sales tax was renewed in November 2012 with a 67% approval rate for 15 years. The tax can only be applied to capital expenditures related to school construction or for the servicing of associated debt. The maturity date of the bonds is three months before the expiration of the tax.