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

--$76,825,000 refunding COPs series 2016A.

The COPs are scheduled to price during the week of Jan. 4. Proceeds will be used to refund on an advanced basis a portion of the board's outstanding series 2007 COPs for savings.

In addition, Fitch affirms the following ratings:

--$228 million outstanding board COPs (series 2015A, 2014B, and 2007) at 'A+';
--Implied unlimited tax general obligation (ULTGO) of the Volusia County School District (the district) at 'AA-';
--$12.6 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

FINANCES PRESSURED; LOWER RESERVES: The district has experienced a decrease in reserves as it addresses growing enrollment and higher salary costs for its employees. The district's financial position weakens further with the projected operational deficit for fiscal 2015. 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, its obligation to make annually appropriated lease payments under a master lease structure, and the essentiality of leased assets that provides strong incentive to continue to appropriate.

ECONOMY AND TAX BASE IMPROVING: The local economy is heavily influenced by tourism and retail activity which has demonstrated growth the past three years. Significant economic development is creating new job opportunities, and combined with a partial recovery in housing values, has contributed to four years of tax base increases. Income levels are slightly 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 five fiscal years have trended positively. Debt service coverage was an adequate 1.34x based on fiscal 2015 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: A continued trend of a draw on reserves indicative of structural imbalance would likely put downward pressure on the district's COPs and implied ULTGO ratings. The Stable Outlook reflects Fitch's expectation that progress towards restoring balance with recurring revenues will be made and reserve levels will be maintained at or above policy levels.

ADEQUACY OF SALES TAX COVERAGE: Fitch expects sales tax revenues to provide adequate debt service coverage as new economic development projects occur within the county.

CREDIT PROFILE

The district's boundaries are coterminous with the county's (implied ULTGO rating 'AA'/Outlook Stable). 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 507,531, up 14.5% since 2000.

FISCAL 2015 PROJECTIONS SHOW CONTINUED USE OF RESERVES

The district has experienced drawdowns on its fund balance in three of the last four fiscal years as mandatory class size compliance costs restrict budget flexibility and salary and benefit costs have increased. The district also had a 0.25 mill critical needs levy expire in fiscal 2013, resulting in a loss of approximately $6.5 million in annual operating revenues. State aid to schools, though, has increased since that time.

For fiscal 2015, the district's unaudited results show an $11.2 million decline in total fund balance. The bulk of this is a result of an increase in salaries which were not fully budgeted for and an increase in the number of teaching positions by 88 to meet class size requirements. Modest revenue increases and expenditure savings achieved during the fiscal year were not sufficient to cover the $9 million increase in salaries and benefits. The unrestricted general fund balance is projected to decline to a still adequate 6.9% of spending.

Total general fund revenues were up 3.4% over the prior fiscal year and reflect a slight increase in student enrollment, higher state Florida Education Finance Program (FEFP) funding and an increase in property tax revenues. The budget originally included the use of $26.7 million in fund balance, but conservative budget practices, cuts in staff and other expenses helped reduce the need for the full appropriation.

The district has a goal and policy of maintaining unassigned reserve levels at 5% and 3% of revenues, respectively. Fiscal 2015 projected unassigned balances are approximately 5% of revenues (before the assignment of a portion of these funds for the subsequent budget), down from 6.5% at fiscal end 2014. 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 2016 BUDGET

The adopted fiscal 2016 general fund budget shows a modest increase in revenues of 1.3% compared to projected fiscal 2015 actuals mostly a result of an increase in FEFP funds. Expenditures are up 2% compared to projected fiscal 2015 actuals reflecting higher instructional costs tied to new teachers. The budget included the use of $17.1 million of total fund balance, $6.3 million of which was originally unassigned fund balance with the remainder from assigned balances for state and local programs. District officials have indicated to Fitch that through conservative budgeting and receipt of certain one-time revenues it does not expect to use the $6.3 million of appropriated fund balance. This would leave the district with a projected $20.8 million unassigned fund balance equal to 5% of budgeted revenues.

The district is currently in negotiations with its three bargaining units and has proposed salary increases for fiscal 2017 with a plan to pay for such increases with proposed health insurance savings. No new salary increases were included in the fiscal 2016 budget. The bargaining units are seeking salary increases for fiscal 2016, according to news reports. Fitch will continue to monitor the progress of these negotiations and the impact it will have on the district's finances.

Fitch views with concern the district's use of reserves to fund operations given positive revenue and economic indicators. Continued structural imbalances causing further decline in reserves would likely 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 is projected to start in spring of 2016 and Bass Pro Shops has signed a lease to anchor the development. A new Westin Hotel is under construction and a potential 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 expects its $400 million in planned renovations to be completed in January. 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 7.6% through October 2015 year over year, according to the Zillow Group. The county's market values are up 3%, 9%, and 8% for 2013, 2014 and 2015, respectively, reflective of housing value growth in these years. 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 5.5% in September 2015 from 6.5% a year prior, and are just above state and national averages of 5.4 and 5.1% respectively. 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 0.81 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 serve 20% of the district's 62,850 enrolled students during fiscal 2016. Pursuant to the master lease structure, all of these assets would be relinquished if the district failed to appropriate the required funds.

MODERATE DEBT LEVELS AND MANAGEABLE RETIREE COSTS

Overall debt levels are low at $867 per capita and 1.0% of market value. Amortization of district debt is average with 49% 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 equaled 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 2015 to 1.34x from 1.25x in fiscal 2014 due to a 6.9% increase in fiscal 2015 revenues. Additionally, sales tax revenue performance for 3 months ending September 2015 is up 10%, which if annualized would improve coverage to 1.48x for the final year 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.