OREANDA-NEWS. Fitch Ratings affirms its 'A' rating on the following Citrus County School District, Florida (the district) certificates of participation (COPs):

--$35 million Series 2010A Qualified School Construction Bonds (QSCB).

In addition, Fitch affirms the implied unlimited tax general obligation (ULTGO) rating at 'A+'.

The Rating Outlook is Stable.

SECURITY

Citrus County School District's COPs are backed by lease payments made by the district to the trustee pursuant to a master lease purchase agreement. Lease payments are payable from legally available funds of the district, subject to annual appropriation by the Citrus County School Board. The district is required to appropriate funds for all outstanding leases on an all-or-none basis.

In the event of non-appropriation, all leases will terminate. The trustee would be empowered to repossess all property and projects under the master lease for the benefit of owners of the COPs which financed or refinanced such projects.

KEY RATING DRIVERS

STABILIZING FINANCES: Fiscal 2015 figures (unaudited) indicate a modest general fund budget surplus following prior multi-year operating deficits that led to significant reserve draw-downs. Continued growth in unrestricted reserve balances is projected.

BELOW-AVERAGE ECONOMIC PROFILE: The local economy is narrow and highly concentrated, with Duke Energy its top taxpayer and a major private employer. Wealth and income indicators are below average and unemployment remains above state and national levels.

LOW DEBT LEVELS: Debt levels are low and are expected to remain so given the district's limited capital needs and absence of additional borrowing plans. Total carrying costs, including debt service, pension and retirement health costs are affordable.

COPS APPROPRIATION RISK: The one-notch distinction between the implied ULTGO and COPs ratings incorporates the risk associated with annual appropriation. The all-or-none appropriation feature of the master lease and the essential nature of leased assets (a primary school and high school), which are subject to surrender in the event of non-appropriation, temper this risk.

RATING SENSITIVITIES

CONTINUED FINANCIAL STABILITY: The inability to maintain balanced operations, adequate liquidity, and stable financial reserves over the near term could result in negative pressure on the rating.

CREDIT PROFILE

Citrus County is located in the west-central region of Florida, midway between Tampa and the Florida panhandle. The county's 2014 population totaled 139,377. Residents who are 65 years or older account for about 35% of the total population. District enrollment (about 14,700 students in 2016) had been declining in recent years, but remained essentially flat for 2015 and 2016. Management expects steady to modestly increasing enrollment in the near term.

FINANCES STABILIZE; FISCAL YEAR (FY) 2015 OPERATING SURPLUS EXPECTED

In recent years, the district experienced operating deficits that resulted in significant and higher than expected declines in general fund ending balances. A portion of the draw-down in fund balance for operations was intentional, reflecting a district decision to avoid cuts to instructional programs. Fiscal 2015 results (unaudited) show an operating surplus ($618,224) for the first time in a number of years, an improvement over budgeted figures that indicated a $1.9 million deficit. The fiscal 2015 (unaudited) general fund unrestricted balance grew to $4.4 million or 3.8% of general fund expenditures and transfers out, an increase from 3.4% a year prior.

The district's formal fund balance policy calls for the undesignated fund balance to minimally equal 3.5% of general fund revenues excluding transfers, although a balance of 5% is currently being targeted. Fiscal 2014 also outperformed budgeted expectations, with a significantly smaller deficit ($285,629) than originally budgeted ($1.5 million).

BALANCED OPERATIONS PROJECTED FOR FY 2016

Management is currently projecting balanced operations for fiscal 2016. The initial fiscal 2016 budget assumed a deficit of $1.2 million or 1% of spending. The current projection reflects increased state funding and lower expenditures, including reduced staffing and energy costs. The fiscal 2016 projection also indicates a steady overall ending fund balance, but an increased unrestricted fund balance of almost $6 million or 5% of expenditures. The district's improved financial position has also resulted in improved liquidity. While cash flow borrowing was needed in the last two years ($10 million), current cash flow projections indicate no borrowing required for fiscal 2016.

STRONG COPS SECURITY

Legal provisions under the master lease are strong, requiring an all-or-none appropriation. In the event of non-appropriation, the district would relinquish rights to its pledged facilities, which are essential in nature (a primary school and high school). Fitch considers this a strong incentive to appropriate.

While the district may use any legally available revenues for COPs debt service, the district has used proceeds from a 1.5 mill capital outlay tax. 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 for lease payments. The district requires 0.620 mills of the levy for total COPs maximum annual debt service (excluding the federal subsidy for the Series 2010A QSCBs).

NARROW LOCAL ECONOMY

Power generation has long been a dominant county industry, with Duke Energy the district's top taxpayer and a major private employer. Duke Energy alone accounted for 15% of taxable assessed value (TAV) in fiscal 2015. Duke maintains four coal fired plants and a nuclear plant that closed in 2013 on a 4,700 acre site. Construction of a new $1 billion 1,640 megawatt natural gas power plant is planned, with construction beginning in 2016 and completion expected by 2018. The project is projected to create over 500 construction jobs and up to 100 permanent jobs when completed.

The district's TAV has declined annually in recent years, with a total decline of about 27% for fiscal years 2009 through 2015. Declines in fiscal years 2013 and 2014 reflected a tax appeal settlement with Duke Energy and the fiscal 2015 decline reflected closure of one of its facilities. Duke Energy filed a lawsuit challenging the calculation of the value of its Crystal River Energy Complex, which includes nuclear and coal power plants. A final judgement in March 2014 reduced values for the 2012 and 2013 tax rolls by $857 million and $2 billion, respectively. State aid was increased to adjust for most of the impact of the reduced values, although capital and discretionary local effort revenues were negatively affected by the reductions. TAV returned to growth in fiscal 2016, increasing by 3.3%. Continued growth is expected due to ongoing development projects, including the new Duke power plant and extension of the Suncoast Parkway into Citrus County.

Healthcare is also an important economic sector, although to a lesser degree. Citrus Memorial Hospital is the county's largest private employer with 1,400 employees. Seven Rivers Hospital is the third largest with over 500 employees. Although it has declined from 7.6% a year prior, the county's December 2015 6.6% unemployment rate remains above comparable state (4.7%) and national (4.8%) rates. County wealth and income indicators are below state and national averages.

LOW DEBT LEVELS

Overall debt levels are low at about 0.7% of market value and $695 per capita for fiscal 2014. Annual debt service as a percentage of governmental spending is also affordable at 4.2%. Amortization of debt is very slow (13% of par in 10 years) because the bulk of the district's debt relates to the Series 2010A QSCBs. Debt levels are expected to remain low, as no additional long-term debt is presently being contemplated.

The district provides pension benefits through the state-administered Florida Retirement System (FRS) and funds 100% of its required contribution. The FRS funding ratio as of July 1, 2014 was 86.6% or approximately 80.8% under Fitch's more conservative 7% discount rate assumptions. The district offers only an implicit subsidy for other post-employment benefits (OPEB) and funds the liability on a pay-as-you go basis. Total carrying costs including debt service, required pension contribution, and OPEB payment requirements were manageable at 9.2% of fiscal 2014 governmental spending.