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

--$29 million refunding certificates of participation series 2016A;
--$11 million certificates of participation series 2016B.

Fitch has also affirmed the 'A+' rating for the $106 million of outstanding COPs.

The Rating Outlook has been revised to Positive from Stable.

The COPs are scheduled to sell during the week of March 21, 2016 via negotiated sale. Series 2016A proceeds will be used to refund series 2007 COPs for debt service savings. Series 2016B proceeds will fund renovation of school building and sports facilities.

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

MAINTENANCE OF IMPROVED FINANCIAL POSITION: The Positive Outlook reflects a stabilization and improvement of the district's finances. This has resulted in the maintenance of strong unrestricted general fund balances, at about 10% of spending since fiscal 2011, providing a good cushion against unforeseen budgetary challenges.

LOW DEBT LEVELS: The district's debt burden is modest and expected to remain so even with recent and the currently planned debt issuance. Carrying costs for debt, pension, and other post-employment benefits (OPEB) are also modest. Capital needs are manageable and there are no current near-term borrowing plans.

VOTER-AUTHORIZED TAXES IMPROVE FINANCIAL FLEXIBILITY: Independent revenue raising capacity is extremely limited. Additional discretionary tax levies approved by voters enhance financial flexibility but also introduce the risk of non-renewal, although voter support has been strong thus far.

MIXED ECONOMIC PROFILE: The presence of a wealthier retiree population lends some stability to the local economic base. However, employment opportunities are somewhat narrow and concentrated in lower wage jobs, and the county's unemployment rate remains above average.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL PERFORMANCE: The district's ability to maintain strong finances, including balanced operations and solid reserves, could lead to a rating upgrade.

MILLAGE RENEWAL: Failure of the voters to renew the discretionary levy, while not expected by Fitch, could pressure operations.

CREDIT PROFILE

Indian River County is located on the Atlantic coastline, approximately 135 miles north of Miami, and includes the cities of Vero Beach and Sebastian. The county's 2014 population is 144,745. The district operates 25 schools, including elementary, middle, and high schools, and additionally sponsors five charter schools. Total enrollment in 2016 is estimated at 17,693, with charter school enrollment at 2,257, or 13% of the total.

Overall enrollment has generally been flat in recent years, showing modest annual growth (less than 1%) and one annual decline (1% in 2014) since 2012. Excluding charter school enrollment, which has increased 15.5% since 2012, traditional school enrollment decreased a modest 2% since 2012. The district has indicated that the currently existing charter schools are now at capacity, and any future growth would likely be absorbed by district schools, which still retain adequate capacity. Recent applications from a charter school organization to open additional elementary and middle-school facilities in the district was rejected due to concerns about program design and adherence to federal desegregation mandates. The state department of education overturned the district's decision, but the district is filing an appeal with the 4th District Court of Appeals.

FINANCES STABILIZE AND STRENGTHEN IN RECENT YEARS

Conservative budgeting and fiscal practices have been a hallmark of the district's more recent positive operating performance. The district ended fiscal 2015 with a general fund surplus after transfers ($3.4 million or 2.5% of spending) that increased the unrestricted ending balance to $15.6 million, or 11.4% of spending. Positive operating results in fiscal years 2011 through 2015 demonstrate improved fiscal control after a low point in fiscal 2010 when general fund reserves fell to a thin $1.4 million (1.1% of spending). Since fiscal 2010, unrestricted balances have been above 9%, comfortably exceeding the district's fund balance policy minimum of 5%. The diminished fund balance in fiscal 2010 was due to significant mid-year state funding cuts, resulting in the use of reserves which had already been weakened in the prior two years, due in part to contractually mandated salary increases.

The fiscal 2015 budget initially assumed a $5.7 million deficit, but significantly lower than budget spending resulted in a surplus of $3.4 million. The district has typically outperformed budgeted expectations in recent years due to prudent budget practices implemented after fiscal 2010, including conservative spending estimates and significant budgeted spending reserves established in each annual budget to ensure balanced final results. The fiscal 2015 budget and the current fiscal 2016 budget included more than $3.5 million of these set asides. In addition, restructuring of labor contract provisions has resulted in better control of payroll expenditures.

The fiscal 2016 budget includes a $6.1 million use of reserves which would lead to an unrestricted general fund ending balance of $9.5 million or 6.3% of spending. However, the district currently projects better than budget performance and expects to keep fiscal 2016 reserves close to current levels, though a modest draw-down may be possible for one-time spending needs.

VOTER APPROVED TAX LEVY ENHANCES FINANCIAL FLEXIBILITY

Fiscal 2014 operations were bolstered by voter approval of a 0.6 mill property tax levy for technology expenditures, which generates approximately $8 million a year (about 6% of spending). The four year authorization garnered a strong 65.5% voter approval rate. The levy expires at the end of fiscal 2017, but the district expects to put an extension proposal on the ballot in August 2016. Given prior strong support, the district expects voter support for the extension. The district's ability to maintain strong finances, including balanced operations and solid reserves, while managing tax levy renewal, is an important credit factor.

MANAGEABLE LONG-TERM LIABILITIES

Debt levels are very low at approximately $1,000 per capita and 0.8% of market value for fiscal 2015. Debt service as a percentage of governmental spending is average at about 7%. The five year capital improvement program (CIP) totals about $44 million and will be financed on a paygo basis with no additional debt contemplated. Capital funding sources include excess capital outlay millage (about $12 million after payment of debt service) and impact fees. The district remains compliant with the state's class size requirements.

Carrying costs related to debt service, pension and other post-employment benefits (OPEB) accounted for a low 11% of fiscal 2015 governmental spending. The district participates in the Florida Retirement System (FRS) which Fitch considers adequately funded.

MASTER LEASE & CAPITAL LEVY - STRONG APPROPRIATION INCENTIVE

The district has historically paid debt service on COPs with revenue from its capital outlay millage, although all legally available revenues may be used for this purpose. Of the statutorily authorized 1.5 mills, the district allocates a relatively moderate 0.8 mills of the capital outlay levy to service COPs debt service.

The master lease structure on the COPs is strong, requiring an all-or-none appropriation. In the case of non-appropriation, the trustee is authorized to require the district to surrender use of all facilities under the master lease, which house 28% of the district's full-time equivalent enrollment. Fitch considers this a strong incentive to appropriate.

NARROW ECONOMIC PROFILE

The economy of Indian River County is historically based in agricultural production and tourism. Ample developable waterfront land and a relative lack of congestion serve to attract a significant wealthy retiree population, which is evident in above average per capita income levels. The median age of county residents is well above both the state and nation. Median family income lags the nation and poverty levels approximate the national rate.

Strong population growth of almost 20% from 2000 to 2010 fed a retail and service-based economy including a considerable construction and real estate component, which has proven extremely vulnerable to the effects of the national recession. A steep 28% decline in taxable property values occurred from the peak in fiscal 2007-08 to the trough in fiscal 2012-13, but stabilization is now apparent with annual increases of 1.5% to 7.7% in fiscal years 2014 to 2016. The estimated market value of real property per capita is strong, at about $128,000. The county's December 2015 unemployment rate of 5.9% remains above comparable state (4.8%) and national (5.0%) averages, but is improved from 6.2% a year earlier due in part to contraction of the labor force.