School District earns A+ financial rating
In the course of routine evaluation, Fitch Ratings has affirmed the “A+” rating on the School District’s approximately $530.9 million of outstanding certificates of participation issued through June 2006. The Rating Outlook is Stable.
The “A+” rating is based on the district’s sound financial position, including healthy reserve levels and low debt ratios, district officials said in a prepared statement. Weakened economic indicators and tax base contraction have implications for the district’s capital funding; however, enrollment declines have eased some pressure on capital needs. The essential nature of leased projects enhanced by a master lease-purchase agreement, which requires the district to appropriate lease payments on an all-or-none basis, is also a credit factor. A key rating driver is the district’s ability to maintain ample financial flexibility, given the current recessionary environment and the potential for additional cuts to state aid.
The COPs are secured by lease payments made by the district to the trustee as assignee of the Lee County School Board Leasing Corporation, which is a not-for-profit corporation created to assist the district in lease-purchase financing. The obligation of the district to make lease payments is limited, payable solely from funds appropriated from available revenues. The master lease-purchase agreement provides strong incentive for appropriation; approximately one-third of the district’s school facilities are leased under the agreement. In the event of non-appropriation, the district must surrender all leased facilities to the trustee.
An enormous expansion of the local housing market fueled rapid economic growth for most of this decade. However, the current economic recession has severely affected the area, evidenced by a 6.6 percent decline in 2008 total non-farm employment and a stark increase in the February 2009 unemployment rate to approximately 12 percent.
The district’s tax base contracted by 8.1 percent in FY09 and officials estimate an additional 13 percent decrease in fiscal 2010. Tax base declines affect the district’s capital resources, but a recent drop in enrollment alleviates some of its school facility needs. The district’s healthy reserve levels provide it with a degree of financial flexibility during the current economic recession.
Having grown by over 100 percent since FY03, the FY08 unreserved general fund balance equaled $90.3 million, or a sound 14 percent of spending. The district expects no draw on FY09 general fund balances after officials made numerous spending reductions, including the elimination of 150 positions, to offset reductions in various forms of state funding. Officials’ plans to mitigate up to a $70 million cut in FY10 state aid, including additional sizeable reductions in staff. The district does not intend to draw on its general fund balances in FY10.
Overall net debt equals $1,913 per capita or 1.0 percent of market value. The district has delayed most of its capital projects for two years and has no immediate plans to issue additional COPs, which should keep debt ratios low. The district added nearly 10,000 students from 2005-2008; however, enrollment trends have begun to reverse. The 2008/09 enrollment fell by approximately 1,000 students to 78,540, and the district is anticipating additional enrollment declines next year. The district does not plan to pre-fund its moderate $71 million other post-employment benefits liability through the use of a trust.
Source: School District of Lee County