OREANDA-NEWS. Fitch Ratings has assigned a 'AA-' rating to the following Lee County School Board, FL certificates of participation (COPs) :

--$60,080,000 COPs, series 2016A.

The COPs will be sold via negotiation the week of July 18. Proceeds will be used to finance the acquisition, construction, and installation of a new high school.

Fitch affirms the following Lee County School Board ratings:

--Issuer Default Rating (IDR) at 'AA';

--COPs, series 2006A, 2012B, 2014A, and 2014B, at 'AA-'.

SECURITY

The COPs are payable from installment payments made by the Lee County School Board subject to annual appropriation. The COPs are also backed by a leasehold security interest in certain school facilities.

KEY RATING DRIVERS

The 'AA' IDR reflects the school board's history of generally stable financial results and maintenance of reserves that provide a strong cushion against unforeseen revenue changes and other budgetary challenges. The rating is also supported by expectations for continued low long-term liabilities despite the potential for additional issuances to fund growth-driven new school construction. The district retains a solid capacity to control its main expenditure drivers, but revenues are largely dictated by the state legislature and changes in the district tax base with only marginal independent ability to increase revenue. The 'AA-' rating on the COPs is one notch below the IDR, reflecting the slightly higher degree of optionality associated with lease payments subject to appropriation.

Economic Resource Base

The Lee County School Board covers the same geographic territory as Lee County, encompassing an area of approximately 811 square miles along Florida's Gulf Coast including the cities of Fort Myers and Cape Coral and Sanibel Island. Enrollment was 88,335 in 2015 and has expanded at a steady pace. Economic activity is driven by healthcare, tourism, and construction with each sector fueled by strong growth in the county population over the last several decades and a significant retiree presence. While current employment and housing metrics are strong, the growth driven nature of the economy exposes it to periodic downshifts. Resident income and educational attainment are generally in line with state norms.

Revenue Framework: 'a' factor assessment

The district's revenue framework assessment reflects its strong prospects for revenue growth driven by the expansion of its population and enrollment. These positive growth factors are balanced against the district's dependence on state-determined revenues and lack of independent revenue raising authority.

Expenditure Framework: 'aa' factor assessment

Enrollment, salary and benefit costs related to teachers are the main drivers of school district expenditures. While the district retains solid legal control over employee-related expenditures, they do create some pressure on the budget as the district retains fairly limited capacity under state class size legislation guidelines. Fixed cost charges associated with debt and retiree benefit liabilities are low at less than 10% of spending.

Long-Term Liability Burden: 'aaa' factor assessment

The district's long-term liability burden is low at close to 4% of personal income. District debt, which makes up about half of the long-term liability metric, is repaid rapidly providing flexibility for future borrowing needs. Pension benefits are provided through the state administered Florida Retirement System (FRS); the Fitch-adjusted funded ratio for FRS is 84% based on most recent actuarial data.

Operating Performance: 'aaa' factor assessment

District revenues have exhibited a relatively low level of volatility through prior economic cycles. and the district consistently maintains a solid financial cushion that positions it to manage the challenges associated with a moderate downturn while maintaining a high level of financial flexibility.

RATING SENSITIVITIES

Financial Resilience: Prolonged deterioration in the district's financial resilience or budget flexibility could result in consideration of a rating downgrade.

Revenue Profile Shift: Although not anticipated, developments that enhance the district's independent revenue raising authority and overall financial flexibility could result in consideration of a rating upgrade.

CREDIT PROFILE

Estimated at 682,822 in 2015, the county's population has risen 10% since 2010 and nearly 55% since 2000. The local economy is greatly influenced by growth driven demand for construction and housing. Unemployment surged to a high of 12.5% in 2009 during the midst of the housing market collapse, which saw median home values in Lee County slide roughly 55% from peak to trough according to Zillow Group. Home values are up 12% on the year to almost $210,000 or about 70% of the pre-recession peak and Zillow forecasts an additional 4% gain in value over the ensuing year. Annual employment increased 29% from 2010-2015 and the county's May 2016 jobless rate of 4% is equal to that of the state and below the 4.6% national benchmark. IHS forecasts nonfarm employment and population growth of 2.3% and 2.4% per year from 2016-2020 for the Cape Coral-Fort Myers metro area. Fitch believes these factors support expectations for continued growth in enrollment, the key driver of district revenue.

Revenue Framework

The Florida Education Finance Program (FEFP) is the primary mechanism for funding the operating costs of Florida school districts. The FEFP process determines a base per student funding level split between state funds, largely derived from statewide sales tax revenue, and local funds via the required local millage rate established pursuant to state statutory procedure. Discretionary taxes for operations and capital/maintenance are also levied by the district up to the statutory maximum rates of 0.748 mills and 1.5 mills, respectively.

General fund revenues have grown at a strong pace exceeding the rate of U. S. economic performance over the prior 10 years, which is largely due the district's better than 2% annual growth in enrollment and to a lesser extent taxable assessed value (TAV) that benefitted discretionary tax revenues, as the base level of FEFP funding was nearly flat during this period. Fitch anticipates moderate growth in enrollment going forward based on expectations for economic and population growth in the Cape Coral-Fort Myers metro area. Furthermore, state revenue performance has returned to steady growth, which should benefit FEFP funding levels absent education funding policy changes. The enacted state budget for fiscal 2017 includes a roughly 1% increase in the level of per pupil funding.

Although Florida school districts essentially have very limited ability to independently increase general fund revenues, this limitation is not as significant a factor in the assessment of the revenue framework given the recognition of K-12 education as fundamentally a state responsibility and the strong foundation of state support for education funding.

Expenditure Framework

Salaries and benefits account for more than 70% of general fund spending; purchased services including engineering, auditing, and other consulting costs make up the bulk of other operating costs.

Fitch expects the pace of spending growth will generally match revenue trends going forward as increased spending demands fueled by enrollment growth are funded by corresponding increases in FEFP funding and increased local revenues fueled by tax base expansion.

Wages and benefits are collectively bargained between the district and unions representing teachers and support staff. Both unions are operating under current contracts with wage reopeners. The district characterizes its relationship with labor as collaborative. Under Florida law a bargaining impasse is ultimately resolved by action of the governing body of the local government following the conclusion of a non-binding mediation process.

Personnel costs are also influenced by Florida's class size legislation, which imposes minimum student-teacher ratios at different grade levels. The district is essentially in full compliance with class size requirements; it reports being out of compliance by two students in one classroom in one of its barrier island schools.

Spending related to debt service, pension, and retiree health benefits consume a relatively modest share of general fund resources at roughly 9% of spending. Fitch expects the district's carrying charges related to these liabilities to rise moderately based on future debt issuance plans to fund new school construction necessary to meet enrollment growth.

Long-Term Liability Burden

Long-term liabilities associated with debt and the district's share of the net pension liability of the Florida Retirement System (FRS) are estimated by Fitch at 4% of personal income (or 1.3% of market value). The long-term liability metric would remain well within the 10% threshold for a 'aaa' assessment after conservatively factoring in potential debt issuance to fund the district's 2016-2020 capital plan, which totals roughly $360 million excluding debt service on outstanding obligations. The district has approximately $410 million of debt outstanding as of June 30, 2015 which amortizes at a rapid rate of more than 70% in 10 years.

Direct debt accounts for roughly 50% of the long-term liability metric and is almost entirely comprised of certificate of participation (COP) indebtedness. Installment payments due on outstanding COPs are essentially paid from revenue generated from the levy of the 1.5 mill local option capital outlay tax. Up to three-fourths of the proceeds of the tax are made available to make installment payments due on outstanding COPs (this limitation is waived for all lease purchase agreements entered prior to June 30, 2009). Fitch estimates revenue from the local option capital outlay tax of $54.2 million based on a TAV of $37.7 billion for fiscal 2015 and 96% collection rate. MADS on all outstanding COPs will total less than $45 million following this issuance. The balance of the local option capital outlay tax after the payment of COP installment payments is available for capital investment on a pay-as-you-go basis.

Operating Performance

The three-year revenue scenario generated by Fitch's analytical sensitivity tool (FAST) depicts a relatively low level of volatility in response to a moderate economic downturn. The relative stability of the district's general fund revenues is underpinned by its favorable enrollment history. During the last economic downturn the district experienced only a single year of enrollment loss, a 1% drop off in fiscal 2009 before returning to consistent growth of 1-2% per annum. In the unaddressed scenario the district would maintain a minimum financial cushion equivalent to 10% of spending, well above the reserve safety margins for 'aaa' level financial resilience that corresponds with Fitch's view of the district's inherent budget flexibility.

The district's budget management has been sound and is evidenced in the maintenance of a large financial cushion throughout varying operating environments. The district does not have a formal fund balance policy, but general fund unrestricted or unreserved balances have equaled no less than 11% of spending over the prior decade and 16% at the end of fiscal 2015. The district does not have a formal fund balance policy. Florida law establishes a minimum unrestricted general fund balance equal to 2% of projected revenue for all school districts.

The fiscal 2016 budget depicts a net operating loss of $78.3 million after transfers and a general fund balance equal to $51 million at year end or 6.5% of spending. Historical results tend to show a very favorable variance relative to the budget (the fiscal 2015 budget depicted a similarly large drawdown and year end fund balance). This is explained in part by a state law requirement that school districts apply a collection rate of 96% to budgeted property tax revenue. Actual collection rates have averaged 98% the last 10 years. The district also conservatively budgets instructional expenses achieving a savings of roughly 10% or $50 million relative to the budget in fiscal 2015. Management reports similar financial results for fiscal 2016 compared to last with a moderate use of fund balance of up to $3 million in the worst case scenario (or approximately 0.5% of spending).