Fitch Rates Volusia County School Board, Florida COPs 'A+'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an underlying 'A+' rating to the School Board of Volusia County, Florida's approximately $136.1 million certificates of participation (COPs) (School Board of Volusia County, Florida Master Lease Program), series 2006A. Scheduled to be sold the week of Jan. 9, 2006 via negotiation with Citigroup as the lead underwriter, the COPs mature Aug. 1, 2012-2031 and are expected to be insured by Financial Security Assurance Inc. Concurrently, Fitch affirms both the underlying 'A+' rating on the district's approximately $122.5 million in outstanding COPs and the 'A+' rating on the district's $186.8 million in outstanding sales tax revenue bonds. The Rating Outlook is Stable.

The underlying 'A+' rating on the COPs is based on sound legal provisions and the district's stable financial operations, steady tax base growth, moderate overall debt levels, and an established yet still somewhat concentrated economy. Proceeds from a countywide capital outlay sales tax and impact fees greatly assist the district in meeting its manageable capital plan. Similar to other school districts in the state, the limited revenue-raising ability and sizable expenditure pressures, particularly related to state-mandated class size reduction, make the district vulnerable to state-funding declines. However, this concern is mitigated by the district's prudent budgeting practices and healthy reserve levels.

The COPs are secured by lease payments made by the district to the trustee, as assignee of the Volusia School Board Leasing Corp., which is a Florida not-for-profit corporation created to assist the district in lease-purchase financing. The obligation of the district to make lease payments is a limited obligation, payable solely from funds appropriated by the district from available revenues. The series 2006A COPs are being issued pursuant to a master lease agreement; in the event of non-appropriation, the board must surrender all leased facilities to the trustee (approximately 23% of the district's school buildings). The incentive to appropriate is high, owing to the essential nature of the projects under the master lease. With the current issue, COP repayments consume 0.68 mill out of the 2.0-mill capital outlay property tax levy.

The district's financial operations are consistently strong, with general fund surpluses recorded for the past three consecutive fiscal years. Unaudited results for fiscal 2005 indicate that the unreserved general fund balance is estimated at a strong 6.3% of expenditures and other uses. Although the district retains a degree of budgetary vulnerability with state funding as its primary revenue source, the district's prudent budgeting practices and healthy reserve levels should provide ongoing fiscal stability. The adopted budget for fiscal 2006 incorporates a slight decline in state funding due to less-than-projected enrollment growth, and officials anticipate a small use of fund balance.

The fully funded five-year capital plan through fiscal 2010 totals a manageable $678 million in expenditures and reflects significant increases in construction costs. A high 44% of the plan will be funded on a pay-as-you-go basis from impact fees, surplus sales tax revenues, and proceeds of the 2.0-mill capital outlay levy not used for COP payments. Fueled by ongoing commercial and residential development activity, tax base growth has averaged a strong 11% annually over the past five fiscal years, and is estimated to grow a robust 17% for fiscal 2006. The district anticipates the issuance of an additional $60 million in sales tax revenue bonds in fiscal 2006 and an additional $73 million in COPs in fiscal 2007.

Located on Florida's central Atlantic coast, the school district's boundaries are coterminous with those of Volusia County (rated 'AA-' with a Stable Outlook by Fitch). The area economy is primarily tourism driven, and the county is home to Daytona Beach, a popular drive-to spring break destination, and the headquarters of NASCAR. Events hosted annually at the Daytona International Speedway include the NASCAR Daytona 500 and several other major auto-racing events. Unemployment rates remain below those of the state and the nation, and income levels are slightly below average.

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