FITCH RATES BROWARD COUNTY SCHOOL BOARD LEASING …

FITCH RATES BROWARD COUNTY SCHOOL BOARD LEASING

CORP., FL COPS 'A+'; OUTLOOK TO NEGATIVE

Fitch Ratings-Tampa-18 May 2011: Fitch Ratings has assigned an 'A+' rating to the following

Broward County School Board Leasing Corp., Florida's (the district) Certificates of Participation

(COPs):

--$175 million refunding COPs, series 2011A.

The COPs are expected to sell via negotiation on May 19.

In addition, Fitch affirms the following ratings:

--Implied general obligation at 'AA-';

--$1.9 billion COPS at 'A+'

The Rating Outlook is revised to Negative from Stable.

RATING RATIONALE:

--The Outlook revision to Negative reflects concerns about the district's ability to accommodate

substantial budgetary shortfalls with ongoing expenditure solutions while maintaining at least the

current modest level of financial flexibility.

--The 'A+' rating on the COPs reflects the general creditworthiness of the school district and the

obligation to make lease payments in amounts sufficient to pay principal of and interest on the

certificates from legally available funds, subject to the annual appropriation by the school board.

--In Fitch's view the school board has a strong incentive to appropriate to make lease payments

given the large share of educational facilities captured under the master lease program requiring

all-or-none appropriation, and its reliance on certificate indebtedness to finance capital needs.

--The capital outlay millage required to service the district's outstanding COPs is well above

average, limiting revenue available for pay-go funding of capital and capital maintenance.

--Debt levels are low, and the district has materially reduced its capital improvement plan (CIP) in

recent years in response to the weakened revenue environment.

--Long-term economic prospects remain favorable given improved economic indicators and the

county's deep and diverse economic profile.

WHAT COULD LEAD TO A RATING DOWNGRADE:

Maintenance of the current rating will depend on the district's ability to accommodate state revenue

volatility and expenditure pressures while maintaining at least the current level of reserves.

SECURITY:

The COPs are secured by lease payments, subject to annual appropriation, made by the district to

the trustee, as assignee of the Broward County School Board Leasing Corporation (the corporation),

a Florida not-for-profit corporation. The pledged assets consist of a large percentage of essential

district facilities under a master lease agreement which requires the school board to appropriate on

an all-or-none basis. In the event of non-appropriation or lease default by the school board, the

school board must surrender all assets leased under the master lease to the trustee.

CREDIT SUMMARY:

Financial results for the district have been somewhat volatile with structural imbalances

contributing to moderate operating deficits in four of the last five audited years, driven partially by

mid-year state funding reductions. General fund reserves were reduced by nearly $18 million in

fiscal year (FY) 2010 due largely to budget variances in state revenues. The unreserved fund

balance at the close of FY 2010, equal to 3.2% of spending and transfers out, continues to provide

the minimum level of financial flexibility for the rating and is above the district's 3% policy floor.

The district was pressed to address a $100 million budget gap for FY 2011 and adopted a balanced

budget by approving a one-year, 0.25 mill critical needs levy for operations, reducing department

and school budgets, and utilizing non-recurring federal funding. District officials report that they

expect to add between $10 million and $20 million to the unreserved general fund balance at the

close of FY 2011.

FY 2012 will be challenging given the elimination of federal support for schools and the 0.25 mill

critical operating needs levy as well as substantial state funding reductions. Officials plan to close a

$141 million funding gap, equal to nearly 8% of spending, with a variety of recurring and one-time

measures including meaningful reductions in teaching and administrative staff. In addition, a new

statute lowering the district's employer contribution rate to 3.77% toward the district's Florida

Retirement System (FRS) payment is expected to save the district between $65 million and $85

million annually. District officials plan to maintain fund balance at the current level in FY 2012 but

will likely face additional budgetary challenges in FY 2013 given the use of some one-time

measures to balance the FY 2012 budget, and reduced expenditure flexibility given reductions made

in prior years.

Fitch reviewed the findings and district response to the Statewide Grand Jury report that was

released in February 2011 which investigated the functioning of the school board and district staff.

The Grand Jury and Florida Department of Law Enforcement found no specific violations of any

criminal law and returned no indictments. Although the district has established an ethics committee

that addresses many of the issues identified by the report, Fitch remains concerned about the

findings' indications of management and governance weakness.

While the district may use any legally available revenue for COPS debt service, the district has

historically allocated revenue for this purpose from its capital outlay millage. Florida school

districts have traditionally been permitted by the state to levy 2 mills for capital outlay, with

three-quarters of the levy allowed to be used for COPS debt service. Over the past few years, the

state has lowered this levy to its current level of 1.5 mills. As part of the legislation, a waiver was

implemented on the limit on use of proceeds for COPS debt service. Due to recent declines in

assessed value and including a 12.5% reduction in FY 2011, the millage used for maximum annual

debt service (MADS) on the district's debt has increased to a high 1.2 mills. The State Legislature's

Office of Economic and Demographic Research (ED) anticipates a small 2.3% taxable assessed

value decline for FY 2012 followed by gradual recovery. In addition to requiring a greater portion

of the capital outlay levy to support debt, the weakened tax base directly reduces revenue available

to support ongoing maintenance and infrastructure needs.

Overall debt for the district remains low relative to the vast county taxbase and population. While

high relative to the capital outlay levy alone, debt service on outstanding COPs utilizes an

affordable 8% of all tax-supported funds resources. Debt levels should remain affordable; the

district states that capital needs are limited to general maintenance due to the high level of building

and renovations completed in the past few years. The current fiscal 2011-2015 CIP totals a sizeable

$1.3 billion, although slightly more than $1 billion represents COPs repayment with approximately

$300 million required for new projects. The district has no plans for additional long-term

tax-supported debt.

Broward County, which is coterminous with the school district, is situated on Florida's Atlantic

coast between Miami-Dade and Palm Beach counties. Broward ranks as Florida's second most

populous county, with an estimated 1.76 million residents in 2009, contributing to the school

district's status as second largest in the state and sixth in the nation. The county is home to 31

incorporated municipalities including Fort Lauderdale, Coral Springs, and Hollywood. Fort

Lauderdale-Hollywood International Airport and Port Everglades are each located within the

county. Significant cruise terminal investments at Port Everglades have helped lock in long-term

cruise passenger commitments expected to generate higher annual passenger throughput.

The housing market and general economic contraction remain a concern but some recovery is

evident; county unemployment for March 2011 was on par with the nation at 9.3%, well below the

state and down 5.1% from a year earlier. While single-family home price contraction in the MSA

has lessened in recent quarters, Fitch believes that prices will retract further before stabilizing at

levels much lower than the highs reached in 2006.

Contact:

Primary Analyst

Kelly McGary

Senior Director

+1-813-224-0492

Fitch, Inc.

100 N Tampa Street

Tampa, FL

Secondary Analyst

Barbara Ruth Rosenberg

Director

+1-212-908-0731

Committee Chairperson

Amy Laskey

Managing Director

+1-212-908-0568

Media Relations: Cindy Stoller,

cindy.stoller@.

New

York,

Tel:

+1

212

908

0526,

Email:

Additional information is available at ''

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action

was additionally informed by information from Creditscope, University Financial Associates,

S&P/Case-Shiller Home Price Index, IHS Global Insight.

Applicable Criteria and Related Research:

'Tax-Supported Rating Criteria', dated Aug. 16, 2010.

'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.

For information on Build America Bonds, visit BABs.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria



U.S. Local Government Tax-Supported Rating Criteria



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