Florida's Osceola School District planned a $106.5 million in sales tax revenue bonds deal this week to upgrade school facilities for its fast-growing population.
The bonds are rated Aa2 by Moody's Ratings and AA by Fitch Ratings, with stable outlooks.
They are supported by a half cent voter-approved sales tax.
The bond sale was scheduled amid some troubling economic signs for Osceola County, which sits just south of Orange County, home to Orlando.
"The county's economy is primarily tourism-driven," Moody's Ratings said in a report released earlier this month. Osceola County's northwest border is less than five miles south of
Tourism to the U.S. from abroad has reportedly started slipping since Donald Trump's second inauguration, amid frequent reports of travelers being
Tourism from Canada, in particular, is at risk. Canada is a key source of Florida tourists, and may Canadians
Arrivals of non-United States citizens by plane to the U.S. was down 10% in March from a year earlier, according to the International Trade Administration.
Buyers of the bonds should be concerned about the tourism decline, said Joseph Krist, publisher of Muni Credit News.
The amount of concern depends on answers to other questions, he said.
"The first would be how much do Canadians spend each winter? That is the international component I would worry about the most. In other communities which do depend on Canadians the evidence is that the real hit comes next year as even those who came this year are not renewing annual rentals for next year., Krist said.
"As for non-Canadian international travelers, the question is whether Trump immigration policies are upheld in court, whether or not the effort to weaken the dollar is enough to overcome foreign concerns about travelling," Krist said. "The other question which arises is
John Hallacy, president of John Hallacy Consulting, said, "Sales tax coverage of two times is a very good level. Even with a slowing of retail sales activity there is a sufficient buffer with this level of coverage.
"Reports are that Canadian visitor traffic has fallen precipitously," Hallacy said. "This trend will affect Osceola directly. No one knows how long this situation will persist but the bonds should be protected under most reasonable scenarios."
The bonds are primarily to be used for improvements to the Osceola County School for the Arts and Reedy Creek Elementary School. Leftover money will be used for other educational facility projects.
PFM Financial Advisors LLC is the municipal advisor and Greenberg Traurig, P.A. is the bond counsel. Nabors, Giblin & Nickerson, P.A. is the disclosure counsel.
In explaining its Aa2 rating of the district's sales tax bonds, Moody's said credit strengths were continuing economic development resulting in local share revenue growth and improving real estate value per capita. It said the district had a history of positive operations and maintaining adequate reserves.
The sales tax bond rating "reflects the broad nature of the pledge and the expectation that revenue will continue to provide strong coverage over 2x maximum annual debt service," the rating agency said.
Moody's also said the district has low leverage and fixed costs.
For credit challenges, the ratings agency said the district had significant capital needs to service expected enrollment growth.
"Future reviews will rely on the district's ability to at least maintain its current financial position as capital projects, estimated at a total cost of $1.2 billion per the district's capital plan, are funded through both cash and debt," Moody's said.
Further,
Skyrocketing population growth should help boost sales tax intake.
Osceola County's population increased 134% to reach 406,943 in 2024 from 172,493 in 2000, according to the U.S. Census Bureau.
County sales tax surtax receipts for fiscal 2024 were $45.82 million, down from $47.3 million in fiscal 2023, according to the preliminary official statement.
For planning purposes, the district assumes 3.1% annual growth rate in the sales tax surtax for the next five years, according to the POS.
The county's estimated market value of taxable property increased 70% to 2025 from 2021 and full value per capita increased 59% in the same period, according to Moody's.
The district's policies require maintaining a minimum of 6% unassigned General fund balance, with a target of 8% to 10%, Moody's said.
Florida state government typically provides about half of the district's operating revenue and the district anticipates minimal increases in state aid in fiscal 2026, Moody's said.
The district had $257.1 million of long-term debt outstanding on June 30, 2024, according to the POS, including $109.7 of capital outlook sales tax revenue bonds on parity with the new debt.
The district's long-term liabilities ratio was 110%, which, Moody's said, favorably compares to a Moody's Aa median of 301%. The ratio is debt plus adjusted net pension liabilities plus adjusted net post-employment benefits as a percent of annual operating revenue.
The district's five-year capital plan includes constructing three new K-8 schools, estimated at $80 million to 90 million each, financed entirely with cash from impact fee collections.
Debt service on the county's certificates of participation is payable from the board's annually appropriated lease payments and typically paid from, but not secured by, the district's capital outlay millage available for this purpose, Moody's said.
Regarding
Fitch said its AA rating of the bonds reflect greater than two times coverage of pro forma maximum annual debt service coverage in fiscal 2024 and "revenue cushion in the context of historical revenue declines and Fitch's moderate economic decline scenario."
The rating also "reflects Fitch's expectations for long-term pledged revenue growth that will continue to trend above the long-term rate of inflation over time, consistent with an 'aa' growth prospect assessment," Fitch said.
The dedicated sales tax security has enough exposure to the district's general operations that the rating is capped at the district's AA issuer default rating.
The county has a fast-growing population that will require school construction and the AA rating assumes that the district will sell additional bonds to approach the 1.5 times additional bonds test, Fitch said.
However, Fitch noted that much of the county's growth in school age children has been served by private or charter schools. Together they serve 34% of school-age children. "Traditional enrollment is expected to grow at a moderate pace," Fitch said.
The underwriters initially planned to price the bonds Tuesday but pricing information was not yet available by Wednesday afternoon.
Raymond James is the lead underwriter and BofA Securities and Jefferies are junior underwriters.
They are scheduled to have serial maturities from Oct. 1, 2026, to Oct. 1, 2036.
