Fitch Ratings has upgraded the rating on the following Polk County School District, Florida (the district) bonds:

--$96 million sales tax revenue bonds series 2005 and 2007 to 'A-' from 'BBB+'.

In addition Fitch affirms the ratings on the following:

--Polk County School District, FL's implied unlimited tax general obligation (ULTGO) at 'AA-';

--$53 million Polk County School Board Financing Corp., FL's certificates of participation (COPs) series 2003B and 2010A at 'A+'.

The Rating Outlook is Stable.

SECURITY

The sales tax revenue bonds are payable from a senior lien on a one half cent local government sales surtax and a debt service reserve fund satisfied by surety bonds.

The COPs are backed by lease payments made by the district to the trustee pursuant to a master lease purchase agreement. Lease payments are payable from legally available funds of the district, subject to annual appropriation by the Polk County School Board. The district is required to appropriate funds for all outstanding leases on an all-or-none basis. In the event of non-appropriation, all leases will terminate, and the district would, at the trustee's option, have to surrender all lease-purchased projects for the benefit of owners of the COPs which financed or refinanced such projects.

KEY RATING DRIVERS

IMPROVED SALES TAX COVERAGE: The sales tax revenue bond rating upgrade reflects stronger debt service coverage. Following recessionary declines, sales tax revenues have grown annually since fiscal 2011, resulting in adequate coverage of debt service. Current fiscal year-to-date collections continue to show good growth.

SOUND FINANCES: The implied ULTGO rating of 'AA-' reflects a history of sound financial management and budgeting practices resulting in adequate reserve levels. The fiscal year 2015 budget assumes a large reserve draw-down. However, the district tends to budget conservatively and expects either balanced operations or a modest surplus, with reserves remaining close to current levels.

BELOW AVERAGE ECONOMIC INDICATORS; CONTINUED TAV GROWTH: Polk County unemployment has been declining, but the current unemployment rate remains above state and national levels. County income indicators are below average. Following annual taxable assessed value (TAV) declines in recent years, district values returned to growth in fiscal 2014, with continued growth in fiscal 2015.

LOW DEBT BURDEN: District debt levels and overall as carrying costs, including required pension payments, other post-employment benefits (OPEB) and debt service payments are low. Debt levels should remain low given the absence of additional borrowing plans and rapid amortization of outstanding debt.

COPS APPROPRIATION RISK: The one-notch distinction between the implied ULTGO and COPs ratings incorporates the slightly enhanced risk associated with annual appropriation. The all-or-none appropriation feature of the master lease and the essential nature of leased assets, which are subject to surrender in the event of non-appropriation, temper this risk.

RATING SENSITIVITIES

MAINTENANCE OF RESERVES: The district's history of maintaining adequate reserves while addressing operating and capital needs indicates continued rating stability. A decline in reserves to levels below policy targets would pressure the rating.

SALES TAX REVENUE AND DEBT SERVICE COVERAGE GROWTH: Continued strong sales tax growth and increased debt service coverage levels could lead to an improved rating on the sales tax revenue bonds.

CREDIT PROFILE

Polk County lies on the Interstate 4 corridor, 25 miles east of Tampa and 35 miles southwest of Orlando. Its 2013 population of 623,009 represents an increase of 27% since 2000. District enrollment (about 96,000 students in 2015) has been steady, with modest growth in recent years, which management expects to continue.

SOUND FINANCIAL OPERATIONS

District finances have historically been sound, with unrestricted fund balances exceeding the district's policy requiring an unrestricted balance at 5% of general fund revenues and incoming transfers. The district increased reserves in fiscal years 2010 and 2011, primarily from American Recovery and Reinvestment Act (ARRA) and Federal Education Jobs Bill funding, with the plan to use a portion to offset future revenue declines. The district did draw down reserves in fiscal years 2012, 2013, and very modestly in fiscal 2014, but in lesser amounts than originally budgeted due to conservative revenue forecasts and prudent management of expenditures.

Fiscal 2014 general fund operations were essentially balanced, as compared to an initial budgeted deficit estimated at of $15.7 million (2.2%). This resulted in a fiscal 2014 unrestricted ending balance of $46.7 million or 6.6% of spending, an increase from 6.4% at the end of fiscal 2013. The current fiscal 2015 budget estimate assumes a general fund deficit of about $14.2 million (about 2% of spending), but the district has indicated that actual results are again expected to be better. The district is currently expecting balanced operations or a modest surplus for fiscal 2015, with the final unrestricted fund balance at about 7% of spending.

IMPROVED SALES TAX PERFORMANCE

Sales tax collections have seen annual growth since fiscal 2011. Fiscal 2014 sales tax receipts increased by 5.3% to $35.9 million, following increases of 6.2% and 5.4% in fiscal years 2012 and 2013, respectively. Coverage of sales tax bond maximum annual debt service (MADS) has improved to 1.38x in fiscal 2014, up from 1.29x in fiscal 2013, 1.22x in fiscal 2012 and a slim 1.11x to 1.17x in prior years. The additional bonds test is lenient, requiring only 1.25x coverage of MADS by pledged revenue in any 12 consecutive months out of the immediately preceding 18 months. The sales tax will expire at the end of 2018, two months after the final maturity of the bonds, which guards against additional leverage.

Solid sales tax collection trends continue in fiscal year 2015. For the three month period of July through September 2014, revenues are up by 8.7% from the same period in the prior year. Tax collections can decline by approximately 27% from fiscal year 2014 levels before coverage of MADS falls to 1.0x.

STRONG COPS SECURITY

Legal provisions under the master lease are strong, requiring an all-or-none appropriation. In the event of non-appropriation, the district would relinquish rights to its pledged school facilities which represent over 20% of total facilities. Fitch considers this a strong incentive to appropriate.

While the district may use any legally available revenues for COP debt service, the district has used proceeds from the 1.5 mill capital outlay tax. The capital outlay millage is authorized by state law up to 1.5 mills. Up to three-fourths of the proceeds of the capital levy is available for lease payments. Effective July 1, 2012, the three-fourths limitation was waived for lease purchase agreements entered into prior to June 30, 2009, and the majority of the district's COP debt leases were issued prior to this date. COPS MADS requires about .75 mills. The district expects no additional new money COPs to be issued in the near future.

The district has variable-rate COPs debt outstanding totaling about $123 million or about 35% of total direct debt as of fiscal 2014. The district's variable-rate position is hedged with derivative contracts with Citibank, N.A. (long-term IDR of 'A' by Fitch) with a negative net mark-to-market value of $24.1 million as of June 30, 2014, down from $25.4 million a year prior. This exposes the district to counterparty risks not commonly present for school districts, which have limited financial flexibility.

LOW DEBT AND CARRYING COSTS

Overall debt levels are low at 1.5% of market value and $872 per capita for fiscal 2014. Annual debt service as a percentage of governmental spending was moderate at 5.7%. Amortization of debt is rapid at about 70% in 10 years. Debt levels are expected to remain low, as no additional near-term debt issuance is planned.

The district provides pension benefits through the state-administered Florida Retirement System (FRS) and funds 100% of its required contribution. Pension costs were a low 3.3% of total governmental spending in fiscal 2014. The FRS funding ratio as of June 30, 2013 was 85.4% or 78.9% under Fitch's more conservative 7% discount rate estimate. The district offers only an implicit subsidy for other post-employment benefits (OPEB) and funds the liability on a pay-as-you-go basis. The fiscal year 2014 OPEB contribution was 0.4% of governmental spending. Total debt service, required pension contribution, and OPEB payment requirements were modest, at 9.4% of governmental spending.

BELOW AVERAGE ECONOMIC INDICATORS; ASSESSED VALUE IMPROVEMENT

Citrus and phosphate mining have historically been key sectors for the county economy, though there has been diversification in recent years into insurance, health care, light manufacturing, and distribution. County residents benefit from the proximity of the Tampa and Orlando metropolitan employment centers. The county stands to benefit from various development projects that are recently implemented or underway including a recently opened Florida Polytechnic University campus, a new Amazon distribution center, and hotel facilities expansions associated with Legoland and the Streamsong resort, which are expected to increase tourism activity and benefit local sales tax collections.

County unemployment declined to 6.6% as of November 2014 from 7.4% a year prior, but still remains above average compared to state (5.6%) and national (5.5%) rates. Income and wealth indicators are below average.

Significant weakening in the local real estate market in recent years decreased the district's TAV by about $11 billion (31%) from 2009 through 2013. After consecutive annual declines, TAV returned to growth (4.4%) in 2014, with additional growth in 2015 (5.4%). Management projects continued moderate growth in the near term, which seems reasonable given on-going development and recent housing sector improvement.

Additional information is available at 'www.fitchratings.com'.

Additional Disclosure

Solicitation Status

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