Ames Comnty SD, IA GO Sch Bnds Lowered to 'AA-' by S&P

Business Wire, Oct 27, 1998

NEW YORK--(BUSINESS WIRE)--Oct. 26, 1998--Standard & Poor's CreditWire 10/26/98--Standard & Poor's today lowered its rating on Ames Community School District, Iowa's GO bonds to double-'A'-minus from double-'A'.

The outlook is stable.

The rating is lowered reflecting an inadequate financial position resulting from changes in accounting practices from a statutory to a GAAP basis in fiscal year 1996 and an operating deficit in fiscal year 1997, which together lowered available fund balances. Additional credit factors include a stable economy with a large tax base and low debt burden with rapid amortization.

The district's general fund balance in fiscal year 1997 was an inadequate negative $108,000 on a modified accural basis or $683,000 on a cash basis. Cash balance was equivalent to 2.3% of expenditures compared to 5.6% in fiscal year 1995 when cash fund balance was $1.5 million. The current fund balance level was largely a result of two factors. In fiscal year 1996 an accounting change from a statutory to a GAAP basis rendered a transfer of $1.3 million to other funds, subsequently designating it restricted and unavailable for general fund use. Although an operating surplus was reported in fiscal year 1996, net income did not compensate the loss in available fund balance monies.

In fiscal year 1997, the district incurred a deficit of $450,000 partially due to continued increases in mandatory special education spending. Although a special education tax levy funds this spending it is based on the previous year's expenses thereby inhibiting the coverage of incremental spending increases. Preliminary unaudited 1998 financial results show a partial recovery with an increase in cash fund balances to $770,000. A balance at this level, however, does not provide the necessary financial cushion for a district of this size. The district does not expect to reach its targeted fund balance level, equivalent to 10% of expenditures, until 2004-2005.

The district's economy benefits from the stability imparted by Iowa State University and the city of Ames. Tax base has increased 5.6% average annually over the past four years, reaching a taxable value of $1.2 billion in 1997. Leading taxpayers, representing 10% of taxable value, include commercial and manufacturing concern. Wealth and income levels are 10% below national averages but unemployment remains low at 2.78% (past 12 months). The district's student enrollment is currently 4,900. Debt burden is low at $800 per capita or 2.6% of market values.

OUTLOOK: STABLE

The stable outlook reflects the anticipation that the district will progressively improve its financial position to targeted and adequate levels, and experience continued economic growth, Standard & Poor's said. -- CreditWire