Fitch Rts William S. Hart Union HSD, California $70MM GOs 'AA-'

Business Wire, April 16, 2003

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--April 16, 2003

Fitch Ratings assigns a 'AA-' rating to William S. Hart Union High School District, CA $70,000,000 general obligation bonds, 2001 election, series A. The bonds are scheduled to sell through negotiation with Stone & Youngberg LLC the week of May 5, 2003. The Rating Outlook is Stable.

The 'AA-' rating reflects William S. Hart Union High School District's (the district's) healthy economy, adequate fund balances, low debt levels, and good assessed valuation growth. These strengths are somewhat offset by growth-related capital needs and, given the state budget crises, concerns over potential reductions in state education funding. Management has prudently identified potential expenditure cuts to offset state revenue shortfall projections in fiscal 2004. Like all local governments in California, the district's planning is hindered by sizable uncertainty regarding state funding.

The district's economy is healthy, marked by high wealth levels, low unemployment, and a diverse tax base. It is located in the northwestern part of Los Angeles County, covering 370 square miles and encompassing an estimated 2000 population of 213,178. The City of Santa Clarita comprises 68% of the district's assessed valuation, with the remaining tax base unincorporated. Current facilities consist of four junior high schools, four comprehensive high schools, two alternative schools, and one continuation high school. Enrollment in the current year is 20,058 and is projected to increase to over 26,000 by 2009. Capital needs are extensive, as outlined by the district's $510 million master plan, due to rapid enrollment growth and deferred modernization. Assessed valuation gains have been strong, averaging 10.8% annually since fiscal 1999, with a healthy increase of 10.9% in fiscal 2003.

Financial operations are sound, highlighted by general fund operating surpluses in each of the last three years. The fiscal 2002 ending general fund balance equaled an adequate 3.7% of expenditures and transfers out, most of which is unreserved, and has averaged 3.4% of spending over the last three years. Including a separate fund that accounts for a portion of the 3% state required reserve for economic uncertainty, the fiscal 2002 fund balance increases to $7.3 million, or a good 6.4% of spending. A slight draw down of the general fund balance is projected in fiscal 2003. Management has identified $1.6 million in savings to offset potential state education funding reductions in fiscal 2004. While this represents a relatively low 1.4% of projected operating costs, it is the start of an action plan that can be enhanced as the state budget process continues.

The district's debt level is low to moderate but likely to rise given its capital needs, recent bond authorization, and this issue's slow principal amortization. Direct debt is low, at $420 per capita, and 0.5% of market value, and moderate overall when including Los Angeles County and City of Santa Clarita at $2,762 and 3.2% of market value. This bond sale is the first series of a $158 million authorization approved by more than two-thirds of the voters in 2001 under a Proposition 39 election. The district has no outstanding general obligation bonds and approximately $67.8 million of certificates of participation (COPs) outstanding. The COPs were issued as bridge-financing in anticipation of state grants. Most of the COPs will be defeased at year-end by a combination of the current bond proceeds, developer fees, and unspent COP proceeds.

Bond proceeds also will fund various construction and modernization projects at several district schools, many of which qualify for additional funds from outside sources, including developer fees and state matching funds. The first phase of the district's $510 master plan identifies $315 million of capital needs. Approximately $69 million of phase I projects is expected to be paid from the current bonds, with the balance from state funding ($179 million) and developer fees ($66 million).