Fitch Rates Sachem School District, NY GO's 'AA-'

Business Wire, March 17, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--March 17, 2003

Fitch Ratings has assigned a 'AA-' rating to Sachem Central School District at Holbrook, Suffolk County, NY's approximately $4,010,000 general obligation refunding serial bonds -- 2003. The bonds are scheduled for competitive bids on March 19, 2003. Dated June 15, the bonds will be due serially from 2003-2011. Proceeds will refund series 1993 bonds. Fitch also assigns a 'AA-' rating to the district's $137.6 million in outstanding general obligation bonds. This is Fitch's first rating for the school district.

Sachem School District's (the district's) 'AA-' rating reflects its good financial management, sound economic base, moderate and stable assessed value growth, and strong reserve levels. The debt burden will rise as bond issues pursuant to a $229 million authorization for school construction projects continue. However, the increase is offset by the significant level of state support for debt service in the form of building aid payments. About $100 million of the authorization remains to be issued. Fitch expects that continued moderate residential and commercial development will allow the district to achieve the town's long-range financial forecasted needs. Rating concerns center around the possibility of significant state budget cuts and the failure of the district to achieve voter approval of the last two years' budgets. The Rating Outlook is Stable.

Located 40 miles east of New York City in west-central Suffolk County, Sachem School District is the largest non-city school district in the state. The district incorporates portions of the towns of Brookhaven, Islip, and Smithtown, and the village of Lake Grove. The District, which encompasses an area of 24 square miles and has a population of 75,634, is primarily residential. Major employers include the Internal Revenue Service, State University of New York at Stony Brook, Brookhaven National Laboratory, and the district. The county's unemployment rate for December 2002 was 3.8%, considerably lower than state and national averages. Assessed value growth has averaged about 1%-2% in the past; however, with a number of sizable residential housing developments in progress Fitch believes these levels will increase at a faster rate. Above average income levels and home prices are further positive credit factors.

Financial operations are sound, and the general fund balance has increased in each of the last several years. At the end of fiscal 2002, the unreserved general fund balance was $7.5 million, or 3.9% of expenditures and other uses. Reserves of about $15 million in other district funds provide a substantial additional cushion. District officials expect a $2 million increase to the general fund balance in fiscal 2003. The governor's proposed budget for fiscal 2004 includes a 10% funding reduction to the district, which the district proposes to offset with increased property taxes. If the district's budget is again disapproved in the upcoming May election, its growth will be limited to 1.9%, causing $9 million, or 4%, of reductions from proposed levels. Although annual enrollment is expected to level off and eventually decline from the historical 1-2% growth, operating costs from bond-funded projects are expected to be sizable. These costs, and other district needs, are offset by a large number of predicted retiring teachers, whose positions will likely be filled with lower-paid teachers.

The district's overall debt burden is moderate at $2,153 per capita and 2.96% of market value, without consideration of state building aid, which under the state-approved formula, will cover about 85% of debt service. Debt service as a proportion of the budget will increase moderately, but should remain low; historical and current averages have been 3%-4%. Debt amortization is slow at 17% in five years 35% in 10 to coincide with state building aid reimbursement rate. Projects funded with the $229 million in general obligation bonds approved by voters in 2000, including a new high school and junior high school, and additions and renovations to existing buildings, are planned to be complete by September 2004.