Fitch Assigns 'AA' Initial Rtg to Scottsdale USD No. 48, AZ School Bonds

Business Wire, March 25, 2003

Business Editors

AUSTIN, Texas--(BUSINESS WIRE)--March 25, 2003

Fitch Ratings has assigned an initial 'AA' rating to the Scottsdale Unified School District No. 48 of Maricopa County, Arizona's (the district) $59,555,000 refunding bonds, series 2003. Additionally, Fitch has assigned the 'AA' rating to the district's $283,315,000 school improvement bonds outstanding. The Rating Outlook is Stable. The bonds are scheduled to sell via negotiated sale on or about March 26 through a syndicate led by Stone & Youngberg LLC. The bonds are dated April 1, 2003 and mature serially on July 1, 2006-2013. The bonds are subject to optional redemption as specified in the prospectus. The bonds are direct and general obligations of the district and are payable from an ad valorem tax levied without limitation as to rate or amount on all taxable property within the district, provided the taxes levied to pay debt service on the bonds do not exceed the total aggregate debt service on bonds being refunded. Proceeds will be used to refund a portion of the district's outstanding debt for savings and to pay issuance costs.

The 'AA' rating reflects the district's improving financial performance in a stable enrollment environment, moderate debt position, rapid debt repayment and strong, diverse local economy. Following the hiring of a new administrative team in 2000, the district restored a depleted general fund balance by recording solid operating surpluses. The present challenge facing the district and other Arizona school districts is less state financial support and how to respond to these cutbacks while maintaining education program integrity. The district has already initiated several cost saving measures and has developed a plan for additional cutbacks as they become necessary.

Effective expenditure controls enabled the district to rebuild its general fund balance from fiscal 2000-2002. The district reported large operating surpluses in two of these three years, resulting in presently healthy operating reserves. The total general fund balance at fiscal year 2002 yearend was $5.4 million, or roughly 4% of expenditures and transfers out. Cash levels were satisfactory at $2.5 million. Preliminary fiscal 2003 results indicate a modest increase in the general fund balance.

For fiscal 2004, the district will contend with reductions in state support that reportedly may range from $6 million-$16 million. The district has already made reductions in administrative staffing levels, and anticipates reductions in teacher staffing levels and possibly some program cutbacks if the state aid reductions materialize. District officials project that any teacher layoffs will only marginally affect class sizes. The district's financial profile will be aided by a $10 million operations override approved by district voters earlier this month by a 7:3 margin.

The district's debt burden is expected to remain moderate, given the stable enrollment environment and increasing tax base. The district plans to seek voter approval for a $120 million class B bond authorization in fall 2003, the proceeds of which will be used to renovate existing high school facilities. Given the rapid amortization of outstanding debt (more than 90% in ten years) and increasing valuation levels, district officials anticipate no increase in the secondary tax rate to support the new capital program. The district tax base has experienced an average annual growth rate of 10% over the past five years, and the projection for the current year is another 13% gain. The district also has benefited from recent refundings of outstanding debt, which along with tax base growth have enabled district officials to reduce the secondary tax rate substantially since fiscal 1999.

Located in Maricopa County, the district is comprised of a portion of the cities of Scottsdale, Phoenix, Tempe and Paradise Valley. The district tax base is approximately 60% residential and still contains undeveloped land in the northern portion of its service area. Given that its boundaries encompass nearly two-thirds of the city of Scottsdale, the district benefits from the city's diverse and healthy economy.

Major employment sectors in Scottsdale include high technology, health care, tourism and corporate/regional headquarters. City officials have reported that Scottsdale attracted 17 new targeted firms in fiscal 2002, representing 1,700 new jobs and roughly 470,000 square feet of office space. Unemployment rates, while higher due to the economic slowdown, continue to be below state and national levels. The Phoenix metropolitan area is the center of economic activity in Arizona, containing two-thirds of the state's labor force. Manufacturing (with more than 3,000 firms), services, wholesale and retail trade, tourism and government all contribute significantly to the regional economy.