Fitch Rates School Facils Improv District No. 1 Mojave USD, California's $1.5MM GOs 'A'

Business Wire, August 20, 2004

SAN FRANCISCO -- Fitch Ratings assigns an 'A' rating to $1.5 million general obligation (GO) bonds of School Facilities Improvement District No. 1 of the Mojave Unified School District, Kern County, California Election of 2002, series 2004. Fitch also affirms the 'A' rating on approximately $14.2 million in GO bonds outstanding. The Rating Outlook on all bonds is Stable. The bonds are scheduled to sell through negotiation with Banc of America Securities LLC on Sept. 2, 2004.

The rating reflects the School Facilities Improvement District No. 1's (the SFID) sound financial management, strong voter support, and economic stability provided by Edward's Air Force Base. These strengths are offset somewhat by the region's historical assessed valuation declines, the region's limited economy, in addition to the district's above average debt burden and high taxpayer concentration.

Mojave Unified School District, which operates nine schools, covers approximately 1,000 square miles in eastern Kern County and serves a population of 14,700 residents. Economic indicators suggest moderate improvement in recent years. District assessed values (AV) have risen annually since fiscal year 2000, averaging 3.5% in annual growth. This follows five consecutive years of AV declines in the mid to late 1990s due to assessment appeals. In addition, student enrollment increased for the second year in a row to 2,746 in fiscal 2004, a 5% increase over the prior year. Prior to fiscal 2003, enrollment declined for six consecutive years. Prospects for continued economic improvement is sound given planned local commercial and residential development projects. Proximity to Edwards Air Force Base provides economic stability as well.

The SFID comprises all of California City and some unincorporated Kern County territories. The SFID was formed in November 2000 and currently makes up 57% of the district's assessed valuation. Facilities consist of two middle schools, one elementary school, and one high school. The SFID's AV increased a healthy 9% in fiscal 2004 to $620.8 million from $568.5 million in fiscal 2003, the first year in which the SFID's AV was included on the county tax roll. Taxpayer concentration is above average, with the top ten taxpayers accounting for 27% of the SFID's AV. The largest taxpayer, Corrections Corporation of America, makes up 18% of the tax base and is in its fourth year of a ten year contract with the Federal Bureau of Prisons. California City's median household income, at $45,735 in 2000, is well above the county's $35,446

Financial operations are sound, as evidenced by four consecutive years of audited operating surpluses and strong fund balances. The total general fund balance, most of which is unreserved, equaled a high 23.8% of expenditures and transfers out in fiscal 2003 and has averaged 21.1% over the past three audited fiscal years. However, preliminary data project a drawdown of the general fund to a still healthy 13.8% in fiscal 2004, largely due to one-time expenditure on school buses, utility vehicles, and major textbook purchases. The district projects a slight drawdown on its fund balance in fiscal 2005 down to an 11.3% of spending - well above the board's 5% fund balance reserve level. Labor negotiations with the district's classified employees' bargaining unit are ongoing, however, labor relations are characterized as good.

This is the final sale from a $16 million voter authorization, which was approved by residents within the SFID on March 5, 2002 by a 71.4% margin. Proceeds, combined with state matching funds, will help fund the acquisition of land and construction of a new high school and a new elementary school. The district's debt levels are moderate to high and debt amortization is below average. However, the district's debt burden is expected to remain manageable due to limited future capital needs.