Fitch Rates $6.4MM Tuba City, AZ USD Bonds 'A-' Und

Business Wire, March 2, 2004

Business Editors

NEW YORK--(BUSINESS WIRE)--March 2, 2004

Fitch Ratings assigns an 'A-' underlying rating to $6.4 million Tuba City Unified School District No. 15 of Coconino County, AZ (the district) impact aid revenue bonds, series 2004. Expected to be insured, the bonds, slated to mature July 1, 2004-2014, are scheduled to price as soon as the week of March 8 via negotiation with Stone & Youngberg LLC. The Rating Outlook is Stable.

Impact aid is a more than 50-year-old federal program that compensates public school districts when a significant portion of property is tax-exempt due to federal presence or activity, such as the presence of Indian reservations, as is the case with the district. The Stable Outlook for this and other Arizona school district impact aid bonds reflects:

-- the long, relatively stable history of the pledged impact aid

revenue stream;

-- strong security provisions, including a district covenant to

direct the U.S. Department of Education to pay impact aid

moneys directly to the bond trustee;

-- a relatively short bond maturity schedule;

-- healthy debt service coverage; and

-- the currently strong financial flexibility of the district,

which is an important factor since voter-authorized impact aid

debt service will consume 7% or more of revenues.

These stabilizing factors minimize risks associated with likely pressures on future impact aid appropriations. President Bush's proposed fiscal 2005 budget provides the same budget authority for the impact aid program as that provided by Congress for fiscal 2004, further buttressing the Stable Outlook. Nevertheless, Fitch believes that manageable cuts in appropriations are likely in future years due to the widening federal deficit and their effect on domestic discretionary spending.

The district's current financial flexibility is strong, offsetting concerns about the significant increase in leverage associated with this financing. In prior years, a portion of impact aid receipts (equivalent to 49% of fiscal 2003 revenues) were accumulated for use in capital projects due to the limited tax bonding capacity of the district. This practice provided the district with the financial flexibility it now will need to fund impact aid debt service while still providing services to students.

Following this and a future voter-authorized issue, prior year impact aid receipts should still cover projected maximum annual debt service (MADS) by more than 6 times (x). At the end of fiscal 2003, unreserved general fund balance of $20 million equaled 122% of annual spending. Long-range financial projections forecast approximately $2 million of consistent general fund surpluses after debt service payments. The Stable Outlook assumes continued budgetary discipline by the district, so that reasonable -- albeit reduced -- fund balance levels are maintained.

The district's lack of control over nearly all of its principal state and federal revenue streams constrains this rating, as well as those of other Arizona impact aid bonds. Typical of many districts on reservation land, the district's economy is very limited. Population has grown in recent decades, but in Tuba City itself, Census data indicate that per capita income is just 48.5% of the national average with a more than 14% civilian unemployment rate.

Fitch believes that the portion of district revenues dedicated to debt service is manageable, but ongoing spending discipline will be required in order for the district to continue to maintain strong overall financial flexibility. The district and the bonds are vulnerable to congressional action or delay concerning impact aid appropriations, although a debt service reserve fund - eventually to grow to the level of MADS - offsets such risks substantially.

The district encompasses 3,000 square miles in east-central Coconino County, AZ and is approximately 50 miles east of the Grand Canyon. District population is 15,000, and average daily student membership now equals 2,503. The district includes portions of the Navajo and Hopi Indian Reservations. The population of Tuba City was 8,225 in 2000, according to the Census, up 12.3% from 1990. Bond proceeds will finance construction at the district's junior high school and renovation at the high school. Following the series 2004 bond issue, more than $8 million in impact aid bond voter authorization will remain, and this is expected to be used to supplement more than $7 million in state funds to finance construction and renovation at the high school. In total, the district operates seven schools.