Fitch Rates Tucson Unified School District, Arizona GOs 'A+'

Business Wire, Feb 4, 2005

AUSTIN, Texas -- Fitch Ratings has assigned an 'A ' rating to the $47 million school improvement bonds project of 2004, series A (2005) of Tucson Unified School District No. 1, Arizona. Additionally, Fitch has assigned an 'A ' rating to the district's $266.6 million in general obligation (GO) bonds outstanding. The new issue is scheduled to sell on Feb. 7 via negotiation to a syndicate managed by Bear, Stearns. The Rating Outlook is Stable.

The bonds are payable from a continuous, direct, annual ad valorem tax levied against all taxable property within the district's boundaries, without limitation as to rate or amount. Proceeds will be used to make improvements to district facilities.

The 'A ' rating reflects the district's manageable direct debt profile, modest tax base growth, stable local economy, and sound financial operations. Even considering the impact of additional debt issuance, the district will maintain above average amortization rates and moderate direct debt levels. The district has benefited from the brisk residential construction activity in Pima County, which has a stable employment base, consisting primarily of government, military, and manufacturing. Although Arizona school districts do not maintain large financial reserves, the district's finances have performed well, reducing the local overall property tax rate both assessed valuation and state funding have increased.

The district has benefited financially from increased state operational and capital support. Through the Arizona School Facilities Board, the district has received sizeable amounts for building renewal and deficiencies corrections. Also, fiscal 2005 marks the third fiscal year of the state's five-year program of increasing operational aid by 2% annually and adding an additional day of instruction per year. Combined with the growth of the local tax base, these factors have allowed the district to lower its overall property tax rate by nearly $1 per $100 assessed valuation over the past three fiscal years. By Arizona school district standards, Tucson's general fund reserves are more than sufficient, in fact requiring a use of funds in the current fiscal year to lower the balance to a more appropriate level.

To provide for ongoing facility and equipment needs, the district levies a property tax to provide funding for capital outlay and projects that do not qualify for state funding. In order to meet additional larger capital needs that will not receive state assistance district voters, in November 2004, authorized the issuance of $235 million in GO bonds, of which this is the first installment.

The district serves the majority of the Tucson metro area, including most of the students that live within the city and certain unincorporated areas of Pima County. Enrollment has been declining slightly, due in part to the relocation of families to surrounding towns and to competition from charter schools. There are 54 charter schools located within the district's boundaries. The district's estimated enrollment for fiscal 2005 is 57,863.