APPROXIMATELY $8.3 BILLION OF GUARANTEED DEBT AFFECTED
Primary & Secondary Education
NEW YORK, Dec 2, 2010 -- Moody's Investors Service has affirmed the Aa1 rating on the Washington School
Bond Guarantee Program, affecting approximately $8.3 billion of guaranteed debt
outstanding. The rating outlook is stable.
Under the guarantee program, the state pledges its full faith, credit, and
taxing power to guarantee debt service when due on qualified school districts'
voter-approved general obligation bonds. Moody's assigns an Aa1 rating to school
district bonds that are guaranteed under the state program, and assigns
underlying ratings to individual bond issues at the request of the issuing
district. The Aa1 program rating reflects the pledge of the State of Washington
(rated Aa1 with a stable outlook); strong state oversight of local school
districts and satisfactory program mechanics.
SUCCESSFUL STATE PROGRAM PROVIDES FULL FAITH GUARANTEE OF SCHOOL BONDS
In 1999 Washington's voters approved a constitutional amendment authorizing the
state to pledge its full faith, credit, and taxing power to guarantee the
voter-approved general obligation bonds of school districts. In April of the
following year the first Certificate of Eligibility was issued by the Office of
the State Treasurer for participation in the program. A Certificate of
Eligibility evidences that the district's bonds will be guaranteed under the
program so long as they are issued within one year. Once the bonds are sold,
the guarantee is effective for the life of the issue. As of October 18 2010,
more than $8.3 billion of debt was outstanding under this program.
STRONG STATE MONITORING AND CONTROL OUTSIDE OF GUARANTEE PROGRAM CONTRIBUTES TO
HIGH CREDIT QUALITY OF PORTFOLIO
School districts are not subject to credit review for purposes of
participation in the guarantee program, beyond certifying that they are
fiscally solvent. However, fiscal oversight of school districts in Washington is
very thorough, contributing to the credit soundness of the guarantee program.
School districts in Washington demonstrate a strong credit profile; Moody's
median rating among 117 rated districts is Aa3, with a minimum rating of A2 for
the sector statewide.
In Moody's view, the state's oversight helps support the credit strength of
Washington school districts. Fiscal oversight of school districts in Washington
is extensive. Oversight is accomplished by three entities: the state Board of
Education, the Office of the Superintendent of Public Instruction (OSPI), and
Educational Service Districts (ESDs). The OSPI is a constitutionally
established elected office with primary responsibility for fiscal oversight. The
OSPI is assisted in this effort by regional ESDs, agencies established by
statute that provide technical assistance to local school districts as well as
support to OSPI and the Board of Education.
School districts' budgets are developed and must receive approval of the OSPI
and the ESDs. By law, budgets of larger districts are reviewed by the OSPI,
while those of smaller districts are subject to approval by a budget review
committee consisting of an ESD representative, a representative of the school
district, and a representative of the OSPI. Over the course of the year OSPI
provides the ESDs with financial and enrollment data for each school district,
based upon which the ESDs identify and report to OSPI any districts which may
have possible financial concerns. For districts needing immediate
attention, OSPI will contact the ESD to establish a course of action. OSPI will
also evaluate carefully any district that has requested an emergency advance,
budgeted receivables, or had questioned audit costs in the prior year. Flagged
districts whose situations are less urgent are reviewed more thoroughly during
the annual budget and financial reporting processes. ESDs are required to notify
OSPI during the year should a district's financial position change and require
TIGHT TIMELINE FOR NOTIFICATION AND IMPLEMENTATION OF STATE DEBT SERVICE PAYMENT
In Washington the county treasurer serves as banker for all school
districts within the county: all school district revenue and expenditure
moneys are deposited with and released by the county treasurer. The
county collects local taxes on behalf of the school districts, and
directly transmits payment on any voter-approved debt to the bond paying agent.
Under the guarantee program the County Treasurer retains this responsibility,
and is further required to notify the paying agent and the State Treasurer
immediately in the event he or she becomes aware of an inability to transfer
sufficient funds. If the transfer has not been made on the payment date, the
paying agent is required to notify the State Treasurer. Once the State Treasurer
verifies that the district will not make the payment when due, the
State Treasurer's office is required to immediately forward the funds for
Although timing associated with identification and notification of
shortfalls may be very tight, Washington's school districts routinely use
the same fiscal agent as the state, allowing for quick rectification once a
shortfall is identified. In addition, the State treasury maintains sufficient
staff to ensure that all payments will be expedited, a liquid portfolio of
assets that averages over $2 billion in treasury and agency securities, and wire
transfer capability for movement of funds between financial institutions if
Any district for which the State has made a debt service payment will be
required to reimburse the State and pay both interest and a penalty. If the
Treasurer determines the amounts forthcoming from the district will not
reimburse the State in full within one year, the Treasurer has the right to
pursue legal action. The State Treasurer also may direct the district and the
county to amend collection of property taxes pertaining to the bonds and, to the
extent that all other outstanding obligations of the district payable from those
taxes are fully paid, direct that proceeds be applied towards reimbursement of
PROGRAM RATING AND OUTLOOK ARE BASED ON STATE CREDIT QUALITY
As the guarantee provided by the program is the State's full faith, credit and
taxing power, the rating on the program is directly related to the rating of the
State (Aa1 with a stable outlook). State credit strengths are:
*Institutionalized conservative budgetary controls
*Improved financial flexibility with increased rainy day fund (RDF) levels going
into the 2007-2009 recession
*Strong demographic trends
*Satisfactory overall liquidity levels despite recessionary stresses
State credit challenges are:
*Economic weakness and steeper-than-forecast housing downturn drive large
consecutive downward revenue revisions.
*Significant use of one-time actions to balance current biennial budget,
including depletion of reserves, reduces flexibility to address unexpected
*Exposure to cyclical commercial aerospace industry
*Debt ratios above average and likely to increase
*Voter initiative activity adds element of fiscal uncertainty
For additional information about the State of Washington's rating, please see
Moody's New Issue Report published October 22, 2010 in conjunction with the
state's issuance of $51.3 million Certificates of Participation, Series 2010D.
LAST RATING ACTION AND PRINICPAL METHODOLOGY USED
The last rating action on the Washington State School Bond Guarantee Program was
on January 4, 2010, when the municipal finance scale rating was affirmed and a
negative outlook was assigned. The rating was subsequently recalibrated to a
global scale Aa1 with a stable outlook on April 23, 2010.
The principal methodology used in this rating was Moody's State
Rating Methodology, published in October 2004 and available on www.moodys.com in
the Rating Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process of
rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.
Public Finance Group
Moody's Investors Service
Public Finance Group
Moody's Investors Service
Journalists: (212) 553-0376
Research Clients: (212) 553-1653
MOODY'S AFFIRMS Aa1 RATING ON WASHINGTON STATE SCHOOL BOND GUARANTEE PROGRAM; OUTLOOK IS STABLE
Moody's Investors Service
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New York, NY 10007