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Rating Update:

MOODY'S AFFIRMS Aa3 RATING ON ST. LOUIS PARK INDEPENDENT SCHOOL DISTRICT 283'S (MN) OUTSTANDING G.O. DEBT; REMOVES NEGATIVE OUTLOOK

20 May 2011

Aa3 RATING APPLIES TO $49.7 MILLION OF LONG-TERM RATED G.O. DEBT OUTSTANDING

Primary & Secondary Education
MN

Opinion

NEW YORK, May 20, 2011 -- Moody's Investors Service has affirmed the Aa3 rating on St. Louis Park Independent School District 283's (MN) $49.7 million of outstanding long-term general obligation debt secured by the district's unlimited tax pledge. Concurrently, we have removed the negative outlook.

RATINGS RATIONALE

Affirmation of the Aa3 rating reflects the district's sizeable tax base, above-average socioeconomic profile and low debt burden. The affirmation also incorporates the district's improved financial condition following multiple years of operating surpluses. The removal of the negative outlook reflects the stabilization of the district's financial operations due to recent enrollment increases, the passage of a new excess operating levy and conservative budgeting practices.

STRENGTHS

-Sizeable tax base with above-average socioeconomic profile

-Recent trend of improved financial operations and liquidity

-Recent passage of excess operating levy

CHALLENGES

-Narrow cash position brought on by state funding delays

-Recent declines in tax base

FULLY DEVELOPED FIRST-TIER SUBURB OF MINNEAPOLIS EXPERIENCING RECENT DECLINES IN FULL VALUATION

We expect the district's economy will remain relatively stable due to its beneficial location adjacent to Minneapolis (G.O. rated Aaa/stable outlook), ongoing redevelopment efforts and above average wealth indices. Adjacent to the western border of Minneapolis, this mature inner tier suburb district's tax base is currently valued at $5.1 billion, a decline of 4.2% compared to the 2009 valuation. Projections provided by Hennepin County show a modest 1.4% reduction in full valuation in 2011. The district's tax base is diverse, including a broad commercial, retail and health care components. The district's largest employer, Park Nicollet (formerly known as Health System Minnesota) with 6,022 employees, continues to expand per the group's long-term capital plan. Hennepin County's unemployment rate of 6.1% in March 2011 is below the state average of 7.3% and lower than the national rate of 9.0%. Wealth levels are above average with PCI and MFI at 134.4% and 127.1% of the national medians, respectively.

IMPROVED FINANCIAL POSITION EXPECTED TO REMAIN STABLE; RECENT PASSAGE OF EXCESS OPERATING LEVY

After consecutive years of operating deficits, the district's financial position has recently improved as a result of enrollment increases, the passage of a new excess operating levy and management's concerted effort to budget more conservatively. The district has posted three consecutive years of operating surpluses through 2010 and Fund Balance has increased to an adequate 8.2% of revenues in fiscal 2010 from a very limited 2.1% in fiscal 2007. Between 2008 and 2010, enrollment increased by 200 students or approximately 5%, a notable development since the state aid funding formula is per pupil based. The district also recently passed a $1,869 per-pupil excess operating levy that should yield nearly $9 million annually through fiscal 2019.

District officials are projecting a $1.3 million increase to Fund Balance in fiscal 2011, bringing total reserves up to $5.4 million ($3.3 million undesignated) or approximately 11% of revenues. Favorably, the district's liquidity has significantly improved and as a result did not issue cash flow notes in fiscal 2011. In previous years, the district retired outstanding aid anticipation certificates with proceeds of new aid anticipation certificates, rolling them from one year to the next. This unsound practice would potentially expose the district to significant liquidity risk in the event that a loss of market access or some other event that would prevent the district from issuing new aid anticipation certificates. Due to additional delays of state aid payments, officials indicate that the district may issue aid anticipation certificates in fiscal 2012.

State aid revenues comprised a significant 61.7% of General fund operating revenues in fiscal 2010. The district is appropriating approximately $800,000 of Fund Balance as part of its fiscal 2012 budget which, if fully utilized, would reduce total General Fund balance to $4.6 million, or a still adequate 9% of revenues. Notably, the district is conservatively budgeting a 1.6% decrease in enrollment as well as a 2% reduction in the state aid funding. If these assumptions do not materialize in the near term, the district should experience further increases to reserve levels.

LOW DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE

The district's direct and overall debt burden is low at 1% and 1.9% of full valuation, respectively, and should remain manageable over the medium term. Although the district anticipates issuing up to $11 million in debt in the next three years for deferred maintenance, this would increase the direct debt burden to a modest 1.2% of full valuation given current debt levels and tax base size. Payout is rapid with 100% of principal retired in ten years. All of the district's debt is fixed rate.

WHAT COULD CHANGE THE RATING UP:

- Continued improvement in financial position and liquidity levels

- Further increases in enrollment levels

WHAT COULD CHANGE THE RATING DOWN:

- Significant declines in General Fund reserves and liquidity

- Substantial declines in enrollment that reduce state aid payments

- Rolling of aid anticipation notes

KEY STATISTICS

2000 Population: 45,511

Enrollment: 4,418 (2.5% average annual increase between 2006 and 2010)

2010 Full Value: $5.1 billion

Full value per capita: $111,726

1999 Per capita income (as % of MN and US): $29,010 (125.1% and 134.4%)

1999 Median family income (as % of MN and US) $63,585 (111.8% and 113.9%)

Direct debt burden: 1.0%

Overall debt burden: 1.9%

Payout of principal (10 years): 100%

FY 2010 General Fund balance: $4.1 million (8.22% of General fund revenues)

Long-term rated G.O. debt outstanding: $49.7 million

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings and public information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of maintaining a credit rating.

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.

Analysts

Walter Pitts
Analyst
Public Finance Group
Moody's Investors Service

Soo Yun Chun
Backup Analyst
Public Finance Group
Moody's Investors Service

Edward Damutz
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

Journalists: (212) 553-0376
Research Clients: (212) 553-1653


Moody's Investors Service
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MOODY'S AFFIRMS Aa3 RATING ON ST. LOUIS PARK INDEPENDENT SCHOOL DISTRICT 283'S (MN) OUTSTANDING G.O. DEBT; REMOVES NEGATIVE OUTLOOK
No Related Data.
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