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MOODY'S ASSIGNS AN INITIAL A1 UNDERLYING RATING AND Aa3 WITH NEGATIVE OUTLOOK ENHANCED RATING TO BENTON AREA SCHOOL DISTRICT'S (PA) $4.3 MILLION G.O.U.L.T. BONDS, SERIES 2010 A & B

22 Sep 2010

Primary & Secondary Education
PA

Moody's Rating

ISSUE

RATING

General Obligation Bonds, Series 2010

A1

  Sale Amount

$4,300,000

  Expected Sale Date

09/24/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Sep 22, 2010 -- Moody's Investors Service has assigned an initial underlying A1 rating and an enhanced Aa3 rating with a negative outlook to the Benton Area School District's (PA) $4.3 million General Obligation Bonds, Series of 2010 A & B.

RATINGS RATIONALE

The bonds are secured by the district's general obligation, unlimited tax pledge as they are not subject to Special Session Act 1 property tax limitations. The A1 rating reflects the district's healthy financial operations, limited tax base, and a high debt burden. Proceeds from the bonds will be used to currently refund the district's General Obligation Bonds, Series 2005 for an estimated net present value savings of approximately 2.7% of refunded principal (equal to $110,000) without extension of overall maturity.

The Aa3 enhanced rating is based upon the additional security for these bonds provided by the Commonwealth of Pennsylvania's Act 150 School District Intercept Program. The Act provides for undistributed state aid to be diverted to bond holders in the event of default. The timing of state aid payments relative to the timing of debt service payments is satisfactory for these bonds. The negative outlook reflects the recent revision of the Commonwealth of Pennsylvania's outlook to negative as the programmatic intercept rating is linked to the commonwealth's rating.

HEALTHY FINANCIAL OPERATIONS

The district's financial operations should remain strong given adequate reserve levels and conservative management and budgeting practices. The district has realized surpluses in its General Fund the past four years, leaving the district with a healthy general fund balance of $2.4 million (21.8% of General Fund revenues) in 2009. In fiscal 2010, the district reports drawing down on reserves to pre-refund a $500,000 note outstanding. Current economic conditions have caused a slowdown in the growth of Earned Income and Real-Estate Transfer Tax revenues, and the district has not increased its tax rate since fiscal 2007, leading to narrower operations. Conservative budget projections, however, have allowed the district to avoid significant shortfalls in these two taxes. The district increased its General Fund balance in fiscal 2009 by $43,000 due to conservative budgeting and the use of increased grant revenues and state aid to offset a $640,000 increased capital outlay from the original budget. The district did not include an appropriation of fund balance in its budget. In 2009, total reserves, including all available resources, decreases to $2.1 million, due to a $299,000 interfund payable in the Capital Projects Fund which has since been realized. In fiscal 2010 (unaudited), management expects to decrease General Fund balance to $2 million (or approximately 19% of General Fund revenues), due to the early retirement of a $450,000 General Obligation Note, which will save the district approximately $61,000 in debt service for the next nine years. Excluding this one-time draw down in reserves, the district would have had a $200,000 operating surplus.

The fiscal 2011 budget increased by a minimal 2%, and did not include the appropriation of reserves or property tax increases. Had the district increased taxes to the index, it would have generated an additional $145,000 in revenue. The district continues to conservatively budget property tax revenues and pension expenditures, increasing the likelihood for positive budget variances. State sources make up 53% of revenues, followed by other local sources which comprise 44% (property taxes represent 30%). Future rating reviews will consider the district's ability to maintain structurally balanced financial operations while managing future expenditure increases in the face of limited revenue raising ability.

MODEST TAXBASE WITH FAVORABLE WEALTH INDICES

We expect the district's rural $329 million tax base will continue to benefit from growth, albeit at a slower rate given the economic recession. The district may benefit over the medium term from the construction of age-restricted housing and future exploration of natural gas in north-central Pennsylvania. Located in Columbia County (G.O. rated A1), the district is comprised of several area municipalities, located 32 miles west of Wilkes-Barre. The district has seen average annual full value growth of 10.5% over the last five years, including a 2.4% increase in fiscal 2009. The district has been largely immune from the national real-estate slowdown, while earned income tax is showing signs of recovery. Management expects a new, 49-unit age-restricted housing development to add at approximately $9 million to the tax base when completed. The unemployment rate in the county was 9.6% in June 2010, which is basically flat from June 2009, and on par with the state's rate of 9.2% and nation's rate of 9.6%, for the same time period. Benton's demographic profile is below-average, with median family income at 83% of the Pennsylvania average, and a below-average $62,682 full value per capita.

HIGH DEBT BURDEN; NO ADDITIONAL BORROWING PLANNED

The district's debt burden will likely remain high given a below average payout without any additional borrowing plans. The district's net debt burden is well above the state median at 4.3% of full value with the district's total debt burden increasing to 4.6% when overlapping debt is included. Debt service as a percentage of expenditures is average at 10.3%, although principal payout is below average, with 40% retired within ten years. Favorably, the district does not have any future borrowing plans, and utilized approximately $500,000 of reserves in fiscal 2010 to retire a General Obligation Note, Series 2004. Reimbursement of debt service by the state partially mitigates the impact of existing and additional debt, although the debt burden remains high when this aid is included in the district's debt burden. The district currently has no variable rate or swap exposure, and currently has no plans to take on these forms of obligations.

KEY STATISTICS

2000 population: 5,241 (7.2% increase from 1990)

2010 Full valuation: $329 million

2010 Full value per capita: $62,682

1999 Per capita income (as % of state and U.S.): $16,915 (81% and 78%)

1999 Median family income (as % of state and U.S.): $40,669 (83% and 81%)

Direct debt burden: 4.3%

Overall debt burden (adjusted debt burden):4.6% (4.1%)

Payout of principal (10 years): 40%

FY 2009 General Fund balance: $2.4 million (21.8% of General Fund revenues)

Post-sale G.O. debt outstanding: $14 million

The principal methodology used in rating Benton Area School District, PA was General Obligation Bonds Issued by U.S. Local Governments rating methodology published in October 2009. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information.

Moody's Investors Service considers the quality of information available on the credit satisfactory for the purposes of assigning 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

Seth Klempner
Analyst
Public Finance Group
Moody's Investors Service

Jessica A. Tevebaugh
Backup Analyst
Public Finance Group
Moody's Investors Service

Geordie Thompson
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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USA

MOODY'S ASSIGNS AN INITIAL A1 UNDERLYING RATING AND Aa3 WITH NEGATIVE OUTLOOK ENHANCED RATING TO BENTON AREA SCHOOL DISTRICT'S (PA) $4.3 MILLION G.O.U.L.T. BONDS, SERIES 2010 A & B
No Related Data.
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