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MOODY'S ASSIGNS Aa2 RATING TO OAK CREEK-FRANKLIN JOINT SCHOOL DISTRICT'S (WI) $5.4 MILLION GO REFUNDING BONDS

06 Oct 2010

Aa2 AFFIRMATION AFFECTS $54.1 MILLION OF POST-SALE GO DEBT

Primary & Secondary Education
WI

Moody's Rating

ISSUE

RATING

General Obligation Refunding Bonds

Aa2

  Sale Amount

$5,430,000

  Expected Sale Date

10/07/10

  Rating Description

General Obligation

 

Opinion

NEW YORK, Oct 6, 2010 -- Moody's Investors Service has assigned a Aa2 rating to Oak Creek-Franklin School District's (WI) $5.4 million General Obligation Refunding Bonds. Concurrently, Moody's has affirmed the Aa2 rating on the district's outstanding general obligation unlimited tax debt. The district has $54.1 million of total general obligation debt, including the current issues.

RATING RATIONALE

The bonds are secured by the district's general obligation unlimited tax pledge and bond proceeds will refund the district's General Obligation Bonds issued in April and October of 2001 for estimated net present value savings. The Aa2 rating reflects the district's sizeable tax base that is experiencing a recent decline in valuation; strong financial position supported by satisfactory reserves; and manageable debt position.

SIZEABLE TAX BASE LOCATED NEAR MILWAUKEE

We expect the district's sizable tax base will remain relatively stable, despite a recent decline in full valuation, due to its favorable location immediately south of Milwaukee (general obligation rated Aa1/negative outlook) and the availability of additional land for future development. Previously, residential construction and the successful use of tax increment districts within the cities of Franklin (rated Aa1) and Oak Creek (rated Aa2) have contributed to continued strong full valuation growth averaging 10.2% annually between 2004 and 2008. Evidencing growth and development, the district's population grew 46.2% between 1990 and 2000, with enrollment increasing a strong 1.4% on average annually from 2005 to 2009. Mirroring national trends, residential and commercial development has slowed. As a result, recent full valuation figures show a decline in growth. Full valuation grew 7% between 2007 and 2008. In contrast, expected EAV figures show a decline of -3.2% in 2009. District officials project flat to modestly increasing growth over the near term. Despite recent declines in EAV, Moody's expects the district's economy will remain stable due to its location and future development opportunities. Officials report that the district's largest taxpayers and employers remain stable. Notably, Northwestern Mutual Insurance, the district's top taxpayer, is in the process of developing a new campus. Milwaukee County's unemployment rate of 9.6% for June 2010 is slightly higher than the state and approximates the nation at 8.1% and 9.6%, respectively reflecting economic challenges in the Greater Milwaukee area. Resident income indices exceed state medians, with per capita income and median family income at 110.8% and 119.0% of the state, respectively.

STRONG FINANCIAL OPERATIONS, HEALTHY RESERVES

We believe the district's financial operations will remain sound given prudent financial management with healthy reserves and steady enrollment growth that factors favorably into the state aid formula. The district has had a steady history of maintaining General Fund balances above 21% of General Fund revenues. Fiscal 2008 posted another more modest surplus of $129,000, closing with a General Fund balance of $11.7 million, or a healthy 22% of revenues. Due to recent slowing of EAV growth, officials do not plan to draw upon reserves and expect to build General Fund reserves. In fiscal 2009 the district posted a $1.1 million surplus bringing General Fund balances to $12.8 million, or a still stable 22.6% of revenues. In fiscal 2010, the district increased taxes to the revenue limit in order to offset declining state aid. As a result, the district projects a $2.1 million surplus in 2010, although a portion of this surplus is designated to contract settlements with custodial and clerical staff which remained unsettled at the end of the fiscal year. Officials expect an increase in state aid in fiscal 2011, though the budget currently calls for approximately $320,000 use of General Fund balance to reduce the district's debt service levy and provide property tax relief. Certain budgetary uncertainties including reduced state aid may pose some pressure on the district's finances. Given the recent build up of General Fund reserves, we believe the district's healthy reserve levels provide flexibility to absorb unforeseen budgetary fluctuations.

In addition, the district has an official fund balance policy of maintaining cash on hand to internally fund cash flow needs throughout the year. Many Wisconsin school districts rely on cash flow borrowing to bridge the gap between timing of receipt of revenues and expenditures. State aid is received quarterly and property taxes are received in January and February. The district's state aid comprises approximately 44.4% of revenues, while its property taxes comprise 45% of revenues. The district's most recent cash flow borrowing was in fiscal 2008 in the amount of $950,000. Due to recent build-up of General Fund reserves, the district does not report a need to cash flow borrow in the near term.

The district benefits from its enrollment trends, which has grown at an average 2.2% between 2005 and 2010. District officials project annual enrollment growth to continue, albeit at more modest rates, which bodes well for the district's operating budget as enrollment is a key factor in Wisconsin school funding due to per pupil based revenue. Most recently, enrollment increased by 2.1% between 2009 and 2010. Management anticipates that continued enrollment growth will generate sufficient revenues to keep pace with expenditure growth.

AVERAGE DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE

Moody's believes the district's debt burden will remain manageable given the large tax base and moderate borrowing plans. The district's direct debt is average at 1.3% of full valuation, while its overall debt burden of 3.8% is slightly above average, related to borrowing of overlapping entities. With the current issuance, amortization is an average 67% of principal retired within ten years. The district is currently assessing future capital and facilities needs, though report no immediate plans for borrowing at this time.

WHAT COULD CHANGE THE RATING - UP

-Substantial growth in the district's taxbase

-Substantial improvement in General Fund reserves

WHAT COULD CHANGE THE RATING - DOWN

-Erosion of the district's taxbase

-Deterioration in General Fund reserves to a level inconsistent with similarly rated credits

KEY STATISTICS:

2000 Census population: 31,902

2009 Full valuation: $4.0 billion

2009 Estimated full value per capita: $125,882

Per capita income, as % of state: 110.8%

Median family income, as % of state: 119.0%

Average annual enrollment growth (2005-2009): 1.4%

Direct debt burden: 1.3%

Overall debt burden: 3.8%

Payout of principal (10 years): 67.3%

Fiscal 2009 General Fund balance: $12.8 million (22.6% of revenues)

Post-sale general obligation debt outstanding: $54.1 million

The principal methodology used in rating Oak Creek-Franklin Joint School District, WI 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, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service's information, confidential and proprietary Moody's Analytics' 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

Iliana Beltran
Analyst
Public Finance Group
Moody's Investors Service

Elizabeth Foos
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
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS Aa2 RATING TO OAK CREEK-FRANKLIN JOINT SCHOOL DISTRICT'S (WI) $5.4 MILLION GO REFUNDING BONDS
No Related Data.
© 2020 Moody's Corporation, Moody's Investors Service, Inc., Moody's Analytics, Inc. and/or their licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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