RATING AND AFFIRMATION AFFECTS $202.4 MILLION IN OUTSTANDING PARITY DEBT, INCLUDING CURRENT SALE
Primary & Secondary Education
General Obligation Bonds of 2011
Expected Sale Date
General Obligation Unlimited Tax
NEW YORK, Apr 25, 2011 -- Moody's Investors Service has assigned a Aa2 underlying rating with a stable
outlook to Oklahoma County Independent School District No. 89's (Oklahoma City
School District) $11 million General Obligation Bonds of 2011. Moody's has also
affirmed the Aa2 rating and stable outlook on the district's outstanding parity
debt, affecting $191.4 million. Proceeds from the sale of the bonds will be used
for several capital, equipment and technology needs within the district.
The bonds are secured by a continuing and direct annual ad valorem tax levied
against all taxable property in the district, without legal limitation as to
rate or amount. The rating and outlook reflects the district's history of sound
fiscal practices that has yielded satisfactory reserves sufficient to provide
financial cushion as the district enters a more challenging financial
environment due to the state's budgetary challenges. It also incorporates the
district's sizable and stable tax base serving the largest city within the
state, and favorable debt position, typical of Oklahoma school districts.
Sizable tax base serving largest city within the state
History of sound financial management despite recent draw on reserves
Pressured financial environment brought about by state's budgetary challenges
DETAILED CREDIT DISCUSSION
HISTORY OF SOUND FINANCIAL MANAGEMENT PROVIDES FINANCIAL CUSHION TO
WEATHER PRESSURED FINANCIAL ENVIRONMENT
Moody's believes the district's history of sound financial management has built
up reserve levels sufficient to alleviate the persisting pressured financial
environment, due to the state's budgetary challenges. Although minimal changes
in reserve levels are expected in the near term, future credit reviews will
focus on management's ability to continue to exhibit balanced budgets, while
maintaining satisfactory reserve levels. Prior to fiscal year 2010, the district
generated a multi-year trend of operating surpluses that significantly
improved reserve levels to $93.4 million (a healthy 29.4% of General Fund
revenues) at fiscal year 2009 on a GAAP basis. The improved reserve levels
largely reflect increased state revenues, and conservative budget practices.
However, in fiscal year 2010, the district exhibited an operating deficit of
approximately $17.3 million, reducing reserves to $76.1 million (a smaller but
still solid 26% of fiscal year 2010 General Fund revenues) on a GAAP basis. The
unreserved undesignated portion was $57.5 million (19.7% of fiscal year
2010 General Fund revenues). The operating deficit was due to a midyear state
funding reduction for school districts due to the state's budgetary challenges.
In response, the district made a reduction-in-force of 35 positions, increased
class sizes, re-organized some departments, instituted a hiring freeze, and
reduced overtime and utility costs by creating efficiencies. The
measures resulted in an elimination of approximately $17 million in the budget.
In fiscal year 2011, largely due to the measures and an influx of approximately
$7 million in federal stimulus (education jobs) monies, officials expect an
increase of approximately $2 million in the General Fund by the end of the year.
For fiscal year 2012, officials expect a 3% reduction in state aid for school
districts, due to the governor's preliminary budget. Officials are confident
that the measures already taken will soften the impact of the budget cuts.
However, officials express a possibility that the General Fund will be reduced
by $2 million in the worse case, taking the fund down to its fiscal year 2010
levels. Despite this, officials continue to explore areas to make
additional cuts as necessary, without disrupting classroom instruction. The
district participates in the state administered Teacher Retirement System (TRS)
of Oklahoma, which is a cost-sharing multiple-employer public employee
retirement system. In fiscal year 2010, the district was required to contribute
9% (July - December) and 9.5% (January - June) of applicable
statutory compensation, which translates to a total of $27.1 million, an
increase of approximately 7.3% and 11.3% over the contribution amounts of 2009
and 2008 respectively.
The district received the majority of its revenues in fiscal year 2010 from
state sources (54.8%), local sources (22.6%), and federal sources (19.1%).
Property taxes have increased over the past four years in line with taxable
value growth. The district is currently at its $35.96 per $1,000 assessed value
cap for operations. Moody's believes that given no operating tax rate
flexibility, and limited state sources, the district will have to continue
prudent budgeting practices, and close expenditure monitoring if balanced
operations are to be achieved over the intermediate term.
SIZABLE AND STABLE TAX BASE; DISTRICT SERVES THE LARGEST CITY WITHIN THE STATE
Oklahoma School District serves approximately 38,000 students in the City of
Oklahoma City (general obligation rating Aaa/stable outlook), the largest city
within the state and also the state capitol. Oklahoma City, is complimented by a
diverse economy that includes strong military presence (Tinker Air Force Base),
manufacturing, medical services, and natural gas and exploration. As
such, although unemployment rates have increased in recent times, rates within
the city have historically tracked lower than the state's and the nation's. In
February 2011, the city's unemployment rate of 6.3%, was lower than the state's
6.9%, and the nation's 9.5% taken during the same time period. City officials
reports significant economic activity yielding an in-migration of companies
slated to yield over 7,000 jobs, that should help reduce unemployment rates over
the intermediate term. Currently, several construction projects including an
$800 million development that will serve as Devon Energy's headquarters (long
term rating Baa1/stable outlook), and several pay-go financing initiatives
including the MAPS3 project, pursued by the city are expected to make
significant improvements and revitalization in the downtown area, thus
attracting potential employers to the city. Additionally, the public sector
remains a stabilization force, with Tinker Air Force Base and the state
government complex contributing about a third of the area's jobs. Moody's
believes the city's economy will continue to expand moderately over the long
term, given its diverse, large and stable economy, and steady tax base growth.
The district has historically benefitted from the city's sizable and
stable economy as taxable values have grown at a healthy pace over the last
decade, with a more moderate pace in the past year. Additionally the real estate
bubble did not infiltrate the housing market in Oklahoma leaving home prices
relatively stable and the pace of foreclosures at relatively normal levels. Over
the past five years, taxable values grew an annual average of 5.8%, compared to
the 1.6% growth in fiscal year 2011, yielding a value of $1.9 billion
(corresponding full valuation of $16.5 billion). With several economic
development projects underway in the city, district officials are confident
taxable value growth will continue over the intermediate term.
Following a period of negative enrollment trends (measured by average daily
membership, the factor used to calculate funding for school districts),
averaging a decline of 1.2% in the prior five years through fiscal year 2008,
enrollment increased 0.9% and 3.3% in fiscal years 2009 and 2010 respectively to
37,170. In fiscal year 2011, preliminary numbers indicate a subsequent
of approximately 2.2% to 38,000. Officials believe enrollment levels will
continue to increase, although at a more modest pace, between 1% to 1.5% over
the long term, as employment opportunities grow in the area. The
district exhibits below median wealth levels with a 1999 per capita income of
$17,096, which was 96.9% of the state, and 79.2% of the nation. The 1999 median
family income was $33,957 or 83.4% of the state, and 67.9% of the nation.
FAVORABLE DEBT PROFILE; AUTHORIZATION REMAINING
In October 2007, voters authorized $248.3 million in general obligation bonds
for school improvements. After this issuance, the district will have $159.3
million in remaining authorization, which will be issued in annual
installments over the intermediate to long term. State regulations limit
the amount of debt a school district can have outstanding to approximately 10%
of its net assessed valuation. Including this issuance, the district is below
the limit at 8.8% (less the debt service fund balance). Principal payout is
rapid with 93% of principal retired in ten years. The district's debt burdens
are favorable, with a direct burden of 1.2% (2.3% overall) on a fiscal year 2011
full valuation basis. The slightly higher overall debt burden is due to the
overlapping debt of the city and county. All of the district's debt is fixed
rate, and the district is not party to any derivative agreements, per state law
prohibitions. Moody's believes the district's favorable debt profile will
remain, despite future issuance plans, given conservative state
limitations affecting school districts, and rapid amortization.
Moody's outlook on Oklahoma City School District's Aa2 rating is
stable, reflecting continued solid financial management and expenditure
discipline. Moody's believes the district's financial situation will remain
stable despite funding challenges presented by current economic conditions.
WHAT COULD MAKE THE RATING GO - UP
Significant increases in reserve levels
Ongoing and continuous tax base expansion; strengthened socioeconomic profile
WHAT COULD MAKE THE RATING GO - DOWN
Tax base contraction
Significant erosion of General Fund reserve levels
Greater than manageable state aid reductions, particularly coupled with the
district's limited raising flexibility.
Substantial increases in the debt burdens in conjunction with considerable tax
2011 Full Valuation: $16.5 billion
2011 Full Value Per Capita: $63,364
Direct Debt Burden: 1.2%
Overall Debt Burden: 2.3%
Payout of principal (all outstanding debt): 93%
2010 General Fund Balance (GAAP basis): $76.1 million (26% of 2010 General Fund
General Obligation Unlimited Tax (GOULT) Debt Outstanding: $202.4 Million
The principal methodology used in this rating was General Obligation
Bonds Issued by U.S. Local Governments published in October 2009.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, parties not involved in the ratings, and public
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
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Public Finance Group
Moody's Investors Service
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Moody's Investors Service
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MOODY'S ASSIGNS Aa2 RATING TO OKLAHOMA COUNTY INDEPENDENT SCHOOL DISTRICT NO. 89'S (OKLAHOMA CITY SCHOOL DISTRICT) $11 MILLION GENERAL OBLIGATION BONDS OF 2011; OUTLOOK REMAINS STABLE
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