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MOODY'S ASSIGNS Aa2 RATING TO ROSEMOUNT-APPLE VALLEY-EAGAN INDEPENDENT SCHOOL DISTRICT NO. 196'S (MN) $2.7 MILLION CERTIFICATES OF PARTICIPATION, SERIES 2010A

10 Sep 2010

AFFIRMS Aa1 RATING ON OUTSTANDING GENERAL OBLIGATION DEBT AND Aa2 RATING ON EXISTING CERTIFICATE OF PARTICIPATION DEBT

Primary & Secondary Education
MN

Moody's Rating

ISSUE

RATING

Certificates of Participation, Series 2010A

Aa2

  Sale Amount

$2,705,000

  Expected Sale Date

09/13/10

  Rating Description

Certificates of Participation

 

Opinion

NEW YORK, Sep 10, 2010 -- Moody's Investors Service has assigned an Aa2 rating to the Rosemount-Apple Valley-Eagan Independent School District No. 196's (MN) $2.7 million Certificates of Participation, Series 2010A. Concurrently, Moody's has affirmed the Aa1 underlying rating on the district's outstanding general obligation debt and the Aa2 rating on the district's outstanding certificates of participation and lease revenue backed debt. Post sale the district will have $124.1 million of outstanding general obligation debt and $10.2 million of outstanding certificates of participation and lease revenue backed debt.

RATINGS RATIONALE

Proceeds of the Series 2010A Certificates of Participation (COPs) will finance the purchase and renovation of an existing commercial building in the city of Apple Valley to provide space for the district's Adult Basic Education and Early Childhood Family Education programs. The Aa2 rating on the district's Series 2010A COPs is based on the strength of the district's Aa1 general obligation rating, the annual risk of non-appropriation and the essentiality of the financed project to the district. The district's Aa1 underlying general obligation rating is based on the district's sizeable tax base favorably located in the Twin Cities Metropolitan Area, slightly declining enrollment, somewhat lean financial reserves relative to the size of the district's budget, and manageable debt levels.

RAPID POPULATION GROWTH IN SUBSTANTIAL TAX BASE FAVORABLY LOCATED JUST SOUTH OF THE TWIN CITIES

Located 20 miles south of the Twin Cities in Dakota County (GO rated Aaa), the district mostly serves all or portions of the cities of Rosemount (GO rated Aa2), Apple Valley (GO rated Aaa), and Eagan (GO rated Aaa). Officials report the city of Rosemount contains the most available land for future residential development and population growth, and consequently, enrollment growth. The city of Eagan is mostly built out and although the City of Apple Valley has approximately 1,000 acres that remain to be developed, the majority of the land is being mined for sand and gravel and is not expected to be built out in the near term. The city of Rosemount's population is currently estimated at 22,750 (15% of total district population), but has been increasing rapidly (up 56% since the 2000 Census) and is estimated to grow to 38,400 in the next 10 years. Dakota County in general has been growing rapidly, with its population increasing by 29.3% between 1990 and 2000, accounting for nearly 15% of all growth in Minnesota (approximately 544,000) over the same period. Tax base valuations had been growing strongly in conjunction with the population growth; however, over the past two years valuations fell, bringing the overall average annual growth rate for the past five years down to 1.3%. The district is favorably located in regards to access to local employment and employment centers throughout the Twin Cities area, as reflected in an unemployment rate (6.6% as of June 2010) that has historically tracked below both state (6.8%) and national (9.6%) rates. Additionally, district income indices are strong, with median family income at 138% and per capita income at 125% of state averages.

Despite strong population growth, enrollment growth has stagnated as of the past several years, with enrollment decreasing on average 0.8% annually since 2006. District officials do not expect declines to continue, and through a very detailed and historically accurate method of projecting, expect stable enrollment for the next four years with small, but steady, increases thereafter. Officials incorporate an in-house census method with the standard cohort survival projection method to produce near term projections that have historically been very accurate. Projections are then supplemented by contracting with an independent demographer every five years. Enrollment is especially important to Minnesota school districts as funding and revenue caps are based on per pupil formulas.

SOMEWHAT LEAN GENERAL FUND RESERVES

The district closed fiscal 2009 with $40 million in reserve. Although reserves are significant on a nominal basis, this is lean as a percentage of its budget, as the district's budget exceeds $280 million. Key to district financial operations and the maintenance of reserves the past several years has been a voter approved $1,042 per pupil excess operating levy, which generates approximately $32 million per year, and the district's commitment to maintaining program offerings at 2005 levels. District voters (by a positive margin of approximately 64%) approved the excess operating levy in the fall of 2005. The levy first generated revenue in fiscal 2007 and expires in 10 years. This levy helped the district reverse operating deficits that exceeded $9 million (approximately 4% of the operating budget) in fiscal 2005 and fiscal 2006 and post operating surpluses of $3.1 million in fiscal 2007 and 2008 and essentially balanced operations in fiscal 2009. Operating results were distorted during fiscal 2009 from the issuance of OPEB bonds and the funding of a revocable trust for the OPEB liability, but netting out the OPEB revenues and expenditures reveals the General Fund was approximately balanced on an operating basis.

Throughout the referendum process, officials communicated they would not reduce programmatic offerings for five years if the referendum passed. As a result, preliminary indications are reserves fell by $4.6 million at the close of fiscal 2010 as state funding has been pressured worse than the district's original projections and programmatic offerings were not reduced. The district did make revenue enhancements and reduce other operating expenditures, totaling approximately $25 million over the previous two years; however, the fiscal 2011 budget shows another draw of approximately $5 million. Encouragingly, the district has a strong history of positive budget to actual variances and officials believe the district could end fiscal 2011 balanced. For example, in its final results for each of the past three years the district had positive budget to actual variances of approximately $8 million. The maintenance of satisfactory reserves will continue to be a factor in future credit reviews.

DEBT LEVELS EXPECTED TO REMAIN AFFORDABLE

With no future borrowing plans at this time, we believe the district's debt levels will remain affordable. At 0.9% and 1.8%, respectively, the district's direct and overall debt burdens are both below state and national medians for school districts. Debt repayment is relatively fast, with 83.4% of the principal on the district's direct debt amortized in ten years. After extensive improvements in recent years, district officials report that its buildings are in good condition, and no capacity issues exist. The district funds routine capital maintenance projects with monies generated from its Alternative Facilities levy, which should continue to offset the need to issue debt for capital projects. This revenue source generates in excess of $6 million per year. Debt service on the Series 2010A COPs is supported by a state authorized per pupil lease levy.

KEY STATISTICS FOR INDEPENDENT SCHOOL DISTRICT NO. 196

2009 Full value: $14.8 billion

2000 Census population: 150,298 (15% increase since 2000 Census)

2011 Enrollment (estimate): 27,003 (0.8% average annual decrease since 2006)

2009 Full value per capita: $98,268

1999 Median family income, a % of state: 137.9% (156.7% of US)

1999 Per capita income, as a % of state: 124.5% (133.7% of US)

Dakota County unemployment rate (06/10): 6.6% (MN at 6.8%, US at 9.6%)

Fiscal 2009 General Fund balance: $39.7 million (13.7% of General Fund revenue)

Post sale general obligation debt: $124.1 million

Post sale certificates of participation debt outstanding: $10.2 million

Overall debt burden: 1.8% (0.9% direct)

Payout of principal (10 years): 83.4%

PRINCIPAL METHODOLOGIES

The principal methodology used in rating Rosemount-Apple Valley-Eagan Independent School District No. 196, MN was The Fundamentals of Credit Analysis for Lease-Backed Municipal Obligations published in October 2004. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found on Moody's website.

LAST RATING ACTION

The last rating action with respect to Rosemount-Apple Valley-Eagan ISD No. 196 was on January 8, 2009 when a Aa2 rating was assigned to the district's Series 2009A bonds. That rating was subsequently recalibrated to Aa1 on April 16, 2010.

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, 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

David Horton
Analyst
Public Finance Group
Moody's Investors Service

Rachel Cortez
Backup Analyst
Public Finance Group
Moody's Investors Service

Henrietta Chang
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

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


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MOODY'S ASSIGNS Aa2 RATING TO ROSEMOUNT-APPLE VALLEY-EAGAN INDEPENDENT SCHOOL DISTRICT NO. 196'S (MN) $2.7 MILLION CERTIFICATES OF PARTICIPATION, SERIES 2010A
No Related Data.
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