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MOODY'S ASSIGNS Aa2 UNDERLYING RATING AND Aa2 (MSDE) ENHANCED RATING TO STILLWATER INDEPENDENT SCHOOL DISTRICT'S (MN) $4.9 MILLION GO SCHOOL BUILDING CROSSOVER REFUNDING BONDS, SERIES 2010A

07 Sep 2010

Aa2 UNDERLYING RATING APPLIES TO $65.2 MILLION OF POST SALE GOULT DEBT

Primary & Secondary Education
MN

Moody's Rating

ISSUE

UNDERLYING
RATING

RATING

General Obligation School Building Crossover Refunding Bonds, Series 2010A

Aa2

Aa2

  Sale Amount

$4,930,000

  Expected Sale Date

09/07/10

  Rating Description

General Obligation Unlimited Tax (MSDE)

 

Opinion

NEW YORK, Sep 7, 2010 -- Moody's Investors Service has assigned an underlying Aa2 rating to Stillwater Independent School District No. 834 (MN) $4.9 million General Obligation School Building Crossover Refunding Bonds, Series 2010A. Concurrently, Moody's has affirmed the Aa2 underlying rating on the district's outstanding $65.2 million long term general obligation debt. Moody's also assigns a Aa2 enhanced rating with stable outlook to the bonds based additional security provided by the State of Minnesota's School District Credit Enhancement Program (MSDE).

RATINGS RATIONALE

The bonds are secured by the district's general obligation unlimited tax pledge and proceeds will refund of the district's outstanding General Obligation School Building Bonds, Series 2001B for estimated net present value savings. Assignment and affirmation of the Aa2 underlying rating reflects the district's large tax base with recent declines in valuations, stable financial operations with planned use of reserves, and modest debt profile characterized by rapid principal amortization.

Assignment of the Aa2 enhanced rating to the bonds is based on additional security provided by the State of Minnesota's School District Credit Enhancement Program (MSDE). Under the MSDE loan program the bonds are secured by the State's pledge of an unlimited appropriation from its General Fund (the State's general obligation debt is rated Aa1) should the district be unable to meet debt service requirements. The appropriation mechanism allows for continuing unlimited advances from the State's General Fund to avert default for qualified school districts. District repayment is either from State aid withholding or a required special school district levy outside normal levy limits. Key program components also include third-party notification of pending deficiency. Under Minnesota statutes, if the district believes it is unable to make a timely debt service payment it must notify the Department of Education at least 15 working days prior to the due date. The Commissioner, after consultation with the district and the paying agent, and the verification of information, will notify the Commissioner of Finance who issues a warrant and authorization for direct payment to the paying agent. Should a district fail to notify the state of an impending non-payment of debt covered by the program, the paying agent will undertake notification. The agent is to notify the State directly, three days prior to the payment date of the needed amounts. State funds equal to the request are then transferred directly to the paying agent. If the State makes a payment on behalf of a district, the district must submit a plan to the Commissioner of Education specifying the steps the district intends to take to resolve current and future funding problems.

LARGE TAXBASE LOCATED EAST OF ST. PAUL WITH RECENT DECLINES IN VALUATION

Located approximately 18 miles northeast of the Minneapolis-St. Paul metropolitan area, the district encompasses 158 square miles including, among several other municipalities, the cities of Bayport (GO rated A1), Grant and Stillwater (GO rated Aa2). Previously, the district's $8.4 billion tax base experienced double digit growth through 2007. The growth in the district's full valuation was driven by a combination of appreciation, new residential development, and some commercial development. More recently however, reflecting the national economic downturn, the city's full valuation began declining with a 1.8% decrease in 2008, 2.1% in 2009 and an additional decline of 6.1% for 2010. Officials report the decline is due to depreciation of residential and commercial values and expect this trend to continue in the near term. Reflective of previous tax base growth, population grew as well, increasing 23.4% between the 1990 Census and the 2000 Census. While overall growth has slowed, the district is conveniently located near transportation infrastructure, which helps facilitate access to major metropolitan employers and will help support future growth. Officials report the district's largest taxpayers and employers remain stable. Washington County's (GO rated Aaa) unemployment rate of 6.5% is lower than the state's of 6.8% and the nation's rate of 9.6% for June 2010. Socioeconomic indices are well above the state averages, with per capita income and median family income at 131% and 141.8% of state averages, respectively.

Enrollment has been slightly decreasing at a five year average annual decline of 1.0%. Based on conservative assumptions within the district's trend line projection model, officials expect stable to slightly declining enrollment in the near to mid-term. There is a fairly significant presence of private schools that compete for district enrollment, but officials report open enrollment trends have been stable over time.

STABLE FINANCIAL OPERATIONS DESPITE PLANNED DRAWS UPON GENERAL FUND RESERVES

Moody's expects the district's financial operations to remain stable despite planned draws upon reserves. The district has more than tripled its General Fund reserves from $5.9 million (7.9% of revenues) in fiscal 2005 to $21.8 million General (26.4% of revenues) at the close of fiscal 2008. Given pressures at the state aid level, the district intentionally built up reserve levels to help offset any cuts in state aid. The state delayed aid payments in fiscal 2010 so that school districts would receive only 73% of a district's annual state aid received in the current fiscal year, with the remaining 27% to be received in the subsequent fiscal year. In addition, the state held per pupil funding flat. In response to delayed revenues and flat per pupil funding, the district planned to use reserves in fiscal 2010 in order to maintain programs. As a result, officials expect to close fiscal 2010 with an estimated General Fund balance of $19.4 million, or a still healthy 23.5% of 2009 General Fund revenues. As state aid pressures continue, the district plans to use additional reserves in fiscal 2011 in order prevent program cuts. The district has budgeted to reduce the General Fund balance to $13.3 million. While this is a significant reduction in reserves as a percentage of the district's budget, the budgeted General Fund balance remains in alignment with other Aa2 rated school districts. The district has a formal General Fund balance policy to maintain 5% in undesignated reserves. The district had an undesignated General Fund balance of $14.5 million, or a healthy 17.6% of revenues at the close of fiscal 2009. The district expects the undesignated General Fund reserve balance to be at 10% in fiscal 2011. Going forward, the district may use reserves to offset any potential reductions in state funding. The district has one excess operating levy approved by voters, for a total of $927 per pupil. Approved in November, 2007, the excess operating levy is approved for six years and expected to bring in approximately $10 million in revenue annually.

BELOW AVERAGE DEBT BURDEN WITH RAPID AMORTIZATION

Moody's expects the district's debt profile to remain manageable given no plans for additional borrowing, and rapid principal amortization. The district's overall and direct debt burdens are low at 2.1% and 0.9%, respectively. The rate of principal retirement is rapid with at 98.3% retired in ten years. Officials report no formal plans for additional debt in the foreseeable future.

KEY STATISTICS

2000 Population: 50,951 (an increase of 23.4% from 1990)

Fall 2010 Enrollment: 8,574 (-1.0% five year average annual decrease)

2010 Full value: $8.4 billion

2010 Full value per capita (estimate): $148,913

1999 Median family income, a % of state: 141.8% (161.1% of US)

1999 Per capita income, as a % of state: 131.0% (140.8% of US)

Washington County unemployment rate (June 2010): 6.5% (MN 6.8%; US 9.6%)

Overall debt burden: 2.1% (0.9% direct)

Payout of principal: (10 years): 98.3%

Fiscal 2009 General Fund balance: $21.8 million (26.4% of General Fund revenues)

Fiscal 2009 Undesignated General Fund balance: $14.5 million (17.6% of General Fund revenues)

Post-sale general obligation debt: $65.2 million

The last rating action with respect to Stillwater Independent School District No. 834 (MN) was on January 7, 2009 when the district's Aa3 underlying general obligation rating was affirmed. That rating was subsequently recalibrated to Aa2 on April 16, 2010.

PRINCIPAL METHODOLOGY

The principal methodology used in rating Stillwater Independent School District 834 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 and confidential and proprietary Moody's Analytics' information.

Moody's Investors Service considers the quality of information available on the issuer 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

Soo Yun Chun
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


Moody's Investors Service
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New York, NY 10007
USA

MOODY'S ASSIGNS Aa2 UNDERLYING RATING AND Aa2 (MSDE) ENHANCED RATING TO STILLWATER INDEPENDENT SCHOOL DISTRICT'S (MN) $4.9 MILLION GO SCHOOL BUILDING CROSSOVER REFUNDING BONDS, SERIES 2010A
No Related Data.
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