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MOODY'S ASSIGNS ENHANCED Aa3 RATING WITH A NEGATIVE OUTLOOK AND A1 UNDERLYING RATING TO PITTSTON AREA SCHOOL DISTRICT'S (PA) $18.3M GENERAL OBLIGATION BONDS, SERIES OF 2011

07 Mar 2011

AFFRIMS A1 RATING APPLIED TO $31.2M GOULT BONDS; AFFIRMS A2 RATING ON $9.8M OUTSTANDING LIMITED TAX DEBT

Primary & Secondary Education
PA

Moody's Rating

ISSUE

RATING

General Obligation Bonds Series of 2011

A1

  Sale Amount

$18,300,000

  Expected Sale Date

03/15/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, Mar 7, 2011 -- Moody's Investors Service has assigned an Aa3 enhanced rating with negative outlook and A1 underlying rating to Pittston Area School District's (PA) $18.3 million General Obligation Bonds, Series of 2011. The bonds are secured by the district's general obligation unlimited tax pledge. Concurrently, Moody's has affirmed the district's underlying A1 unlimited tax rating on $31.2 million of outstanding long term debt. Proceeds from this issue will be used to currently refund the district's Series 2001 bonds for an estimated net present value savings of 4% of the refunded principal with no extension of maturity. Moody's has also affirmed the district's underlying A2 general obligation limited tax rating on $9.8M of outstanding debt, secured by a limited tax pledge due to Special Session Act 1 (Taxpayer Relief Act), which restricts school districts' ability to increase property tax millage beyond an annual index without seeking specific exemptions or voter approval.

RATINGS RATIONALE

The A1 unlimited tax rating reflects the district's narrow financial position, moderately sized tax base with average wealth levels, and an above average, but manageable debt burden with no additional borrowing plans. The differentiation between the limited tax and unlimited tax ratings reflects Moody's belief that the narrow reserve position and stagnant tax base growth constrain the district's ability to manage the Act 1 property tax limitation in relation to the unlimited tax rating. For further information on Moody's treatment of limited tax debt for Pennsylvania School Districts, please see our September, 2006 Special Comment on Special Session Act 1.

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.

STRENGTHS:

-Stable ; sizable tax base.

-Manageable debt burden.

CHALLENGES:

- Pressured financial position.

- Narrowing reserve levels.

-Substantial reductions in State education aid.

DETAILED CREDIT DISCUSSION

STRAINED FINANCIAL POSITION MARKED BY NARROW RESERVE LEVELS

The district's financial position narrowed considerably in fiscal 2009 (ended June 30) due to a decline in reserves that rduced the district's financial flexibility. Audited results demonstrate that General Fund balance in fiscal 2009 was reduced to $1.95 million (a narrow 5.2% of General Fund revenues) from $2.8 million (8% of General Fund revenues) in fiscal 2008. The decline is driven in large part due to underperforming property tax ($416,000 under budget) and expenditure growth.

Favorably the district was able to replenish reserves in fiscal year 2010. The district ended the year structurally balanced, with a modest surplus of approximately $111,000 which was applied to General Fund balance, increasing it to $2 million (5.2% of General Fund revenues) The surplus was driven by increased collections on delinquent property taxes, federal stimulus funds, increased state aid for special education and overall conservative revenue and expenditure budgeting.

The fiscal 2011 budget incorporates contractual salary and benefits growth. The budget is balanced with a $26,000 fund balance appropriation, additional property tax growth (3.9%) and reductions in discretionary spending. These budgetary adjustments are expected to offset expenditure pressures without reducing fund balance reserves. The district is primarily funded by property taxes and state aid, comprising 55% and 37%, respectively, of fiscal 2010 General Fund revenues. The fiscal 2012 budget includes a 10% reduction in state aid and a $1 million appropriation from fund balance.

TAX BASE EXPECTED TO REMAIN STABLE

The district's moderately-sized $1.6 billion tax base will likely remain stable, with minimal growth, given limited plans for residential and commercial development. Located in Luzerne County, between the cities of Scranton and Wilkes-Barre, the district is primarily residential (78% of assessed valuation) with a notable commercial/industrial component (a combined 21% of assessed valuation), given the large manufacturing presence in the region.. Full valuation growth averaged a strong 10.3% average five year annual change, capturing moderate market appreciation that is expected to remain flat or minimal in the near term. In addition, the district went through a reassessment in fiscal year 2010 raising full valuation to $1.6 million from $1.3 million.

DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE

Moody's expects the district's debt burden to remain manageable, given no future debt plans and below average amortization of principal (57.9% within 10 years). The district's direct debt burden is average at 2.5% of full valuation, and increases to 4.1% after accounting for the districts pro rata share of overlapping county and municipal debt obligations. After adjusting for state school construction aid, the overall debt burden declines to 3.7% of full valuation. This district recently completed a 10-year capital improvement plan, and with all facilities renovated, the district does not anticipate issuing additional debt for at least five years. The district has no variable rate debt and is not party to any derivative agreements.

What could make the rating change - UP

--Material improvement in the district's tax base and wealth characteristics to levels more consistent with higher rating categories.

-- Significant increases in the district's General Fund balance position due to structured operations.

What could make the rating change - DOWN

-- Protracted structural budget imbalance

-- Depletion of General Fund balance and other available reserves

-- Increased leveraging of the district's tax base to level inconsistent with current rating category

- -Deterioration of the district's tax base

KEY STATISTICS:

2000 Population: 28,532

2010 Full valuation: $1.6 billion

2010 Full value per capita: $58,275

1999 Per capita income (as % of PA and US): $17,514 (84% and 81%)

1999 Median family income (as % of PA and US): $42,129 (86% and 84%)

Direct debt burden: 2.5%

Overall debt burden: 4.1%

Payout of principal (10 years): 57.9 %

FY10 General Fund balance: $2 million (5.2% of General Fund revenues)

FY10 Unreserved, Undesignated General Fund balance: $1.14 million (2.9% of General Fund revenues)

Post-sale parity debt outstanding: $41 million ($31.2 million GO Unlimited Tax Debt and $9.8 million GO Limited Tax Debt)

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments, published in October 2009.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and 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

Tiphany J. Lee
Analyst
Public Finance Group
Moody's Investors Service

Jessica A. Lamendola
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 ENHANCED Aa3 RATING WITH A NEGATIVE OUTLOOK AND A1 UNDERLYING RATING TO PITTSTON AREA SCHOOL DISTRICT'S (PA) $18.3M GENERAL OBLIGATION BONDS, SERIES OF 2011
No Related Data.
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