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MOODY'S ASSIGNS ENHANCED Aa3 RATING WITH NEGATIVE OUTLOOK AND A2 UNDERLYING RATING TO JIM THORPE AREA SCHOOL DISTRICT'S (PA) $8.9 MILLION GO BONDS, SERIES 2011

21 Mar 2011

Primary & Secondary Education
PA

Moody's Rating

ISSUE

UNDERLYING
RATING

RATING

General Obligation Bonds, Series of 2011

A2

Aa3

  Sale Amount

$8,930,000

  Expected Sale Date

03/15/11

  Rating Description

General Obligation Bonds

 

Opinion

NEW YORK, Mar 21, 2011 -- Moody's Investors Service has assigned an Aa3 enhanced rating with negative outlook and A2 underlying rating to Jim Thorpe Area School District's (PA) $8.9 million General Obligation Bonds, Series of 2011. The bonds are secured by the district's general obligation unlimited tax pledge.

Proceeds from this issue will be used to refund the district's Series 2006 bonds for an estimated net present value savings of 2.5% of the refunded principal with no extension of maturity.

RATINGS RATIONALE

The underlying A2 rating reflects the district's slim financial reserves and expectation of replenishment consistent with budgeted expectations. It further incorporates the district's moderately sized tax base, below-average wealth levels, and an above average, but manageable debt burden with no additional borrowing plans.

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 underlying economy and tax base

CHALLENGES

-Restoration of financial reserves after multi-year draws

CREDIT OPINION

FINANCIAL RESERVES SLIM DUE TO MULTI-YEAR DRAWS; BUT TRENDS EXPECTED TO IMPROVE

Moody's expects reserves to stabilize in fiscal 2011 after multi-year draws on reserves. Beginning in fiscal 2008, the district opted to use reserves for taxpayer relief with no corresponding reductions in expenditures. As a result, ending fiscal 2010 unreserved General Fund balance is expected to equal a mere $825,000 or 2.3% of revenues, significantly down from its fiscal 2007 peak of $3.6 million or 12.4% of revenues. General fund revenues are mostly comprised of property taxes (77% of fiscal 2010 revenues) and state aid (20%).

Fiscal 2011 experienced a budgetary 3.6% decline in expenditures from fiscal 2010 (budget to budget). Citing reductions in line item expenditures, conservative revenue assumptions, and non-use of contingency funds, management projects ending unreserved fund balance to be between $750,000 and $1 million (2-3% of revenues) compared to the originally budgeted ending fund balance of $300,000 or 0.9% of revenues. As a part of internal initiatives to rebuild fund balance back to an internal target of $3 million within the next five years, management anticipates another 5% reductions for the fiscal 2012 budget. Reductions in spending will be achieved through further decreases in line item expenditures, deferment on non-essential capital expenditures, and reductions in headcount. In addition, the district is applying for an exemption from the state to increase its levy beyond the allowed rate permissible under the state index for the second consecutive year for special education and retirement expenses. Moody's expects management to continue improve its financial position and maintain structurally balanced operations. Inability to maintain adequate financial flexibility reflective of the current rating level by offsetting likely declines in state aid through reductions in spending and/or raising recurring revenues would exert downward rating pressure as it would represent an erosion of the district's financial credit profile.

MODERATE TAX BASE; EXPECTED TO BE STABLE

The district's tax base is moderate at $1.5 billion and is expected to be stable due to limited development. Assessed values are stable increasing at an average annual rate of 5.6% over the last five years. Full value has grown faster at an average annual rate of 10% over the last five years reflecting market appreciation. Located approximately 30 miles from Allentown (rated A1 , negative outlook), the district is mostly residential. Wealth indicators are below state and national medians with per capita income at 84% and 81% of state and national averages respectively.

ABOVE-AVERAGE DEBT BURDEN; NO FUTURE BORROWING PLANS

The district's net direct debt burden is above average at 2.8%, of full value, but is expected to be manageable due the lack of foreseeable borrowing needs. Including the district's pro rata share of local and county debt, the district's overall debt burden rises to 4.8% of full value. Amortization is slow with 48% of principle retired in 10 years. All of the district's debt is fixed rate and the district is not party to any derivative agreements.

WHAT CAN MAKE THE RATING GO - UP

-Significant improvement in the district's financial reserves

-Sizable increases in the district's tax base

WHAT CAN MAKE THE RATING GO -- DOWN

-Further deterioration of the district's already weak financial position

KEY STATISTICS:

2000 Population: 11,023

2011 Full valuation: $1.5 billion

2010 Full value per capita: $139,091

1999 Per capita income (as % of PA and US): $17,444 (84% and 81%)

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

Direct debt burden: 2.8%

Overall debt burden: 4.8%

Payout of principal (10 years): 48%

FY09 Unreserved General Fund balance: $2.1 million (6.9%)

FY10 Unreserved General Fund balance (unaudited): $825,000 (2.3% of General Fund revenues)

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 and public 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

Dora 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
250 Greenwich Street
New York, NY 10007
USA

MOODY'S ASSIGNS ENHANCED Aa3 RATING WITH NEGATIVE OUTLOOK AND A2 UNDERLYING RATING TO JIM THORPE AREA SCHOOL DISTRICT'S (PA) $8.9 MILLION GO BONDS, SERIES 2011
No Related Data.
© 2019 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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