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MOODY'S ASSIGNS UNDERLYING Aa1 RATING TO WASHINGTON AND MULTNOMAH COUNTIES S.D. NO. 48J (BEAVERTON), OR, G.O. BONDS; $341.2 MILLION OF DEBT AFFECTED

29 Jul 2011

Aa1 ENHANCED RATING RECEIVED; Aa2 GOLT RATING AFFIRMED

Primary & Secondary Education
OR

Moody's Rating

ISSUE

UNDERLYING
RATING

RATING

General Obligation Refunding Bonds, Series 2011

Aa1

Aa1

  Sale Amount

$43,855,000

  Expected Sale Date

08/04/11

  Rating Description

General Obligation

 

Opinion

NEW YORK, Jul 29, 2011 -- Moody's Investors Service has assigned an underlying Aa1 rating to the Washington and Multnomah Counties School District No. 48J (Beaverton), Oregon, General Obligation Refunding Bonds, Series 2011 expected to be issued in the approximate amount $43.9 million. At this time, Moody's also affirms the Aa1 underlying rating on the district's outstanding general obligation parity debt totaling approximately $297.3 million, as well as the Aa2 rating on the district's outstanding general obligation, limited tax debt totaling approximately $22.0 million. The current offering is secured by the district's full faith, credit and unlimited property tax pledge. The current offering is expected, at the district's discretion, to receive the Aa1 enhancement rating with stable outlook of the State of Oregon School Bond Guarantee Program. Bond proceeds will be used to refund certain outstanding maturities of the district's series 2001, 2002 and 2003 bonds.

RATING RATIONALE

The Aa1 underlying rating reflects the district's large tax base with recent valuation declines, above-average socioeconomic indicators, and manageable debt profile. The rating also reflects the district's improved but volatile financial operations, as well as its willingness to pursue a supplemental local option levy in late 2011.

The Aa1 enhanced rating assigned to all bonds issued under the program reflects the state's (GO rated Aa1 Stable) full faith, credit and unlimited taxing power which is pledged to guarantee qualified school districts' bond debt service when due. Key aspects of the program include third party notification of any unpaid debt service and favorable state oversight. For a more detailed opinion of the program, see Moody's Municipal Credit Research Rating Update published on August 10, 2007.

STRENGTHS

- Large and relatively wealthy tax base

- Manageable debt levels with limited future debt plans

- Outperformance of fiscal 2011 budget

CHALLENGES

- Majority of revenue from volatile state sources

- History of structurally imbalanced budgeting and willingness to budget below the district's 5% fund balance policy in fiscal 2011

- Sunsetting federal and state stabilization funding in fiscal 2012

- Limited revenue generating capacity, despite planned local option levy election in late 2011

DETAILED CREDIT DISCUSSION

CONTINUED STATE AND FEDERAL FUNDING DECREASES CHALLENGE RECENT IMPROVED RESERVE LEVELS; MODERATE ENROLLMENT GROWTH

Moody's believes that long-term maintenance of the district's rating level requires timely management of financial pressures and stabilization of depleted reserves to levels appreciably above the district's 5% reserve policy level. The volatility of the district's financial operations in the face of sustained state revenue pressure led to mid-decade declines from which the district is still adjusting, given limited means of raising additional revenue and the continuation of a steady enrollment growth trend. The district ended fiscal 2008 with a very thin 3.4% ($9.7 million) in reserves, below its 5% policy level, but by fiscal 2010 reserves were up to an adequate but below-average 9.1% ($26.5 million). However, district management currently projects a reversal of two years of operational surpluses in fiscal 2011 and 2012, with reserves projected to hold at around 6%, which are well below average for the Aa1 rating category. Further reserve deterioration in district reserves will result in significant rating pressure.

The district's financial challenges have been managed with expenditure reductions that include the elimination of 280 teaching and administrative positions since fiscal 2008, policies restricting spending, and employee concessions on existing contracts. The district had to manage the sunset of Federal stimulus funds totaling $23.8 between fiscal 2009 and 2011, all of which offset reduced state aid. The state's biennial budget for fiscal 2012 and 2013, as approved, includes the sunset of Federal funds, and reductions to base per-pupil state funding levels.

Positively, management indicates that they are seeking a voted local option levy in November 2011 to generate an additional $15 million to $30 million annually for operations, passage of which would provide flexibility to strengthen its financial position. Moody's notes that a local option levy is one of the only methods Oregon school districts can employ to independently increase operational funding, is restricted to five years, and require voter approval.

Enrollment has increased moderately at a 1.2% annual rate since fiscal 2006 to 38,814 students, a continuation of a decade-long trend. Looking forward, management projects enrollment to increase approximately 1.0% per year into the near term.

The district's pension plan is a combination of T1/T2 plans and OPSRP. Despite district prepayment of pension obligations with $175.9 million of outstanding pension bonds, in 2009 the district reported an unfunded actuarial liability of $241.5 million. The district's other post employment benefits consist of an early retirement healthcare subsidy which reported an unfunded actuarial liability of $27.1 million in 2010, an early retirement program for eligible retirees who retired before June 30, 2004 which ends in 2017 and had a $400,000 estimated liability.

LARGE AFFLUENT TAX BASE HAS STABILIZED

Moody's believes that the Portland area economy has stabilized, although some economic challenges remain. The district serves the communities of Beaverton (GO rated Aa1), Portland (GO rated Aaa with a rating on review for possible downgrade), Hillsboro (Issuer rating Aa2), and Tigard (GO rated Aa2). In fiscal 2011, the district's assessed value (AV) increased 2.9% to $22.1 billion, while the full value, otherwise known as real market value (RMV), declined by 5.2% to $31.2 billion. The $9.2 billion difference between AV and RMV provides a satisfactory buffer from economic declines, given the state's set 3% residential AV growth designated by Measure 50. The district's tax base benefits from major technology and manufacturing companies located within the district. The county's largest tax payer, Intel Corporation, recently announced its plans to build a new facility and remodel two others. Moody's believes entities in the high-tech sector should partially offset state government spending cuts, which will likely result in layoffs, furloughs, or shorter workweeks.

According to the 2000 census, wealth levels are in line similarly-rated entities with per capita and median family incomes at 124.1% and 127.6% of national levels, respectively. AV per capita of $122,456 is healthy but below the Aa1-rated school district median.

AVERAGE AND MANAGEABLE DEBT LEVELS

Moody's expects the district's debt levels to remain manageable. The district's debt position is average relative to similarly-rated peers, with direct and overall debt burdens of 1.2% and 1.7%, respectively. Direct debt, including pension obligation bonds and full faith and credit obligations, is 1.7%. Moody's believes that the district's debt position will remain at manageable levels, given no plans to seek additional bond authorization from voters in the next three years.

WHAT COULD MOVE THE RATING-UP

- Significantly improved and sustained reserve levels

- Growth and diversification of tax base

WHAT COULD MOVE THE RATING-DOWN

- Narrowing reserve levels

- Deterioration of tax base

- Reliance on non-recurring revenues to support operations

KEY STATISTICS

2010 estimated population: 252,593

2011 full value: $31.2 billion

Average annual growth in full value (2006-2011): 4.5%

2011 full value per capita: $122,456

1999 per capita income: $28,787 (124.1% of US)

1999 median family income: $63,839 (127.6% of US)

2010 direct debt burden, net of Pension Obligation Bonds: 1.1%

2010 direct debt burden, including Pension Obligation Bonds: 1.7%

2010 overall debt burden, net of Pension Obligation Bonds: 1.7%

Payout of principal (10 years): 59.9%

Fiscal 2010 General Fund balance: $38.9 million (9.1% of General Fund revenues)

PRINCIPAL METHODOLOGY AND LAST RATING ACTION

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

The last rating action with respect to Washington and Multnomah Counties School District No. 48J (Beaverton), Oregon was on February 11, 2011, when a negative outlook was removed and an underlying rating of Aa1 was assigned to the district's general obligation bonds.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a 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

Bryan A. Quevedo
Analyst
Public Finance Group
Moody's Investors Service

Julian Metcalf
Backup Analyst
Public Finance Group
Moody's Investors Service

Matthew A. Jones
Senior Credit Officer
Public Finance Group
Moody's Investors Service

Contacts

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


Moody's Investors Service, Inc.
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New York, NY 10007
USA

MOODY'S ASSIGNS UNDERLYING Aa1 RATING TO WASHINGTON AND MULTNOMAH COUNTIES S.D. NO. 48J (BEAVERTON), OR, G.O. BONDS; $341.2 MILLION OF DEBT AFFECTED
No Related Data.
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