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Rating Update:

MOODY'S DOWNGRADES TO A1 FROM Aa3 THE RATING OF NIAGARA-WHEATFIELD CENTRAL SCHOOL DISTRICT'S (NY) $56.9 MILLION OUTSTANDING GENERAL OBLIGATION DEBT

13 Jul 2011

Primary & Secondary Education
NY

Opinion

NEW YORK, Jul 13, 2011 -- Moody's Investors Service has downgraded to A1 from Aa3 the underlying rating on Niagara-Wheatfield Central School District's (NY) $56.9 million of outstanding rated general obligation bonds. The bonds are secured by the district's general obligation unlimited tax pledge.

RATINGS RATIONALE

The downgrade reflects the district's deteriorating financial reserves over the past three years relative to national and state school district medians. Additionally, the A1 rating considers the district's medium-sized tax base and manageable debt burden.

Strengths:

-Demonstrated efforts by management to contain costs

-Manageable debt burden

Challenges:

-Use of reserves to structurally balance operations

-Reduction in state funding

-Increasing pension obligations

-Constrained financial flexibility

DETAILED CREDIT DISCUSSION

MEDIUM-SIZED TAX BASE EXPERIENCING MODERATE GROWTH

Located in Niagara County (Aa3/NOO) with proximity to employment centers in the City of Buffalo (A2/POS), the district's $1.598 billion tax base has experienced a 27.5% increase in full valuation since Fiscal 2006, driven largely by residential construction. Although construction of new homes has declined from an average of 300 homes per year prior in Fiscal 2008 to around 30 homes annually at present, the district continues to benefit from its industrial component (20% of full value), developable land, and stability among the largest taxpayers who comprise 6.5% of assessed valuation. The district's socioeconomic profile, including median family and per capita incomes, approximates state and national averages, with Per Capita Income and Median Family Income reported at 86.5% and 102.1% of the state and 93.8% and 105.4% of the nation, respectively. Full value per capita is an average $74,326.

NARROWING RESERVES, STATE AID CUTS, PROPERTY TAX CAP HINDER FINANCIAL FLEXIBLITY DESPITE COST-CUTTING MEASURES

The General Fund balance at the end of Fiscal 2010 was $7.659 million (11.9% of revenues), down from $8.306 million (13.3% of revenues) in Fiscal 2009. The primary drivers of the $647,000 draw down in fund balance were due to reduced revenues stemming from a stagnant property tax rate and increased instructional and benefits expenditures. The Fiscal 2010 unreserved undesignated fund balance has been depleted (0% of revenues), down from $944,000 (1.5% of revenues) in Fiscal 2009. General Fund balance includes reserves for workers' compensation ($1.9 million) and employee benefits ($401,000) which are expected to remain stable. The district also maintains a Debt Service Reserve Fund, which at the end of Fiscal 2010 totaled $2.5 million, providing some financial flexibility.

Management anticipates further draw downs in Fiscal 2011, with an expected ending total fund balance of $5 million (7.3% of revenues). This decline is attributable to a $4 million loss in state aid and increased healthcare obligations. Management has demonstrated efforts to manage recent years' shortfalls through the elimination of 28 positions (16 layoffs, 12 through attrition), $4 million in overtime cuts, and a 2.9% property tax increase which will be realized in Fiscal 2012. The district also plans to utilize $1.7 million of federal jobs funding in Fiscal 2012 to offset the state aid cut. Despite these efforts and the district's maintenance of the second lowest tax rate in a three county area, constrained financial capability in future fiscal years due to the recent property tax cap legislation and increasing healthcare and pension obligations could hinder replenishment of reserves in short-term financial operations. Management anticipates balanced operations in Fiscal 2012, but further deterioration of reserves could place additional downward pressure on the rating.

DEBT BURDEN EXPECTED TO REMAIN ABOVE AVERAGE, MANAGEABLE THROUGH THE MEDIUM TERM

The district's above average debt burden will likely remain manageable given limited future borrowing plans and rapid amortization. The district's direct debt burden is high at 3.6% of full valuation and increases to 5.0% when the overlapping obligations of underlying municipalities are factored. Adjustment for state building aid reduces the overall debt burden to a more manageable 1.9% of full value. Amortization of principal is rapid with 89.8% of principal paid within ten years. The district has no variable rate debt and is not party to any swap agreements. Debt service expenditures were a high 10.5% of Fiscal 2010 expenditures.

WHAT COULD MAKE THE RATING GO UP:

-Demonstrated progress toward restoring reserves to previously healthy levels

WHAT COULD MAKE THE RATING GO DOWN:

-Further deterioration of the district's reserves and cash position

KEY STATISTICS

2000 Population: 25,511

2011 Full Valuation: $1.598 billion

2011 Full Value Per Capita: $74,326

Fiscal 2010 Total General Fund Balance: $7.659 million (11.9% of General Fund revenues)

Fiscal 2010 Undesignated, Unreserved General Fund Balance: $0 (0% of General Fund revenues)

Fiscal 2010 Net Cash/Investments: $4.647 million (7.2% of General Fund revenues)

Long-term rated G.O. Debt Outstanding: $56.9 million

Direct Debt Burden: 3.6%

Overall Debt Burden: 5%

Payout of Principal (10 years): 89.8%

Median Family Income: $98,300 (102.1% of state and 105.4% of US)

Per Capita Income: $52,771 (86.5% of state and 93.8% of US)

District Unemployment Rate (February 2011): 9.6%

The principal methodology used in this rating was General Obligation Bonds Issued by U.S. Local Governments published in October 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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, [and] public 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

Kristina Piccarreto
Analyst
Public Finance Group
Moody's Investors Service

Robert Weber
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, Inc.
250 Greenwich Street
New York, NY 10007
USA

MOODY'S DOWNGRADES TO A1 FROM Aa3 THE RATING OF NIAGARA-WHEATFIELD CENTRAL SCHOOL DISTRICT'S (NY) $56.9 MILLION OUTSTANDING GENERAL OBLIGATION DEBT
No Related Data.
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