Fitch Assigns 'AA' to Austin CCD, TX's GO Bonds.

Business Editors

AUSTIN, Texas--(BUSINESS WIRE)--May 28, 2004

Austin Community College District, TX's (ACCD or the district) $24 million limited tax bonds, series 2004 are rated 'AA' by Fitch Ratings. The bonds are expected to price June 3 via a syndicate led by JP Morgan Securities, Inc. In addition, Fitch affirms its 'AA' rating on the district's outstanding $75 million limited tax bonds, series 2003. The Rating Outlook is Stable.

Dated June 1, 2004, the bonds mature serially Aug. 1, 2008-2034. Bonds maturing on or after Aug. 1, 2015 are subject to optional redemption prior to their stated maturities at the district's option on Aug. 1, 2014 at par plus accrued interest to the redemption date. The bonds are payable from an ad valorem tax levied, within the limits prescribed by law, upon all taxable property within the district. The district is permitted to levy up to $0.50 per $100 valuation for debt service payable from property taxes. Proceeds will fund district-wide improvements and pay costs of issuance.

The high grade rating is based on ACCD's broad tax base, modest debt load, and strong demographics and anticipated demand. Financial operations have been constrained by growth pressures, the prior property tax cap, as well as reduced state appropriations. Recent voter approval of additional taxing margin is projected to stabilize and improve future financial performance. In addition, the bond program will address much needed campus renovations and expansions, helping to better position the district for projected enrollment growth.

Serving an estimated 1.4 million residents in central Texas, the district was established by the voters in 1972. ACCD is a public junior college providing a wide array of course offerings and training. In addition to academic programs for transfer to a senior college or university, the district offers general vocational and technical education, continuing education, and adult literacy programs. ACCD administers education and training at 80 locations throughout the area and operates six full-time campuses. A new south Austin campus is underway, which will address facility needs in the fastest growing portion of the district.

Although the Austin metropolitan area experienced strong population gains during the past decade, enrollment growth was modest, reportedly due to space constraints at ACCD. However, headcount enrollment rebounded in 2001 and 2002, recording a cumulative increase of over 12%. Fall 2003 headcount enrollment dropped slightly, although full-time equivalents and contact hours posted a small increase. Given the area's strong prospects for growth as well as the absence of any nearby community college, district officials are projecting an additional 10,000 students will enroll at ACCD by 2010. In addition, recent legislative approval for tuition de-regulation at the state's four year public universities bodes well for community colleges with their lower tuition costs.

The current offering represents the second and final phase of borrowing for a $99 million authorization approved by 57% of district voters on May 2003. The bond authorization will fund much needed district-wide improvements and expansions. The absence of outstanding general obligation debt prior to 2003 authorization as well as the size and breadth of the district's tax base results in extremely modest direct debt ratios. Conversely, payout is very slow, with only about 10% paid in 10 years, as the district attempts to keep the interest and sinking rate for the entire authorization at $0.01. All bonds mature in 30 years.

In fiscal 2002 and 2003, the district recorded modest negative operating margins, reflecting the prior tax cap as well as declines in state appropriations. Voter approval of a $0.04 increase in the property tax rate is projected to improve the district's financial position, despite a small decline in TAV recorded in fiscal 2004 and a reduction in state appropriations in the current biennium budget. In addition, recent voter support by residents of the Del Valle Independent School District to join the district will enhance taxable values and property tax collections, a major and growing source of operating support. District officials project improved financial performance for the close of fiscal 2004.

Since 1990, the Austin metropolitan area has experienced rapid population growth, outpacing that of other major Texas cities, the state, and the nation. However, area economic performance slumped in the early part of this decade, reflecting national trends as well as the downturn in the high technology sector. Signs of economic rebound are evident, with more recent unemployment rates pointing to marked improvement. In addition, TAV for the coming fiscal year is expected to show a modest increase.