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

Business Editors

AUSTIN--(BUSINESS WIRE)--June 10, 2003

Austin Community College District, TX's (ACCD or the district) $75 million limited tax bonds, series 2003 are rated 'AA' by Fitch Ratings. The bonds are expected to price June 12 via a syndicate led by RBC Dain Rauscher, Inc. Dated July 1, 2003, the bonds mature serially Aug. 1, 2005-33. Bonds maturing on or after Aug. 1, 2014 are subject to optional redemption prior to their stated maturities at the district's option on Aug. 1, 2013 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. The Rating Outlook is Stable.

The high grade rating is based on ACCD's broad and diverse tax base, modest debt load, and growing enrollments 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 strong 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 under development (with construction funds included in the current bond authorization), which will address facility needs in the fastest growing portion of the district.

Although the Austin metropolitan area experienced strong population gains during the last decade, enrollment growth at ACCD was modest, reportedly due to space limitations. However, headcount enrollment grew 6.7% in fall 2001 over the prior year, with 5.7% growth recorded in fall 2002, partially reflecting softening in the local economy. Demand is expected to be strong, given the significant number of Texas high school graduates projected through the end of this decade, the absence of another junior college district in this growing area, as well as anticipated tuition de-regulation at institutions of higher learning. The district projects that an additional 10,000 students will enroll at ACCD by 2010.

The current offering represents the first phase of borrowing for a $99 million authorization approved by 57% of district voters on May 19, 2003. The bond authorization will fund much needed district-wide improvements and expansions. Given the absence of outstanding general obligation debt and the size and breadth of the district's tax base, direct debt ratios are extremely low at 0.2% debt to taxable value and $58 debt per capita. Conversely, principal payout is very slow, with 7.4% paid over the next 10 years as the district attempts to keep the debt service tax rate for the entire authorization at $0.01. The remainder of the authorization is expected to be issued in 2006.

Recent voter support for a $0.04 increase to the district's operations tax rate arrived at a critical time for ACCD, given ongoing growth related pressures, the existing tax cap, and reduced state appropriations. Although break-even operations are typical for public institutions, the district has recorded modest negative operating margins over the past three fiscal years. In addition, liquidity in fiscal 2002 is slightly less than one month's operations. Despite a 7.4% reduction in state appropriations and an expected decline in TAV for fiscal 2004, financial projections incorporating a phasing in of the $0.04 tax increase now show positive operating performance through the 2010 and the gradual restoration of reserve levels to the district's 15% desired goal by 2007.

Since 1990 the Austin metropolitan area has experienced rapid population growth, outpacing that of other major Texas cities, the state and the nation. According to U.S. Census Bureau information, Austin was the fifth fastest growing metropolitan area in the U.S. TAV also recorded impressive gains during this time, with the tax base more than doubling since fiscal 1996. However, area economic performance continues to be sluggish, exacerbated by the downturn in the high technology sector which maintains a large presence in the area. As a result, preliminary TAV estimates for fiscal 2004 point to a 2.5% decline. Nevertheless, the district's tax base, at just under $50 billion for the current year, remains substantial.