Fitch Rates $12MM Washington Unified School District, CA GO Bonds 'A+'.

SAN FRANCISCO -- Fitch Ratings assigns an 'A+' rating to $12 million Washington Unified School District (Yolo County, California) election of 2004 general obligation bonds, series B. In addition, Fitch affirms the 'A+' rating on roughly $48.2 million general obligation bonds outstanding. The Rating Outlook is Stable.

The bonds are expected to sell via negotiation led by Stone & Youngberg during the week of Oct. 30. The bonds are secured by the district's full faith and credit unlimited ad valorem tax pledge.

The 'A+' rating reflects Washington Unified School District's (the district) low direct debt level, strong population and assessed valuation growth, rising school enrollment, and historically healthy fund balances. The district primarily serves the fast growing city of West Sacramento. These factors are somewhat offset by concerns related to ongoing operating and capital pressures associated with growth and slow debt amortization. The district has experienced turnover at the senior management level, although disruptions in operations appear to be minimal. In addition, the current administration is in the process of implementing several measures aimed at achieving budget balance and generating increased fiscal efficiencies, which Fitch views favorably.

Located in the city of West Sacramento, the district covers a 23-square mile area in eastern Yolo County along the west bank of the Sacramento River and opposite the city of Sacramento. With a population of 43,000, the district provides services to over 7,100 students enrolled in 13 public schools located at 11 sites. Historically, enrollment growth has been steady, growing 12% from 2001-2006. Current projections, which have been revised downward from prior year forecasts, are anticipated to reach approximately 7,500 students by 2011 as the city of West Sacramento continues to be built out. The district has recorded significant tax base growth, increasing 15% annually over the past six years. The local economy is essentially residential in character with a good mix of commercial and industrial businesses. The city's labor force and employment opportunities have consistently improved since a significant decline in 2000, and its unemployment rate is now on par with California's.

Financial operations are marked by healthy general fund reserves that have averaged around 10% of expenditures, transfers out, and other uses over the past four years. The district incurred, however, an operating deficit in fiscal 2004 and essentially break-even results in fiscal 2005. Another drawdown in general fund reserves is projected for fiscal 2006, although the unreserved balance is expected to represent a still favorable 7% of operating expenses and transfers out. While the district has budgeted a $1.8 million surplus for fiscal 2007, labor negotiations are still underway creating some uncertainty as to the extent of the financial impact on district finances. The district's new management is implementing a number of initiatives designed to improve revenue collections, reduce expenses, and achieve budget balance.

This is the second installment in a $52 million bond measure approved by 69% of district voters in March 2004 under California's Proposition 39 election procedure. Bond proceeds, supplemented with state matching funds and developer fees, will fund the construction of a new high school. The first installment (approximately $40 million) was issued in 2004. Including the full authorization, the direct debt level is low at $1,471 per capita, or 1% of market value. However, as a result of the overlapping debt of local taxing entities, the overall debt level is above average at $5,500 per capita, or 5% of market value. The average tax rate levied to repay all general obligation bonds outstanding, including this issue, is expected to be $55 per $100,000 of assessed valuation, assuming a conservative 6% future annual assessed valuation growth rate. Payout is slow, with 31% of the district debt repaid in 10 years. Additional borrowing is likely as the district will go back to the voters in November to reallocate $7 million from the 1999 authorization to meet increased costs associated with the construction of a new high school. The district's board recently approved a $252 million capital improvement plan through fiscal 2016 which will require funding from a multiplicity of sources.

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