Fitch Rates $38MM, Rio Linda ESD, California, GO Bonds 'AA-'.

SAN FRANCISCO -- Rio Linda Elementary School District, Sacramento County, CA's $38,000,000 2007 general obligation (GO) bonds, series A, are rated 'AA-' by Fitch. Fitch also affirms the 'AA-' rating on $28 million outstanding GO bonds. The series A bonds are scheduled to sell during the week of March 5 through negotiation by George K. Baum & Company. The Rating Outlook is Stable.

Rio Linda Elementary School District's (the district) credit strength rests on its strong growth in assessed value (AV), healthy fund balance levels with high reserves, low direct debt levels and a stable economy. These strengths are offset by below-average debt amortization and above-average overall debt ratios. There is some uncertainty in regard to the potential unification of several neighboring school districts including Rio Linda Elementary School District, although the effect on the credit strength of the current offering and outstanding GO debt would be neutral.

Rio Linda Elementary School District is located in the northern portion of Sacramento County, encompassing a portion of the city of Sacramento, as well as the unincorporated communities of Rio Linda, North Highlands, and Foothill Farms. Total district population is estimated to be approximately 98,000 people. District facilities consist of 22 elementary schools, two district operated charter schools, and administrative buildings. Student enrollment increased beginning 2005 after two years of slight declines. Enrollment growth is expected to remain stable through the near future. Academic performance is high and the district has received numerous national and state distinguished school awards.

The district and county have experienced strong AV growth over the past 10 years, averaging 13% annually, with a strong increase of 18.7% in fiscal 2007. The district Sacramento County continue to experience growth in both commercial and residential development although at a slower pace than recent years.

The school boards of the district, Grant High School District, North Sacramento Elementary School District, and Del Paso Height Elementary School District recently passed a resolution to join into a single unified school district. The resolution was then approved by the Sacramento County Committee on School Education and is now subject to consideration by the state board of education. If approved district residents would then vote for final approval in June 2008 with the new unified school district potentially beginning in July 2009. Unification is expected to decrease costs system-wide through increased efficiency and economies of scale. Fitch views this development as credit neutral, as previously issued debt would remain an obligation tied to the original district boundaries.

The district's financial position is sound with above-average reserve levels. The general fund balance declined to a still healthy $6.2 million or 9.2% of expenditures and transfers out in fiscal 2004 due to a decrease in state revenues associated with a decline in student attendance. Management has limited costs accordingly, discontinuing several extracurricular programs. Since 2004, attendance levels have risen 0.9% to a total 10,055 students in 2007. Benefiting from the resulting increase in revenue, the district's fund balance has grown to $7.3 million or a high 10% of expenditures and transfers out in fiscal 2006. Labor relations are characterized by the district as good, and the district continues to offer competitive salaries. Projections for fiscal 2007 suggest a further increase in additional operating surplus.

Direct debt levels are low, although overall debt is above average. Including this offering, direct debt totals $706 per capita and 1.2% of market value, and overall debt is $3,302 per capita, 5.4% of market value. The low direct debt levels are a reflection of the district's pay-as-you-go policies and effective capital planning. The district does not expect to issue additional debt in the near future. This sale uses the district's full $38 million Proposition 39 authorization, approved by 62% of the voters in November 2006. The proceeds will be used to finance the construction of two new schools and existing facilities modernization.

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