Fitch Rates Adams County School Dist No. 50, Colorado's $98.6MM GOs 'AA'; Outlook Stable.

AUSTIN, Texas -- Fitch has assigned an 'AA' rating to the $98.6 million Adams County School District No. 50, Colorado (the district) general obligation (GO) bonds, series 2006. The 2006 bonds are secured by an unlimited ad valorem tax levied pledge on all taxable property within the district. The bonds are also secured further by the Colorado School Credit Enhancement Program (rated 'AA-' by Fitch Ratings). In addition, Fitch affirms the 'AA' rating on the district's $8.1 million in outstanding GO bonds. The bonds are selling via negotiation to George K. Baum & Company as sole underwriter on Thursday, Dec. 14, 2006. The Rating Outlook is Stable.

The 'AA' rating reflects the district's sound financial practices, history of conservative financial operations, and healthy and diversified local economy. Offsetting credit considerations are declining enrollment, considerable capital needs with the district near its debt limit, and a moderate direct debt burden. Operating under new management, the district has gained community support to embark on an aggressive facilities improvement plan, which upon implementation is expected to translate to student recruitment and retention, as well as produce operating savings. The new plan will also enable the district to internally generate additional capital improvement funds through the sale of district-owned land.

The district encompasses approximately 17.5 miles in Adams County (the county) in the northwest portion of the Denver metropolitan area and serves portions of the cities of Arvada, Federal Heights, and Westminster as well as certain unincorporated areas of Adams County. Population in the district is estimated at 77,000. The district's tax base is predominantly residential, with income levels above state and national averages. The top ten district taxpayers represent roughly 15% of market value, although two of these taxpayers are utilities.

With a fall 2007 enrollment of nearly 10,700, the district is one of seven school districts in the county. Total district enrollment has declined by 3% in the last five years as the area's population aged and families moved to an adjacent district with newer facilities. There is also currently one charter school operating within the district. The majority of the district's schools are over 40 years old, with the most recent renovation in 1985. The district successfully implemented initiatives to stabilize enrollment including instituting an International Baccalaureate program and all-day kindergarten in several schools. This bond program is part of another initiative to retain and attract new students by providing a new flagship high school with adequate capacity to educate students from the two existing high schools. One of the existing high schools will be converted to a career, technical and fine arts high school. Bond funds will also be used for the construction of an elementary school that will replace two schools with a combined age of 175 years and to restore aging schools. The school consolidations will enable the district to generate additional funds for capital improvements through the sale of land and savings in operations through economies of scale.

Debt levels in the district rise with this issue to a moderate level, with direct and overlapping debt aggregating $118.7 million, equal to $1,542 per capita and 2.4% of full valuation. The current issue will push the district near its legal limit with future capital needs expected from internally generated funds. Debt service, currently $2.4 million or 3% of fiscal 2007 revenues, will rise to reach $8.8 million by fiscal 2012.

The district's financial operations are characterized by a moderate degree of reliance on state funding. State revenue provides for equalization of per-pupil expenditures throughout the state and assures a minimum funding level per pupil. The state's level of per-pupil funding for each district varies depending on economic and demographic factors. While Amendment 23 enhances the minimum per-student base, declining state resources due to the poor economy have pressured the state legislature to find methods to reduce school district funding. Also, the district's recent decline in enrollment has forced the district to find ways to reduce expenditures, including reducing teaching staff.

The district's history of positive operations was briefly interrupted as increasing costs and decreasing enrollment resulted in negative operating results for fiscal years 2001 and 2002. However, after gathering voter support and passing a mill levy override, the district reported a year-end general fund surplus of $2.8 million in fiscal 2003. Positive operating results have continued through fiscal 2006. Due to transfers for capital reserves, the total fund balance has begun to decline to a still healthy $10.5 million or 13.6% of expenditures and transfers out at the end of fiscal 2006. The unreserved and undesignated fund balance was $6.8 million, or 8.6% of expenditures and transfers out. For fiscal 2007 the budget was adopted with an operating surplus of nearly $2.7 million, but transfers to the capital and risk management reserve funds are expected to draw down the ending fund balance by about $2.8 million. The district has recently adopted a formal fund balance policy to maintain a minimum of 5% of expenditures in reserves for emergencies, which is in addition to the TABOR (Taxpayer's Bill of Rights) required reserve of 3%.

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