Fitch Rates Anaheim City School District, CA $40MM GO Bonds 'AA'.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--April 22, 2004

Fitch Ratings assigns an 'AA' rating to approximately $40.0 million Anaheim City School District (County of Orange, California) general obligation bonds, election of 2002, series 2004. In addition, Fitch affirms its 'AA' rating on all outstanding general obligation bonds, which total roughly $30.7 million. The Rating Outlook is Stable. Bond proceeds will be used to finance a combination of new construction and modernization of existing school facilities. The bonds are expected to sell via negotiation led by Stone & Youngberg during the week of May 17th. Final par size will be determined closer to pricing based on market conditions.

The 'AA' rating reflects Anaheim City School District's (the district) sound financial operations including good reserve levels providing a substantial cushion against a backdrop of uncertainty in state education funding. The district area economy remains sound with steady population growth and declining unemployment levels. A substantial downward adjustment to Disney's 2004 assessed value (AV) has resulted from prior-year errors by the county assessor's office; this anomaly is offset by extraordinary AV gains in prior years and the district is not financially liable. Disney remains a source of concentration in the district's tax base. The Rating Outlook is Stable.

The district is located in Anaheim (the city), California approximately 28 miles southeast of downtown Los Angeles in northern Orange County. The district encompasses approximately 22-square miles inside the City of Anaheim with an estimated 2004 enrollment of 21,963 students at 23 elementary schools. Enrollment peaked in fiscal 2003 at 22,375 and is projected to decline 4% over the next 10 years.

The district area economy is characterized by its location in affluent Orange County - the City of Anaheim wealth indicators are well below the county averages but at or above state and national levels. The city's economy also is influenced by proximity to Disneyland and related Disney attractions - Disney accounts for a concentrated 24.3% of assessed value. Assessed value (AV) growth was very strong through fiscal 2003 including a dramatic one-year rise of 24.9%. However, this positive trend was offset in 2004 by a 7.6% reduction in AV, which reconciled several prior-year over-valuations by the county assessor's office.

Both city and county populations continue to grow though the city's future population gains will likely be increasingly limited as the city is primarily built-out. Unemployment levels fell to 4.4% in 2003, down from 4.8% in 2002 but still above the low 3.0% rate from 2000. The county's overall unemployment rate in 2003 was 3.8%, also an improvement over 2002.

Financial operations are healthy. Reductions in the general fund balance reserves primarily reflect transfers to other district accounts. However, operations are under some stress, marked by an operating deficit in fiscal 2003 and ongoing uncertainty for education funding at the state level. Nevertheless, the district maintains strong unreserved fund balance levels, which ended fiscal 2003 at $27.5 million or 17.3% of spending. The district projects break-even operations in fiscal 2004 and has prudently identified additional cuts, if needed, in the fiscal 2005 budget.

Low direct debt levels stem from limited debt issuance and pay-as-you-go capital spending. Direct debt is low and overall debt (not including substantial self-supporting indebtedness of the city) remains moderate. The 2004 bonds represent the second issuance from a $111 million bond initiative that passed under Proposition 39 in March 2002 with 63.2% voter approval. The district projects issuing remaining authorized but unissued general obligation bonds in 2007.