Fitch Rates Harlandale ISD, TX Unltd Tax Sch Bldg Bonds `A'.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 7, 2000

Harlandale Independent School District (ISD), Texas $55,300,000 unlimited tax school building bonds, series 1998 are assigned an underlying rating of `A' by Fitch.

In addition, the `A' rating is assigned to the district's $55.47 million in outstanding unlimited tax school building bonds. The bonds are scheduled to sell on or about July 25, 2000 via negotiated basis in a syndicate managed by Paine Webber. The district will apply to the Texas Education Agency for the bonds to be guaranteed by the Permanent School Fund (PSF).

If approved, the `AAA' rating provided by the PSF guarantee will be assigned to the bonds. Dated July 15, 2000, the bonds mature serially Aug. 15, 2001-2035, with bonds maturing on and after Aug. 15, 2010 subject to optional redemption at par plus accrued interest on Aug. 15, 2009, or any date thereafter.

Proceeds will be used to construct two new replacement elementary schools, replace an alternative learning center, and provide for major improvements at every campus in the district. Also, the district has applied to the Texas Education Agency for assistance through the Instructional Facilities Allotment (IFA) program, which, if approved, will provide debt service support.

Issuance of the bonds is reliant upon this IFA support and should the district not be successful in receiving this assistance, the bonds are not expected to be issued, therefore the rating will be withdrawn.

The `A' underlying rating represents the significant state support for the district's operations and debt, sound financial management and performance, minimal enrollment and tax base growth, and the potential tax rate and levy constraints due to the low wealth nature of the district's tax base. More than 70% of the district's operations and maintenance (O&M) costs are provided for through state funding.

Similarly, 86% of the district's existing debt service on unlimited tax bonds is supported by state assistance. District financial operations have resulted in healthy general fund balances over the past four fiscal years, providing flexibility for future operating expenses.

Enrollment has been stable and growth in the market value of the tax base has been very modest in recent years, however additional commercial businesses are being established in the district. The tax base profile is nearly 70% residential, which limits the O&M levy available to the district due to the low valuation of the average home and the O&M tax rate limitation imposed by the state.

Harlandale ISD is located in Bexar County, about three miles south of downtown San Antonio, Texas, within the city limits. The district is comprised of 24 campuses, including two high schools, 4 middle schools, 14 elementary schools, and three alternative learning centers. Property wealth per student is low at approximately $44,000.

District voters approved the referendum authorizing this debt with an 86% affirmative rate in Dec. 1999. Primarily due to state aid for debt service, the overall property tax rate for fiscal year (FY) 2000 was lowered to $1.61 per $100 taxable assessed valuation from the $1.71 per $100 rate of the prior fiscal year.

Tax effort was shifted from the interest and sinking (I&S) fund component of the tax rate to the O&M rate. At $1.49 per $100 valuation, the district is very close to the O&M tax rate limit of $1.50 per $100 valuation.

The district's ending general fund balance was $25.1 million for FY 1999, representing 27.4% of expenditures and transfers. The unreserved portion of the balance was $23.5 million and the undesignated segment amounted to $10.9 million, 25.7% and 11.9% of expenditures and transfers, respectively.

The expected total general fund balance for FY 2000 is $22.6 million. The cash position of the district has improved in each of the three past fiscal years to a level of $34.6 million for FY 1999. Teacher salary raises have been the predominant expenditure increases in the general fund for the past three years. The district expects to utilize up to $5 million of the fund balance for the FY 2001 budget, but has designated fund balance amounts for anticipated expenses.

Direct debt burden is very low on a per capita basis and moderate as a percentage of market value due to substantial state support. Adding overlapping debt to the direct debt of the district results in a low per capita ratio and a moderate level as a percentage of market value.

Payout of outstanding and proposed debt is below average after 10 years at 36% retired. The proposed bond issue structure will utilize approximately $2.5 million of I&S fund balance to pay for the 2001 maturity, reducing the balance to necessary amounts due to state aid for debt service.

Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide.

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