Fitch Rates Regional School District No. 5, Connecticut 2006 GOs 'AA' and GO BANs 'F1+'.

NEW YORK -- Fitch rates Regional School District No. 5, Connecticut's (the district) $10 million general obligation (GO) bonds, issue of 2006 'AA', its $6.175 million GO bond anticipation notes (BANs) 'F1+'. The bonds and BANs are scheduled for competitive sale on Nov. 16, 2006. The bonds mature serially July 15 2009-2026, with semiannual interest payments each July 15 and Jan. 15, commencing July 15, 2007. The bond anticipation notes (BANs) mature on Nov. 28, 2007. Fitch also affirms the 'AA' rating on the district's approximately $49.4 million outstanding GO bonds. The Rating Outlook is Stable.

The district's 'AA' GO bond rating is based on the district's high wealth levels and low unemployment, guaranteed tax collections from the underlying towns, and low to moderate debt levels with limited capital needs following the completion of financing of the school infrastructure program in 2007. The district's debt is not only a general obligation of the district but also, severally, of the underlying towns of Bethany, Orange, and Woodbridge. Fitch views this as an important credit strength. Reliance on the towns for budget approval and remittance of property tax payments to the district, coupled with state statutes governing reserves, limit financial flexibility and are credit concerns, mitigated by the towns' general obligation pledge, state mandates that guarantee town funding of district budgets once they are adopted, the sound financial position of each town, and a recent high level of cooperation between the district and towns.

The district is located north and west of New Haven and serves grades seven through 12 with one senior high school and two middle schools. The member towns of Bethany, Orange, and Woodbridge are largely residential and demonstrate high wealth levels by all measures. While the population was relatively stable through 1990, it has grown moderately over the last decade to an estimated 28,707 in 2005. Enrollment growth has been modest, and officials project a slight decline through 2012. The district's workforce is employed largely in professional and executive positions, reflected in high income levels, and unemployment rates are consistently well below state and national averages.

Unaudited 2006 results show an approximate operating surplus of $960 thousand, the fifth consecutive year of positive operating results. Financial flexibility is limited by state regulations that require unreserved and undesignated fund balances be refunded to member towns, credited to them in subsequent years, or be reserved for capital expenses, sick and severance costs, or other post employment benefits (OPEB). Consequently, a $1.5 million unreserved and undesignated fund balance of 4.6% of expenditures as reported in the fiscal 2005 audit was returned to the towns in fiscal 2006. The district will designate its fiscal 2006 surplus for a combination of the state's mandated fund balance uses. The strong financial position of each member town, averaging about 13% undesignated fund balance as a percentage of expenditures, provides a sufficient cushion for variations in the district's tightly balanced operations.

At nearly $2,087 per capita, or 1.9% of estimated full value, debt levels are low to moderate. Debt is amortized at an above average rate of 56.6% in 10 years. The district's plan for a 2007 debt issuance should be its last under the current authorization and will complete financing of renovations and additions to its three schools. Future capital needs are limited and the district has no plans for future issuance.

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