Fitch Rates Richland County School District No. 2, South Carolina GOs 'AA-'.

NEW YORK -- Fitch Ratings assigns an underlying 'AA-' rating to the Richland County, SC, School District No. 2's (the school district) approximately $50 million general obligation (GO) bonds, series 2005A. Scheduled to be sold competitively on March 15, the bonds mature serially on April 1, 2007-2020. Fitch also assigns an underlying 'AA-' rating to the school district's $131.8 million outstanding GO bonds. This is Fitch's first underlying rating of the school district's debt. The Rating Outlook is Stable.

The 'AA-' rating on the school district's general obligations is based on its sound financial operations and management, highlighted by the maintenance of satisfactory reserve levels despite mid-year state funding cuts; a recently adopted fund balance policy and sound capital planning; the stable, primarily residential service area centered around Columbia, the state capital; and strong voter support for a recent GO bond referendum. Credit concerns stem from the above-average debt burden and the potential budgetary pressures resulting from rapid enrollment growth that outpaces tax base growth.

Located in Richland County and northeast of the city of Columbia, the school district is primarily a residential and retail area, with 29% of the county population. The population in the school district has grown 15% since 2000 to an estimated 95,296 for 2003. In addition to a fairly diverse blend of service and light manufacturing sectors, the presence of Port Jackson - the largest and most active U.S. Army initial-entry training center - and state and other governmental entities has contributed stability to the local labor market. The county's unemployment rate of 4.7% for December 2004 was below those of the state and the nation, and has remained at a similar level over the past two years. Per capita income is above that of the state but slightly below national averages and, reflecting that the school district is a regional shopping area, per capita retail sales compare favorably to those of the state and the nation.

The school district's fiscal track record exhibits consistency and resilience across economic cycles and successive mid-year state budget cuts. As state funding for the school district has remained relatively level over the past five years, local funding has increased as a proportion of the budget: local revenues contributed one-half of the general fund budget for fiscal 2004, up from 39.8% for fiscal 2000. Despite the increased budgetary pressure on the school district, prudent fiscal management is demonstrated by stable reserves levels; over the last five years general fund balances ranged from 7.4% to 9.3% of expenditures and other uses, well within the recently adopted fund balance policy of 5%-10% of operating budget. Given its reliance on property tax revenues, the school district stands to benefit from an estimated 8.7% growth in assessed valuation following a recent reassessment. Fitch notes that enrollment growth has outpaced tax base growth over the past five years, and tax base expansion over the near term still falls upon a primarily residential base. However, officials expect planned commercial developments over the medium term to expand and diversify the tax base.

At $1,966 per capita and 3% of market value, the direct debt burden is above average and will rise given the additional debt issuances approved via a recent GO bond referendum. Additional capital needs beyond fiscal 2009 have been identified by an updated 10-year school facility study. Hinging on continual expansion in the tax base and vigilant fiscal management, officials believe future capital needs are manageable. Although debt service claims 17.6% of the fiscal 2005 budget, the fixed-cost burden is mitigated somewhat by the above-average principal amortization rate of 58.3% in 10 years.