Fitch Rates San Antonio ISD, TX GO Bonds `A+'.

Business Editors

NEW YORK--(BUSINESS WIRE)--July 21, 2000

Fitch assigns it's `A+' underlying rating to $18,100,000 unlimited tax school building bonds, series 2000 of the San Antonio Independent School District, TX.

The district has applied and expects to receive guaranty by the Texas Permanent School Fund, whose claims- paying ability is rated `AAA' by Fitch. The bonds, dated July 15, are scheduled to sell competitively Aug. 1 and mature Aug. 15, 2001 - 2020. Bonds maturing on or after Aug. 15, 2011 are subject to optional redemption beginning Aug. 15, 2010 at par plus accrued interest. The bonds are direct obligations of the district, payable from an ad valorem tax levied, without legal limitation as to rate or amount, on all taxable property located within the district. Bond proceeds will be used to construct new elementary schools and to replace, to improve, and to expand existing elementary, middle, and high schools, to acquire land for school sites, and to equip school buildings. The district's outstanding debt, comprised of $446 million of unlimited tax bonds and $1.3 million public property finance contractual obligations, are also affirmed at `A+'.

The `A+' underlying rating reflects the district's projected financial stabilization, manageable debt burden, and growing and diversifying tax base. The district was downgraded in August 1999 from `AA-' to `A+' due to a weakened financial position resulting from substantial expenditures for pay raises, a property tax reduction resulting in revenue losses, and an unexpected decline in enrollment. Fiscal 2000 financial results are projected to be level due to substantial expenditure reductions totaling $32 million. For fiscal 2001 and beyond, a new administration has developed various financial strategies to rebuild the district's financial reserves within 3 to 5 years. In addition, recent improvements to its financial monitoring system and implementation of financial forecasting capability are expected to improve its future financial management.

The district, which covers about 80 square miles, is located in Bexar County and encompasses downtown San Antonio. The metropolitan statistical area (MSA) exhibits a diversifying employment base highlighted by agribusiness, manufacturing, tourism, health services, and military employment. The district's overall population in 1999 was estimated at 313,409; its historically stable average daily attendance (ADA) declined significantly in fiscal 1999, dropping the district's rank from sixth to seventh in enrollment size within the state.

Prior to the downgrade, San Antonio ISD's $56.0 million ending general fund balance for fiscal 1998 equaled a healthy 15.7% of general fund expenditures. However, the district's financial position deteriorated significantly in fiscal 1999 due to a $21.5 million fund balance drawdown for a district-wide 10% employee pay raise and a property tax rate reduction. In addition, residential migration to other districts, changes in its public housing stock, and competition from charter schools caused the district's fiscal 1999 ADA to decrease by 1,722 students, resulting in a loss of Tier I state aid. Audited results for 1999 indicate a $34.6 million total fund balance, equal to 9.5% of expenditures; the undesignated fund balance totals $2.8 million or 0.8% of expenditures. Due to subsequent budget reductions totaling $32 million, the district's fiscal 2000 general fund balance is projected to be nearly level. Current fiscal 2001 budget estimates project a $14 million shortfall, however board-approved financial strategies are expected to close the funding gap and add at least $3.6 million to the total fund balance.

With this issue, the district's overall debt burden equals a manageable $1,341 per capita and 5.6% of market value. Direct unlimited tax debt was low until the district authorized, and the voters approved, an unlimited tax bond program of $483.5 million in 1997. Due to its below median wealth, the district receives state support for 66% of its 1997 series and 1999 series. The district is not eligible for any additional debt service support for the current offering.

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. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance Markets worldwide.