Fitch Rates San Rafael City High School District, California's $39.5MM GOs 'AA'.

SAN FRANCISCO -- San Rafael City High School District, CA's (the district) $39.5 million election of 2002 general obligation (GO) bonds, series B are rated 'AA' by Fitch Ratings. The bonds are scheduled for a negotiated sale on July 13 via Stone and Youngberg LLC. In addition, Fitch affirms the 'AA' rating to the district's approximately $21.7 million of outstanding GO debt. The Rating Outlook is Stable.

The 'AA' rating is based on the district's strong economic and growing tax bases, well-managed financial operations, and modest debt load. Exposure to state funding cuts is limited by the district's relatively low dependence on state funds for operating support as well as increasing local property tax receipts. Operational funding is supplemented by a parcel tax approved by district voters. This approval, in addition to the positive vote for the GO bond referendum, indicates strong support for education programs by district taxpayers.

Located in affluent Marin County, north of San Francisco, the district's estimated 2002 population of 94,500 encompasses the City of San Rafael, small portions of Larkspur and the Town of Ross, and some unincorporated areas of the county. Facilities include two comprehensive high schools, one alternative high school, and one adult education center. Two elementary school districts feed into the high school district - Dixie School District and San Rafael City Elementary School District (GOs rated 'AA' by Fitch). San Rafael City Elementary School District and the high school district are managed by a single board and have a common administrative staff but are operated separately.

As a basic aid district, local property taxes generate revenues in excess of the state's guaranteed minimum per student funding amount. Therefore, the district receives only nominal state funding - about 90% of the district's funding is generated by local sources. Despite the loss of state minimum per student funding entitlements, finances remain favorable, due to tight expenditure controls and increased property tax receipts.

For the close of fiscal 2003, the district recorded essentially break-even operations, with a general fund balance representing nearly 20% of expenditures and transfers out. The district's 2004 estimate projects about a $600,000 operating deficit, with the fiscal 2005 budget calling for a $300,000 loss. Despite the expected and planned drawdowns, reserve levels are anticipated to remain consistent with the high grade rating category. Further, actual results have typically outperformed budgets and previous estimates.

In addition, the district continues to levy a voter approved parcel tax, which accounts for about 8% of fiscal 2005 general fund revenues. Although subject to periodic renewal, the tax has been in place for twelve years, with the tax expiring in 2006.

Although a 2.5% decline was recorded in 2004, enrollment has generally shown modest annual growth, increasing about 13% since 1997. In addition to a rise in the number of younger residents moving into the area, enrollment growth is partially a result of the admission of transfer students from outside the district. Since the district does not receive revenue limit funding from the state, no additional revenues are generated to fund the cost of educating these students.

Both direct and overlapping debt levels are low. Payout is slow, reflecting the district's desire to minimize the tax impact of the 2002 authorization. The current offering exhausts the district's 2002 authorization, with no additional borrowing planned for the near-term.