Fitch Rts $12.7MM Shasta UHSD, CA, GOs, 'A+', Neg. Outlook.

Business Editors

NEW YORK--(BUSINESS WIRE)--April 25, 2003

Fitch assigns an 'A+' rating to Shasta Union High School District, Shasta County, Calif's, $12,745,000 general obligation bonds, election of 2002, Series 2003. The bonds will be sold via negotiation led by Stone & Youngberg L.L.C. during the week of April 28. Fitch also affirms the 'A+' rating to approximately $18 million general obligation bonds outstanding. The Rating Outlook for all of these bonds is Negative.

The rating reflects Shasta Union High School District's (the district) adequate though pressured financial operations, low debt levels, and sound assessed value growth. Other factors include the local economy's below-average income levels and above-average unemployment rates. Financial operations over the past four years have been sound, characterized by a history of solid fund balances and conservative management practices; however, significant stress to the general fund is expected for fiscal year 2003. Direct and overall debt levels remain low. The area is rural with a natural resources component; however, there is significant growth in retail, medical services and tourism elements, adding diversity to the economy. Residential and assessed value gains remain steady, with no indication of economic downturn.

The district is located in southwestern Shasta County (the county), and encompasses 1,892 square miles, including most of the city of Redding and adjacent unincorporated territory of the county. The district has three comprehensive high schools, three continuation high schools, one community day school, an adult education program and two charter schools. District enrollment declined 2% in 2002 and again in 2003, due to the establishment of the Gateway Unified School District. The new district absorbed students from feeder elementary schools that had previously fed into Shasta Union. Future enrollment trends are uncertain. Academic performance, as measured by Academic Performance Index (API) scores, has been solid, scoring in the top twenty percent of districts in the state.

Financial operations through fiscal 2002 remain healthy, with operating surpluses in three of the last four fiscal years and expenditures only slightly outpacing revenues. However, the district's financial situation is becoming increasingly stressed; substantial draws on reserves are expected this year. The current year budget situation is pressured; actuals to date for fiscal 2003 include higher- than-budgeted expenditures as well as lower-than-estimated revenues. To offset this deficit the district has transferred $1.2 million from the special reserve fund to the general fund, drawing down the special reserve fund to $930,000, significantly less than the prior year level. Despite the transfer and numerous expenditure cuts, a $2.4 million operating deficit remains, and the general fund balance stands at $2.7 million. Based on the $3.9 million fund balance for fiscal 2002, this is a significant drawdown. However, the district maintains reserve levels above the state minimum and expects to continue to do so even after the current year drawdown.

Debt levels within the district are low. Including this offering, direct debt represents $343 per capita, 0.8% of assessed value (AV), and overall debt is $1191 per capita, 2.8% of AV. The low debt levels are a reflection of the district's pay-as-you-go policies and effective capital planning. No additional capital needs are anticipated in the future. This sale is the second and final offering from a $31 million voter authorization approved in November 2001 under California's Proposition 39 election procedure. Proceeds will fund renovation and improvement of school buildings, the addition of new classrooms, and other projects as specified by the district's project list.