Fitch Rts San Rafael City HSD Election 2002 $10.0MM GOs Ser A 'AA'.

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--July 9, 2003

San Rafael City High School District (the district), CA's $10.0 million election of 2002 general obligation bonds, series A are rated 'AA' by Fitch. Fitch also affirms its 'AA' rating to $12.3 million of outstanding general obligation debt. The Rating Outlook for all these bonds is Stable. The bonds will sell on July 10 through negotiation by Stone and Youngberg LLC.

The 'AA' rating is based on San Rafael City High School District's strong economic base, sound financial operations, and minimal debt. These factors are offset somewhat by constant pressure to fund modernization of existing facilities and the state's budget crisis. Concern over potential state education funding cuts is, however, mitigated somewhat by the district's relatively low reliance on the state for operational funding and rising property tax revenues. Operational funding is supplemented by a parcel tax approved by the required two-thirds of voters in 1998. This approval, in addition to the positive vote for the general obligation bond referendum, indicates strong support for education programs by taxpayers in this residential district. Debt levels are expected to remain low after all bonds from the November 2002 authorization are issued. The district has experienced good assessed valuation growth, with an average annual increase of 6.7% over the last six years.

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 (whose general obligation bonds are rated 'AA' by Fitch Ratings). 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 89% of the district's funding is generated by local funds. However, according to the most recent state budget revision, basic aid districts may lose their minimum per student funding entitlement from the state. To offset this potential state funding reduction, management has prudently cut expenditures in the fiscal 2004 budget. In addition, the revenue loss is expected to be balanced, in part, by a 4% estimated increase in property tax revenue.

While enrollment grew 13% from fiscal years 1997-2002, it declined by a minimal 0.83% (17 students) from 2001-2002. 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 and are expected to remain so after the remaining $40 million authorized but unissued bonds from a November 2002 election are sold.