The Rating Outlook is Positive.
The bonds are secured solely by state aid revenues annually appropriated to the
The funds are subject to appropriation by the district as installment purchase payments. The district's budget is subject to approval by the city of
In the event that the district fails to appropriate state aid sufficient to cover debt service payments by
The 2008 bonds are additionally secured by a surety-funded debt service reserve funded to the
KEY RATING DRIVERS
RATING BASED ON STATE INTERCEPT: The rating on the bonds, one notch below Fitch's 'AA' general obligation (GO) bond rating state of
STRONG COVERAGE: Interceptable state aid provides strong coverage of maximum annual debt service (MADS). Coverage from state aid may decline in the coming years due to the district's extensive capital and borrowing plans and charter school competition and declining enrollment. However, Fitch expects coverage levels to remain strong.
GENERAL STATE CREDIT QUALITY: The Positive Outlook reflects Fitch's Positive Outlook on the state's GO and related debt.
MATERIAL WEAKENING IN COVERAGE LEVELS: The rating assumes continued strong coverage of debt service by interceptable state aid.
The school district is governed by an independently elected board of education. The city council approves the district's budget and levies taxes on its behalf but does not otherwise exercise direct control over the district.
STRONG COVERAGE BY STATE AID
State aid is remitted monthly and unevenly and is collected first by a state aid depository fund from which debt service is set aside; the remaining funds are forwarded to the district. In the event of non-appropriation of debt service by the district, state aid is intercepted and paid directly to the trustee in advance of debt service payments. This mechanism is the basis for Fitch's 'AA-' rating. During the collection period, the set-aside state funds are released to the district once the trustee receives notification that funds have been appropriated and from which monthly remittances during the collection period the funds will be set aside. Historically, the district has elected for all funds to be intercepted in March, a high point in its annual state aid collections which covered MADS 6.6x in 2014.
Approximately 60% of interceptable state aid was remitted to the state aid depository fund during the intercept period in fiscal 2013, which covered MADS 13.8x. Further projects are anticipated to be approved for state building aid which has covered an average of approximately 80% of project costs over the past five years, in which case coverage will remain very strong.
State aid to the district has rebounded, up 2.6% in 2013 and 3.2% (projected) for 2014. The district is budgeting a 1.1% increase in state aid for 2015.
SENIOR AND PARITY CLAIMS CREATE RISKS TO INTERCEPT COVERAGE
Interceptable coverage could be diminished due to various senior and parity claims to state aid for education. Late charter school payments and outstanding state aid revenue anticipation notes (RANs) have senior claims to set aside state aid funds. However, RANs are junior to bond repayment if the state aid intercept is triggered. The district consistently issues RANs, with
Further, the district has outstanding general obligation debt that is subject to post-default state aid intercept which could marginally diminish coverage. In case of a GO default, the intercept of funds to cure that default would be senior to the regular payments on the rated bonds. However, if the intercept for the rated bonds is also triggered, the defaulted GOs and the rated bonds would become parity obligations under the intercept.
Coverage of MADS remains strong at 11.8x in 2014 with all senior and parity claims netted from funds remitted during the intercept period.
RISK OF LATE STATE BUDGET MITIGATED
Fitch believes that the timing of the intercept period (
DECLINING DISTRICT ENROLLMENT AND CHARTER SCHOOL COMPETITION
Declining district enrollment and increased charter school competition may negatively affect the amount of state aid revenue in future. The district has experienced a 2.9% enrollment decline since 2004, to an estimated 21,703 students in 2014, faster than the city's population loss of approximately 1.4% over the same period. The district is projecting a small enrollment decline over for next year, which Fitch believes is realistic given marginal increases in charter school competition.
Two charter schools operate within the district. These independently operated schools educate 1,282 pupils (5% of district and charter enrollees). All charter schools receive state-set per-pupil aid which passes through the district. The district has budgeted to make approximately
For more information on the state's GO rating, see Fitch's press release 'Fitch Affirms New York State GO and Related Bonds at 'AA' Outlook Remains Positive' dated
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
--'U.S. State Government Tax-Supported Rating Criteria' (
--'Fitch Affirms New York State GO and Related Bonds at 'AA' Outlook Remains Positive' (
--'Rating Guidelines for State Credit Enhancement Programs', (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
U.S. State Government Tax-Supported Rating Criteria
Rating Guidelines for State Credit Enhancement Programs
Tertiary Analyst (
Source: Fitch Ratings
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