Fitch Affirms Poudre School Dist R-1, CO's ULTGOs at 'AA+'; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has affirmed its 'AA+' rating to the following Poudre School District R-1, Colorado (the district) unlimited tax bonds:

--$140.2 million general obligation (GO) bonds outstanding, series 2003, 2004B, 2006, and 2008.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an unlimited ad valorem tax pledge of the district. The bonds are secured further by the Colorado School Credit Enhancement Program, which is rated 'AA' by Fitch.

KEY RATING DRIVERS

SOUND FINANCIAL FLEXIBILITY: The district's financial profile is positive, characterized by structural balance and sizable reserve levels. The district has built solid general fund reserves during a difficult period of state education funding cuts.

STABLE AND DIVERSE ECONOMY: The local economic climate is favorable and continues to demonstrate low unemployment, average wealth levels, and a healthy local housing market despite the national recession. Fitch believes the district has reasonable prospects for continued growth.

MANAGEABLE ENROLLMENT GROWTH: Enrollment growth is modest and manageable in relation to the district's capital needs.

CASH-FUNDED CAPITAL PROGRAM: The district's practice to cash-fund most of its capital needs has resulted in a very positive debt profile as evidenced by a modest overall debt burden, rapid principal amortization, and minimal future debt plans.

RATING SENSITIVITIES

CHANGING FINANCIAL PROFILE: Shifts in fundamental credit characteristics, including the district's strong financial management practices and factors affecting state funding, could affect the rating. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

The district is located 65 miles north of Denver and includes the city of Fort Collins and the towns of Timnath and Wellington within its very large 1,856 square mile boundary. The district serves a population of approximately 188,000 residents and is the home of Colorado State University.

As one of the state's largest school districts by geographical size, the district currently serves approximately 26,600 students and operates 50 schools. Due to strong academic performance, the district is home to a limited number of charter schools. Annual enrollment growth has been steady but modest over the past decade at around 1.5%.

STABLE ECONOMIC FOUNDATION

The local economy is anchored by Colorado State University with a current enrollment of about 25,000. Private employers include high-tech, imaging, and beverage companies such as Hewlett-Packard, Agilent, Intel, Eastman Kodak, and Anheuser-Busch.

The unemployment rate in Larimer County (the county) has trended downward after spiking in 2009 and 2010. The county's November 2012 rate of 6.0% was well below the Colorado (7.5%) and U.S. averages (7.4%) for the month.

Wealth levels are on par with state and national averages. Both per capita money income and median household income are approximately 95% of the Colorado average and 105% of the U.S. average. Market value per capita is strong at $106,000.

Taxable values declined in fiscal 2012 as softening residential and commercial property values worked through the multi-year appraisal/review process. The district's taxable assessed valuation (TAV) fell roughly 4% to $2.3 billion on the heels of modest growth in each of the prior years. TAV registered a 2.7% increase in fiscal 2013 and management projects continued modest expansion in the next reassessment year, affecting revenues in fiscal 2014.

EXEMPLARY FINANCIAL PERFORMANCE

The district's financial position is strong and it consistently posts annual operating surpluses achieved through conservative budgeting practices and prudent cost controls. The district also benefits from consistent voter support for operating tax levy overrides, including a large $16 million annual override approved in November 2010, in addition to three prior override approvals in 2000, 1996, and 1988.

The district maintained healthy reserves and conservative budgeting as it navigated state funding cuts in fiscals 2010 through 2012. Audited results for fiscal 2012 were positive, showing an operating surplus of $4.8 million, achieved in part through spending reductions and increased mill levy override revenues. General fund balances have grown in each of the last three years, with the fiscal 2012 unrestricted balance showing a strong $45 million or 22% of spending.

BUDGET OUTLOOK IMPROVES

Due to stabilizing state revenues beginning in 2012, state per pupil funding in fiscal 2013 was held steady with the prior year, including funding for new student growth. The district's 2013 adopted budget of $214 million is balanced operationally but shows a $1.5 million drawdown of reserves for capital outlays. Due to conservative expenditure budgeting, management's current expectation is for a modest drawdown of $500,000 by fiscal 2013 year-end.

The preliminary outlook for the 2014 budget is positive. The governor's formula-driven budget for school district funding includes components for new student growth in addition to step increases for inflation. Given past practices and results, Fitch believes management will continue its proactive financial planning and budgetary oversight in order to maintain its sound financial position.

MODEST DEBT BURDEN, LOW PENSION FUNDING LEVELS

The district's overall debt burden remains modest at $1,380 per capita and 1.3% of market value, attributable to the district's largely cash-funded capital program. Debt amortization is rapid, with 73% of principal retiring in 10 years. Demands for capital appear to be minimal as the district has ample enrollment capacity in existing facilities and funds most of its ongoing maintenance and technology upgrades through cash-funded capital outlays.

Employee pensions and post-employment healthcare benefits are administered by the state's defined benefit pension plan. Contributions are set by statute according to actuarial analysis. District pension contributions are currently set at 15.65% of covered salary and have increased in each of the last five years 2013. Statewide funding levels are low at 60.2%. Carrying costs related to long-term debt, pension and other post-employment benefit liabilities are manageable at only 18% of fiscal 2012 governmental (less capital) fund spending.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors, and RBC Capital Markets (Underwriter).

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

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Contacts

Fitch Ratings
Primary Analyst
Jose Acosta, +1-512-215-3726
Senior Director
Fitch Ratings, Inc.
111 Congress Ave, Suite 2010
Austin, TX 78801
or
Secondary Analyst
Matt Dustin, +1-512-215-3727
Analyst
or
Committee Chairperson
Doug Scott, +1-512-215-3725
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Jose Acosta, +1-512-215-3726
Senior Director
Fitch Ratings, Inc.
111 Congress Ave, Suite 2010
Austin, TX 78801
or
Secondary Analyst
Matt Dustin, +1-512-215-3727
Analyst
or
Committee Chairperson
Doug Scott, +1-512-215-3725
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com