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Fitch Rates Jefferson Davis Parish --Louisiana-- SD No. 1 GOs 'BBB+'

Tuesday, January 11, 2005

AUSTIN, Texas (Business Wire) -- Fitch Ratings has assigned an initial 'BBB+' rating to the Jefferson Davis Parish, Louisiana, School District No. 1 (the district) $2,000,000 general obligation (GO) school bonds, series 2005. Dated March 1, 2005, the bonds are scheduled to be sold competitively on Jan. 20. The district's financial advisor is Fiscal Services, Inc. of New Orleans. The bonds are direct, general obligations of the district, payable from an unlimited ad valorem tax levied against all taxable property in the district. Bond proceeds will be used to finance the construction of improvements to district facilities. The Rating Outlook is Stable.

The 'BBB+' rating and Stable Rating Outlook reflect the Jefferson Parish school board's strong financial position and solid operating history, low district debt levels, and minimal future capital needs. Negative credit considerations include declining enrollment parish-wide in recent years, escalating employee benefit costs, and district taxpayer concentration. District voters last September approved a $3 million bond proposal for renovations and improvements at the district's two schools by a 75%-25% margin; the district's tax levy for debt service is not expected to increase with this offering.

The parish school board manages 14 schools segregated into seven separate districts. The board has a solid history of financial operations, as evidenced by annual operating surpluses each of the past four fiscal years and steadily increasing reserve levels. The board reported operating income of roughly $544,000 in fiscal 2004, down slightly from the prior year. The total general fund balance for fiscal 2004 was approximately $19 million, or more than 50% of spending and transfers out; the fund balance also equaled 50% or more of expenditure totals for the four prior fiscal years.

The state minimum foundation program (MFP) is the primary revenue source, comprising nearly 70% of general fund revenues in fiscal 2004. The board's 2% sales tax (19% of total revenues) and ad valorem tax (5%) are the other principal revenue sources. The board has benefited from regular, annual increases in state MFP payments, which have largely offset enrollment declines from 1994-2002 and enabled the board to maintain a sound financial profile. Enrollment has stabilized over the past two years, and district officials believe enrollment will hold at current levels if not increase modestly over the next several years. Officials cite the rural, agriculture-oriented economy and lack of industrial activity for the enrollment declines during the 1990s.

The board has managed these positive operating results despite sharply higher outlays for employee health and pension benefits. Board officials estimate that state-mandated increases in employer contributions for health insurance has added $1.75 million to board expenditures over the past three fiscal years. Officials anticipate little relief going forward, with health insurance premiums budgeted for a 15% increase for fiscal 2005. Overall, general fund spending is budgeted to increase 4% from fiscal 2004 levels. Board parish-wide tax levies have remained unchanged for the past five fiscal years, while the combined maintenance and debt service levy for District No. 1 of 40.05 mills is up marginally from the fiscal 2004 levy of 38.95 mills.

The district presently has only $550,000 in outstanding debt, and as a result debt ratios are very low at $714 per capita. The remaining $1 million in authorized bonds are expected to be sold in 2006, and officials anticipate no additional capital needs over the near term. Principal repayment is average at 50% retired in 10 years. The district's debt service levy is 17.50 mills presently, unchanged from last year and down from 23 mills in fiscal 2002. Officials anticipate no increase in the levy to pay for the series 2005 bonds, despite a 4% dip in district taxable assessed valuation (TAV) in fiscal 2005 to $14.9 million. Despite the drop, TAV has averaged 6% annual gains over the past five fiscal years.

The district is located in Jefferson Davis Parish in southwestern Louisiana, roughly midway between Lake Charles and Lafayette and adjacent to Interstate Highway 10. The district encompasses roughly 75 square miles and has an estimated population of 3,500. The district tax base is characterized by concentration in the oil and gas industry. Fitch considers this concentration a negative credit consideration, given the historically volatile nature of the oil and gas industry. A significant industry downturn could adversely affect district valuation levels. The top-10 taxpayer list, which is dominated by oil and gas and pipeline firms, comprises nearly 40% of fiscal 2005 assessed valuation.

Parish unemployment levels historically have been higher than state and national levels, but that gap has closed in recent years. In fact, the November 2004 parish rate of 4.3% was lower than both the state (5.5%) and national (5.4%) averages for the month. Parish wealth levels, as measured by median household buying income, stood at 83% and 68% of 2003 state and national figures, respectively.

Fitch Ratings, New York
Steve Murray, 512-322-5318 (Austin)
Kenneth Reed, 212-908-0540 (Media Relations)

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