Fitch Ratings assigns an 'AA+' program rating to Richland County School District No. 2, South Carolina's (the district) approximately $18.4 million general obligation (GO) bonds, series 2009C, scheduled to be sold competitively May 27, 2009. The rating is based on protections provided by the South Carolina School Credit Enhancement Program, as delineated in Title 59, Chapter 71, Section 155 of the South Carolina Code of Laws. Concurrently, Fitch assigns an underlying rating of 'AA-' to the series 2009C GO bonds. The Rating Outlook is Stable.
The school district's underlying 'AA-' GO rating is based on its sound financial operations evidenced by strong and growing reserves and a conservative fund balance policy; solid capital planning; and proximity to Columbia, the state capital. Also viewed positively is the strong voter support, including the recent approval by 67% of district voters of $305 million in general obligation bonds. Credit concerns stem from the potential budgetary and debt pressures resulting from expected continued enrollment growth as well as uncertainty related to future financial flexibility.
Located in northeastern Richland County, immediately northeast of the city of Columbia, the district is in a primarily residential and retail area covering one-third of the county's total land area. Overall population in the district is estimated to have increased over 24% since 2000 to an estimated 102,919 in 2007. Given its proximity to the state capital, a significant portion of the Richland County workforce is employed by the state government. Additional workforce stability is provided by the presence of Fort Jackson, the U.S. Army's largest training installation. The county's unemployment rate of 8.8% for March 2009 is up notably from 5% a year prior and remains below that of the state and national rate. Per capita income levels are above those of the state and slightly below the national average. Reflecting the county's position as a regional shopping area, per capita retail sales levels comfortably exceed state and national levels.
The district has demonstrated prudent fiscal management by maintaining sound reserve levels despite changing state aid levels and budgetary pressure from rapid enrollment growth, which averaged 4.7% annually over the past five years. The district's unreserved fund balance at the close of fiscal 2008 reached 10.7% of spending, its highest level in at least seven years and in excess of the district's fund balance policy of 7%-12% of the operating budget. The district's financial operations may be negatively affected by South Carolina's passage of Property Tax Relief Act 338. Under the provisions, school districts may no longer levy property tax for operations on owner-occupied homes. The district estimates that approximately 40% of properties fall under this exemption. On properties still subject to the operating property tax, the operating millage rate may increase only at a rate equal to the sum of the consumer price index (CPI) and the district's population growth. This annual millage cap may be overridden by a two-thirds vote of the district's governing body under certain circumstances. The state has replaced this lost property tax revenue with a 1% local option sales tax, effective June 1, 2007. In fiscal 2008, districts were guaranteed to receive revenue equal to what they would have received from forgone property tax levy and this amount will increase annually according to an equation that takes into account inflation, state population growth, and individual district enrollment growth. Fitch notes that this act limits the district's revenue raising flexibility and could lead to reduced financial margins in future years if state aid does not keep up with the district's growing needs. Fiscal 2009 is projected to end with a small surplus while the proposed fiscal 2010 budget is balanced with no use of reserves or planned stimulus funding.
Significant capital needs will likely cause the district's moderate debt burden to increase in the medium-term. At $3,828 per capita and 4.56% of market value, the current overall debt burden is moderately high. Capital needs as indicated by the most recent 10-year school facility study reflect accelerated enrollment growth. Additional debt issuances under the recently approved $305 million include $120 million in 2010, $70 million in 2011 and $46 million in 2012. Despite increasing debt levels, amortization rate is still rapid, with 64.7% of outstanding debt retired within 10 years.
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