In the course of routine surveillance, Fitch Ratings affirms the 'AAA' rating on the Arizona School Facilities Board's approximately $537 million outstanding state school improvement revenue bonds. The Rating Outlook is Stable.
Credit strength derives from the wide coverage afforded from the securing voter-approved and broad-based sales tax that can be used solely for educational purposes, with debt service on the completed $800 million authorization representing a closed first lien. Despite a steep drop-off in revenues since fiscal 2007, coverage remains above 7 times (x).
The bonds are special obligations of the Board, which was created in 1998 to provide a capital financing system for schools in response to a state Supreme Court finding that the state's prior financing system was unconstitutional. The school improvement bonds were intended to correct existing school facility deficiencies, and the authorization is complete.
Security derives from a closed first lien on proceeds of a voter-approved 0.6% tax levied from 2001 through 2021 on certain categories of business activities already subject to an existing 5% transaction privilege (sales) tax. Coverage is strong, with maximum annual debt service of $66 million covered 7.6x by fiscal 2009 collections. After several years of strong growth, pledged revenues dropped 2.7% in fiscal 2008 and another 13.5% in fiscal 2009. Despite another projected drop of 2.7% in fiscal 2010 coverage remains very strong.
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