Fitch Upgrades Warren County R-III School District, MO's GOs to 'A+'; Outlook Stable

NEW YORK-(Business Wire)-September 17, 2009 - In the course of routine surveillance, Fitch Ratings has upgraded Warren County R-III School District, Missouri's approximately $18 million outstanding general obligation (GO) bonds, series 2006 to 'A+' from 'A'. The Rating Outlook is Stable.

The upgrade to 'A+' reflects the district's improved financial flexibility and reduced capital needs. The rating further considers the district's conservative debt profile, which features rapid amortization, moderate debt burden, and challenged but relatively stable economy benefiting from its proximity to St. Louis (Fitch rated 'A'). Given the district's dependence on state aid, which will likely be pressured by the economic contraction over the near term, the key rating driver is management's ability to maintain financial flexibility by prudently managing the cost of wages.

Due to disciplined financial management, the district was able to capture the benefits of the 2005 revision in the distribution formula to state aid and add to its operating reserves while providing competitive wage increases to teachers and managing enrollment growth. As a result, unreserved operating fund reserves, which are comprised of the Incidental and Teacher's Funds, experienced strong growth on a cash basis in fiscal 2008 to $3.5 million or 14.2% of spending from $912,214 or 9.2% of spending in fiscal 2003 during which the district experienced 3% annual growth in enrollment. As enrollment has stagnated since then dropping slightly to 3,002 students, the district is projecting fiscal 2009 unreserved fund balances to increase to $4.4 million or 16.9%. For fiscal 2010, the district is conservatively budgeting fund balances to remain stagnant due to weakening of Proposition C receipts which are derived from a state sales tax and other state level budgetary pressures which may affect the level of state aid for all districts. While strong reserves have positioned the district well to address contractions in its revenue base, the maintenance of financial flexibility will be contingent on the district's ability to continue its conservative budgeting practices and manage wage increases accordingly. The district anticipates enrollment to remain stable over the near term.

Located in Warren County, the district is approximately 60 miles from downtown St. Louis. The district serves a large portion of the county, including the City of Warrenton. County unemployment is above state and national averages equaling 10.7% in June 2009, up from 6.4% the year before. Regional unemployment for the St. Louis metropolitan statistical area, in which most of its resident work, was up to 9.9% in June 2009 from 6.5% the year before due to losses in the manufacturing sector, consistent with state and national trends.

The district's tax base is stable and benefits from its proximity to St. Louis. Since 2002, the tax base experienced an 8% average annual growth assessed value (AV). Reflecting regional economic contractions, AV is expected to drop by approximately 1% in 2009 due to appeals by local motels.

Earlier this year, the district prudently restructured its debt program to accelerate amortization with 68.1% of principle retired in 10 years. The district's net direct debt is moderate equaling 3% of market value or $1,808 per capita; the district has no overlapping debt. Future capital needs are manageable and significantly reduced from expectations at Fitch's last review due to moderated enrollment growth and excess capacity at existing facilities.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

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