Fitch Affirms Regional School Dist. No. 12, CT's GOs 'AA+'; Outlook Stable

Fitch Ratings has affirmed the 'AA+' rating on $260,000 Regional School District No. 12, Connecticut (the district) general obligation (GO) bonds series 2000. The bonds mature in June 2016. The Rating Outlook is Stable.

SECURITY

The bonds are a general obligation of the district and of the member towns of Washington, Roxbury, and Bridgewater, CT. The district has no independent taxing power, but the member towns have the ability and obligation to levy property taxes without limit to meet this general obligation.

KEY RATING DRIVERS

STRONG CREDIT QUALITY OF MEMBER TOWNS: The 'AA+' rating reflects the sound financial position of the member towns and the absence of any debt outstanding at the town level. The towns' strong cooperation with the district during the budget process supports stable financial operations for the district.

STABLE DISTRICT FINANCES DESPITE RESTRICTIONS: The district's operations are tightly balanced, and state statutes limit the district's reserves. However, Fitch believes the risk is mitigated by spending flexibility, the potential to levy mid-year assessments to the towns, and demonstrated ability to consistently balance operations.

STRONG ECONOMIC PROFILE: District economic indicators are strong and include very high wealth levels, and low unemployment rates.

LOW DEBT BURDEN: District debt levels are low with rapid debt amortization and manageable future debt needs. Total carrying costs are very low.

RATING SENSITIVITIES

The rating is sensitive to shifts in the member town's fundamental credit characteristics. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The district, formed in 1967, is located northeast of Danbury and west of Waterbury and consists of three small, wealthy towns, Washington, Roxbury, and Bridgewater.

STRONG SOCIOECONOMIC PROFILE

The district serves K-12 students and owns and operates the Shepaug Valley Middle/High School and operates three elementary schools under lease agreements with its member towns. The district's estimated population is 7,471, down 2.3% from the 2000 census. Student enrollment is also declining with an October 2014 enrollment of 747 students, down from 1,161 in 2004. Enrollment is projected to continue to decline due to the aging population and the increasing number of second homes.

The member towns are primarily residential and exhibit high wealth levels. Median household income is 153% greater than the national average and market value per capita is a high $405. The district-wide unemployment rate of 4.7%, as of October 2014, is well below the national average of 5.5%.

SOUND FINANCIAL MANAGEMENT

The district derives approximately 90% of its general fund revenues from its assessments charged to member towns proportionately, based on the number of enrolled students. State statutes require district operating surpluses to be either refunded or credited to member towns, or reserved for capital expenses, sick and severance costs, or OPEB, usually resulting in low levels of reserves. The district reported a fiscal 2013 general fund unrestricted fund balance of $105,181 or 0.5% of spending. Additional flexibility is evidenced in the district's consistent funding of capital on a pay-go basis. Fiscal 2013 contributions approximated $1 million or 4.2% of governmental spending.

The district has been active in controlling spending to maintain balanced budgets. Preliminary fiscal 2014 results indicate that both revenues and expenditures are performing well when compared to the budget. The fiscal 2015 budget represented a decline of 0.2% from the prior year, mostly due to a reduction in staff tied to the enrollment declines.

MEMBER TOWNS' CREDIT QUALITY IS STRONG

The strong financial position of the three member towns supports the district's sound financial position. Through fiscal 2013, all three towns feature an unrestricted general fund balance as a percentage of spending of over 17%. Tax collection rates are above-average and there is no taxpayer concentration. The ability to raise property taxes if needed is not limited in Connecticut. Good cooperation between the district and member towns is demonstrated by annual support for district budgets over the last 10 years.

STATE MANDATES COMPEL FUNDING OF DISTRICT'S BUDGET

If any member town fails to budget for its assessment to the district, the regional school board may petition the superior court to determine the alleged deficiency and order such town to pay its assessment, plus an additional 25% to the district as soon as it is available. By not paying its assessment a member town would suffer the future withholding of state aid to pay for default and its obligation for debt service does not go away if it withdraws from the district.

LOW DEBT BURDEN

The district's debt profile is expected to remain low despite plans for additional issuance to fund maintenance. Overall district debt levels are low with a debt per capita of $353 and debt to market value of 0.1%. All current district debt will be retired within the next five years. Member towns have no outstanding debt.

PENSION AND OPEB MANAGEABLE

District teachers and administrators participate in the Connecticut State Teachers Retirement System. The district has no legal obligation for contributions to the state plan. The district administers a single-employer, non-contributory, defined benefit plan for non-professional employees. The district has historically contributed greater than 100% of its annual required contributions (ARC). The contribution in fiscal 2013 of $375,541 was equal to 178% of the ARC. As of July 1, 2012, the plan was 103% funded using a 7% discount rate assumption.

The district provides other post-employment benefits (OPEB) at an implicit rate subsidy. Total carrying costs for debt service, pension, and OPEB are a very low 2.4% of governmental spending.

Additional information is available at 'www.fitchratings.com'.

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, Underwriter, Bond Counsel, Underwriter Counsel, and Trustee.

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:

Tax-Supported Rating Criteria

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

U.S. Local Government Tax-Supported Rating Criteria

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=959235

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