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--Approximately $22.6 million general obligation (GO) bonds, series 2007 downgraded to 'A+' from
'AA-'.
The Rating Outlook is Stable.
SECURITY
Principal of and interest on the bonds are payable first from a portion of the receipts of a one percent (1%) special purpose local option sales tax (SPLOST) collected within Carroll County, and then, if and to the extent necessary, from ad valorem taxes which may be levied, without limitation as to rate or amount, upon all taxable property. Additional bondholder protection is provided by the district's participation in the Georgia School Credit Enhancement Program, which Fitch rates 'AA+' with a Stable Outlook.
KEY RATING DRIVERS
WEAKENED UNDERLYING CREDIT PROFILE: The downgrade of the unenhanced rating primarily reflects the district's diminished financial flexibility prompted by continued reductions in state aid and recent tax base declines. The lower unenhanced rating also reflects the district's reliance on periodic voter authorization to renew a five-year SPLOST currently used to repay outstanding GO bonds, although Fitch notes that voter support has been strong historically.
SOUND INTERCEPT PROGRAM: The district participates in the Georgia School Credit Enhancement Intercept Program, which requires the withholding of state appropriations and their direct payment to bondholders or their paying agents in the event of a failure by the district to make debt service or sinking fund payments as scheduled.
STRONG COVERAGE BY INTERCEPTABLE AID: For fiscal 2012, budgeted annual commonwealth subsidies to the district cover annual debt service obligations by over 5.0 times (x).
DOUBLE BARREL PLEDGE: Outstanding GO bonds are paid first from SPLOST revenues and to the extent necessary, from ad valorem taxes which may be levied, without limitation as to rate or amount.
ELEVATED DEBT LEVELS: The district's overall debt burden is above average, although amortization is rapid, no additional debt plans exist and capital needs are expected to be funded from a recent borrowing.
STABLE SERVICE AREA: Below-average demographic and economic indicators are tempered by the county's proximity to the Atlanta Metropolitan area.
CREDIT PROFILE
Carroll County is located in the west-central section of Georgia along the Georgia-Alabama state line, approximately 35 miles west of downtown Atlanta and 100 miles east of Birmingham, Alabama. Proximity to Atlanta fueled steady growth during much of the prior decade as the county's population increased by about 22% and the tax base grew by a similar rate before contracting in 2009 and 2010. District enrollment also grew steadily during most of the prior decade, peaking at nearly 15,000 students in 2008. Since then, the district has realized enrollment declines averaging about 1% annually, although management believes the loss in students has abated.
Employment and income indicators remain weak, despite the county's proximity to the Atlanta metro area. Total employment distribution in the county has shifted from mostly manufacturing to government employment over the last several years. Given the prevalence of both industries, income levels are somewhat depressed, and both per capita income and median household income rank well below figures for the Atlanta metropolitan statistical area (MSA) and the state and nation. The county's unemployment rate, measured at 10.5% in October 2011, has begun trending downward over the latter half of 2011, but remains elevated compared to unemployment rates of the broader MSA, state and nation.
Reductions in both state funding and general fund balance over the last three years have resulted in reduced financial flexibility for the district. State funding continues to be the district's primary revenue source, accounting for about 53% of total general fund revenue in fiscal 2010. State funding to the district was reduced by 9% in fiscal 2009 and by an additional 12% in fiscal 2010. Total general fund revenues dropped by a total of about 7% over the same period, although the decline was mitigated in part by the receipt of approximately $12 million in federal stimulus funds and a 5% reduction in instructional expenses. Consequently, the district ended fiscal 2010 with a nominal surplus, although the unreserved, undesignated general fund balance decreased to $9.3 million (equal to 7% of spending) as the district reserved a greater portion of fund balance.
Management reports that Fiscal 2011 ended with a small deficit, although the district received about $2 million in EduJobs funds that was reserved for fiscal 2012 in order to make up for a budgeted decline in state funding. The adopted budget for fiscal 2012 also includes an 8.3% increase in the district's operating millage rate, a slight, 1.2% reduction in total spending, and a year-end fund balance of about 10% of general fund spending. While Fitch notes that the millage increase was an important step in regaining structural balance, the depletion of EduJobs funds and the potential for further cuts in state aid could exert additional budgetary pressure, particularly given the district's operating tax rate, which, at 19.6 mills, lies just below the state-imposed 20-mill cap.
Capital needs over the next several years appear manageable given the district's limited growth prospects. Voters recently reauthorized by a wide margin a five-year extension of the SPLOST, which is used to pay debt service on outstanding GO bonds. The district issued GO bonds earlier this year to fund the majority of capital needs going forward and to refund a portion of each maturity of the series 2007 bonds coming due in fiscals 2012 and 2013. A combined 11% decline in SPLOST revenues, which are used first to repay debt service on outstanding GO bonds, necessitated the refunding, as a mismatch between sales tax receipts and debt service had evolved. While the recent financing provides debt service relief over the short term, Fitch believes the 10-year amortization of the district's series 2011 bonds creates a level of risk, since the SPLOST is subject to voter reauthorization every five years.
The district's overall debt profile is moderately high, but is positively offset by notably rapid amortization as 90% of total principal is retired in 10 years. The district contributes to the Teachers Retirement System of GA (TRS), which is a well-funded, cost-sharing multiple-employer defined benefit plan. Contributions are also made to a state-sponsored fund that provides other post-employment benefits (OPEB). Combined pension and OPEB contributions consumed a manageable 14% of general fund spending in fiscal 2010.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index and IHS Global Insight.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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