February 14, 2012 Summary: West Des Moines Community School District, Iowa; Sales Tax Primary Credit Analyst: Blake Yocom, Chicago (1) 312-233-7056; blake_yocom@standardandpoors.com Secondary Contact: Helen Samuelson, Chicago (1) 312-233-7011; helen_samuelson@standardandpoors.com Table Of Contents Rationale Outlook Related Criteria And Research www.standardandpoors.com/ratingsdirect 1
Summary: West Des Moines Community School District, Iowa; Sales Tax Credit Profile US$10.0 mil sch infrastructure sales, svcs & use tax rev bnds dtd 04/05/2012 due 07/01/2021-2029 Long Term Rating A+/Stable New Rationale Standard & Poor's Ratings Services has assigned its 'A+' long-term rating to West Des Moines Community School District, Iowa's series 2012 school infrastructure sales, services, and use tax revenue bonds. The outlook is stable. The rating reflects our assessment of the district's: First-lien pledge of sales tax receipts, which are transitioning to a statutory statewide average distribution of sales taxes; Very strong maximum annual debt service (MADS) coverage of 5.93x based on the assumption of stable enrollment and projected sales tax collections; Adequate legal provisions, including a 1.2x additional bonds test; and Stable to increasing enrollment trend. These strengths are offset in part, in our view, by the potential for fluctuation in statewide sales tax collections. The district will use the series 2012 bond proceeds to finance school infrastructure projects. The electorate authorized the use of sales tax revenues for such purposes through a revenue-purpose statement approved in September 2008. The district's share of a statewide 1% sales tax, currently authorized for use and collection through Dec. 31, 2029, secures the series 2012 bonds. Iowa collects sales, services, and use tax receipts and distributes revenues to school districts. The districts receive 95% of the taxes in monthly payments, with a final payment at year-end. This payment reconciles the difference between actual and estimated receipts. School sales tax receipts fund only capital projects, and management cannot use them to support general operations. The school infrastructure sales tax program is shifting (also known as a "grandfathering" period) to a state-based sales tax from a county-based local sales tax. Under the original program, school districts received sales taxes generated in their counties, and taxes were distributed based on each district's relative share of enrollment as a percent of total countywide enrollment. Under the new program, however, the state will distribute all sales taxes collected on a statewide basis to each school based on the percent of its actual enrollment compared with total enrollment in the state. Some of the state's 99 counties still maintain their existing revenue distributions. All counties will transition into the statewide program by 2014; at that time, all districts will receive the same level of per-pupil revenues, currently estimated at $844 per pupil for fiscal 2012. These estimates, however, are likely to fluctuate based on changes in statewide enrollment and statewide sales tax collections. Although statewide consumer spending has decreased in recent years, stemming from the nationwide recession, Standard & Poors RatingsDirect on the Global Credit Portal February 14, 2012 2
Summary: West Des Moines Community School District, Iowa; Sales Tax statewide enrollment decreases have helped to offset potential reductions in the amount of per-pupil revenue distributed by the state. Statewide disbursements are projected to increase to $399.5 million in fiscal 2012, up 4.4% from actual fiscal 2011 disbursements. With increased revenues and a 0.2% enrollment decrease over the same time period, the state is projecting per-pupil revenues of $844 in fiscal 2012. If all counties participated in the statewide program during fiscal 2011, the statewide average would have been $807 per pupil. Assuming enrollment remains stable and revenues from the statewide average of $844 per pupil based on state estimates for statewide fiscal 2012 sales tax collections, debt service on the bonds has been structured to provide at least 5.93x over the bonds' life, which we consider very strong. MADS occurs in fiscal 2025; based on current projections, officials expect revenues to generate 5.93x coverage, which we consider very strong. Including proposed additional parity bonds of $10 million in calendar year 2013 and using the same enrollment and per-pupil revenue figures, coverage decreases to approximately 4.16x, a level we still consider very strong. The district's enrollment has increased 196 students, or 2.2%, since the September 2001 count date. As of October 2011, the figure used for the 2012-2013 budget year, student enrollment totaled 9,050 students. Management is projecting enrollment to remain stable. Enrollment projections provided by the Iowa Department of Education indicate enrollment will increase to 9,309 by the 2015-2016 school year, but the district assumes stable enrollment in its coverage calculations. Key legal provisions include a gross revenue pledge of sales tax revenues, a historical 1.2x MADS coverage requirement to issue additional bonds, and a debt service reserve fully funded through bond proceeds at MADS. We understand that the district will issue an additional $10 million secured by the tax in calendar year 2013. West Des Moines Community School District is located in the western suburbs of the Des Moines metropolitan area. The district includes portions of West Des Moines, Clive, Windsor Heights and Urbandale as well as unincorporated land in Polk and Dallas counties. The district covers 36.6 square-miles and serves an estimated population of 69,064. The district's median household effective buying income is, in our opinion, very strong, at 132% of the national average. As of November 2011, West Des Moines' 4% unemployment rate was below the state average and well below the national level. Outlook The stable outlook reflects our expectation that sales tax revenues will be sufficient to maintain at least adequate coverage on school district bonds--even if the district issues additional debt--due to the restrictions of the additional bonds test. In our opinion, credit quality could be impaired to the extent statewide sales tax collections or student enrollment decreases beyond current projections, leading to lower-than-expected coverage of debt service payments. We could lower the rating if the district dilutes coverage to a level we no longer consider strong. Related Criteria And Research USPF Criteria: Special Tax Bonds, June 13, 2007 Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. www.standardandpoors.com/ratingsdirect 3
Summary: West Des Moines Community School District, Iowa; Sales Tax Standard & Poors RatingsDirect on the Global Credit Portal February 14, 2012 4
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