2009-11-13 23:17:07 -

In the course of routine surveillance, Fitch Ratings affirms its 'A+' rating to the Apache Junction Unified School District No. 43 of Pinal County, Arizona's unlimited tax general obligation (GO) bonds as follows.

--School improvement bonds, series 1999D (Project of 1996);

--Refunding bonds and supplemental certificates, series 2001;

--Refunding bonds, series 2003;

--School improvement bonds, series 2005A (Project of 2004);

--School improvement bonds, series 2006B (Project of 2004);

--School improvement bonds, series 2007C (Project of 2004);

--Refunding bonds, series 2007.

The bonds are general obligations of the district payable from a continuing, direct, annual unlimited ad valorem tax levied against all taxable property located within

the district. The Rating Outlook is revised to Negative from Stable.

The 'A+' rating reflects the district's conservative fiscal management as evidenced by its healthy financial profile, solid tax base, and moderate debt load with slightly above-average amortization. The Negative Outlook incorporates the district's recent enrollment losses and corresponding state funding cuts that will apply significant financial pressure over the near to mid term. The prospect of continued development that is expected as a result of state land auctions is favorable but expected to materialize at a much slower pace than previously anticipated. This development would apply capital and operating pressures, but the corresponding enrollment gains would somewhat mitigate this risk.

The district is located in the north central portion of Pinal County, Arizona, approximately 35 miles east of the Phoenix metropolitan area.

District boundaries encompass the city of Apache Junction and large unincorporated developments surrounding the city serving an estimated population of 85,000. The area economy historically was based on recreation, tourism and retirement activities, but has emerged as a bedroom community for the Phoenix metropolitan area. Unemployment rates for the City of Apache Junction are consistently lower than the levels recorded at the state and national levels; however, the county unemployment rates are typically higher than those of both the state and nation. County wealth levels as measured by median household and per capita buying income are lower than that of the state and national levels.

Only about one third of the district is currently developed.

Transportation improvements - especially the completion of the Superstition Freeway that connects US-60 to I-10 - combined with availability of affordable housing led to significant population growth between 1990 and 2000. However, population within the city has declined modestly in the last few years as is reflected in the district's enrollment levels, which dropped about 5% in the current year to about 5,500 students.

The district's financial profile has been healthy, typically posting higher fund balances than the average Arizona school district. Arizona school districts budget on an essentially break-even basis and typically retain small operating reserves. However, at the close of fiscal 2008, the district posted a solid unreserved general fund balance equal to 15.8% of expenditures. For fiscal 2009, actual general fund expenditures were about $700,000 below the state approved budget levels. At the close of fiscal 2009, the district was able to retain a moderate balance in unrestricted capital and soft capital funds of $2.5 million (or 8.3% of O&M expenditures) which can be used for operations.

For fiscal 2010, the district faces an 11% reduction in state funding due both to the state's budget pressures and the district's declining enrollment. Fitch believes management is continuing its trend of conservative and proactive budgeting by eliminating about 50 positions, holding salaries constant and implementing budget cuts across every department. Still, Fitch expects the pressures related to state budget cuts and the possible expiration of the district's operations budget override levy in fiscal 2011 to be considerable. Two elections to renew this budget override have failed since fiscal 2007.

Debt ratios are moderate and principal is retired at a slightly above-average pace. The district has no future debt plans, and expects to let an outstanding $11.6 million bond authorization lapse.

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Fitch Ratings, AustinGabriela Gutierrez, 512-215-3731Rebecca
Moses, 512-215-3739orMedia Relations:Cindy Stoller,
212-908-0526, New YorkEmail: cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com