Wayzata Public Schools receives bond rating upgrade

Wayzata Public Schools’ bond rating was recently upgraded by Moody’s Investors Service from “Aa2” to “Aa1.”  This rating is a measure of the investment quality of the district’s bonds, and is based on a variety of factors, including the financial strength and stability of the district. 

This rating upgrade places the district in an elite category.  Only three other Minnesota school districts have a rating of Aa1, and none exceed this rating.  The other districts rated Aa1 by Moody’s are Edina, Minnetonka, and Rochester.

“I am thrilled to get this upgrade,” said Alan Hopeman, Executive Director of Finance and Business for Wayzata Public Schools.  “This is solid evidence that the investment community holds Wayzata Public Schools in very high regard due to our strong tax base, high level of community support, and well-managed school district resources.”

An improved bond rating would allow the district to sell bonds for a building project with a lower interest rate, which can result in substantial savings for taxpayers.  Wayzata Public Schools has no plans in the near term to sell bonds to finance a new project, but it is very possible that the district will refinance some of its existing debt in the next year or two, depending on interest rates available in the bond market.  If that should occur the district’s savings will be increased due to the bond rating upgrade.

When Wayzata Public Schools experienced severe financial problems in the early 1990’s, its bond rating plummeted to Ba.  “Ba” grade bonds are regarded as a poor investment risk, and by law cannot even be purchased by banks in the United States; these are often referred to as “junk” bonds.  Since the early 1990’s the district’s bond rating has progressively improved, and the district now holds the highest ratings among Minnesota school districts.  No Minnesota school district has the highest rating of Aaa, and that rating is not likely to be given to any district in the state because of the characteristics of the state’s school funding structure.

The report from Moody’s Investors Service is reproduced below.  Any questions about the bond rating upgrade can be directed to Alan Hopeman at 763-745-5023.

Findings from Moody’s report

Moody's expects the district's sizeable $11.3 billion tax base to continue to grow, due to its favorable location in the Twin Cities metropolitan area and the availability of land for development. The district serves some of the region's wealthiest communities, including portions of the cities of Medina (general obligation rated Aa3), Minnetonka (Aaa), Plymouth (Aaa), and Wayzata (Aa1). Tax base expansion (which has averaged a sound 10 percent per year over the last five years) has accommodated a growing population. The 2006 estimated population of 57,106 is nearly double the 1980 census population of 30,301. Residential wealth indices are high: per capita and median family income
levels are 176 percent and 165 percent of the state, respectively. The district's high
property values are reflected in a full value per capita of $198,243.

WELL MANAGED FINANCIAL OPERATIONS
WITH ADEQUATE RESERVES; MODERATE
ENROLLMENT GROWTH

According to Moody’s analysts, the district's well managed financial operations will continue, supported by adequate reserves, voter-approved excess operating levies, and moderate enrollment growth that factors favorably into the state aid formula. The district's financial health has markedly improved since the early 1990s, when the district posted significant deficit General Fund balances. After a planned General Fund deficit in fiscal 2005 (due to one-time capital outlay expenditures) and a slight General Fund surplus in fiscal 2006, the General Fund balance has remained relatively stable in recent years. The fiscal 2006 General Fund balance of $15.0 million equaled 17 percent of General Fund revenues, which slightly exceeds the median value of 14 percent for Minnesota schools. Officials expect the General Fund balance to remain at similar levels in future years. District policy calls for the maintenance of a minimum General Fund balance of 5 to 7 percent of expenditures.

The district enjoys moderate increases in enrollment, which factors favorably into the state aid formula. State aid, which is largely based on enrollment, is the district's primary revenue source, comprising 70 percent of operating revenues in fiscal 2006. Enrollment increased an average of 0.8 percent per year between fiscal 2003 and fiscal 2007. The current student population is 9,989 and is expected to increase slightly or remain level in the future years. The district enjoys a net gain of approximately 225 out-of-district students through Minnesota's open enrollment program. The district has two voter-approved excess operating levies in place totaling approximately $1,347 per pupil, plus an inflationary adjustment for future years. One excess levy is set to expire in 2011, and the other is set to expire in 2015. Officials plan to request a renewal of the levies before they expire. The existing excess operating levies are at the maximum amount allowed by the state, so the district does not have the flexibility to request an increase if additional
revenue is needed. However, based on the district's history of financial management, Moody's expects the district will cut expenditures, if necessary, to maintain balanced operations should revenue pressures occur in the future.

AFFORDABLE DEBT LEVELS WITH RAPID AMORTIZATION

Moody's expects that the district's debt levels will remain affordable due to continued tax base expansion, rapid principal amortization, and a lack of future borrowing plans. At 0.8 percent and 1.4 percent, respectively, the district direct debt position and overall debt burden are below state and national medians. Principal amortization is rapid, with 97 percent of all tax supported debt retired in ten years. The majority of the district's deferred maintenance projects have been completed in recent years with previously-issued debt, so officials do not anticipate the need to issue additional debt in the near future. Planned air quality improvement projects will be funded with cash.

KEY STATISTICS

2000 census population: 53,366 (a 29 percent increase from 1990)

2006 estimated population: 57,106 (a 7 percent increase from 2000)

Fiscal 2007 enrollment: 9,989 (an average annual increase of 0.8 percent since fiscal
2003)

2006 full value: $11.3 billion

2006 full value per capita: $198,243

1999 per capita income: $40,918 (176 percent of state)

1999 median family income: $94,027 (165 percent of state)

Fiscal 2006 General Fund balance: $15.0 million (17 percent of General Fund revenues)

Direct debt position: 0.8 percent

Overall debt burden: 1.4 percent

Payout of principal: (10 years): 97 percent

Total general obligation debt outstanding: $82.8 million

Total certificates of participation debt outstanding: $3.1 million