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Fitch Rates Clark County School District's (Nevada) $51.4MM GOs 'AA'; Outlook Negative

The Negative Outlook, assigned in April 2009, continues to reflect Fitch's concern about the severe economic downturn, particularly in housing and tourism. The county's job losses, unemployment rate and home foreclosures are very high, all of which will either directly or indirectly pressure the district's ability to maintain a level of financial flexibility consistent with the 'AA' rating. The 'AA' rating reflects the district's still adequate financial position supported by conservative budgeting and a sizeable state funding guarantee as well as a large and historically diverse economic base, moderate debt levels aided by rapid amortization, and good long-term capital planning. A rating downgrade would be triggered if the district is unable to balance future budgets and maintain its reserve levels, or if the economy does not stabilize in 2010.

The bonds are GOs of the district, subject to constitutional and statutory limitations on the aggregate levy of ad valorem taxes. Bond security is enhanced by the statutory reserve account of the debt service fund, required to be funded at the lesser of 10% of outstanding par or 100% of the next fiscal year's debt service. The balance at the end of fiscal 2009 was $588 million, compared to the reserve requirement of $472 million. In addition, the 2009C bonds - and other 'additionally secured' bonds (GO revenue bonds) - are additionally secured by pledged revenues consisting of room taxes and real property transfer taxes, which are deposited in the capital projects fund. Further, the accumulated balance in the capital projects fund of $356 million may only be used for capital or debt service.

Excess pledged revenues for the GO revenue bonds include room and real property transfer taxes, both of which are experiencing volatility due to the current economic environment. On a combined basis, excess pledged revenues declined 33% from fiscal 2006 to fiscal 2009 and provide less than 1.0 times (x) coverage of GO revenue bond debt service unless interest earnings are included. However, concern regarding coverage levels is mitigated by the large balance in the capital projects fund, into which room and real property transfer tax revenues are deposited, compared to the $92 million annual debt service on the GO revenue bonds.

The district operates the nation's fifth largest school system, serving an estimated 309,476 students for the 2009-10 school year; below the projected 314,000 from a year ago. Enrollment growth slowed from a peak of 5.1% in 2003-2004 to less than 1% in 2008-2009 and a slight decline in 2010. The district is coterminous with the county and includes the cities of Las Vegas, North Las Vegas, Henderson, Boulder City, and Mesquite as well as unincorporated areas for a total of 7,927 square miles. In spite of recent state funding cuts, the district's financial operations have remained sound, enabling it to add to the fund balance in six of the last eight fiscal years; deficits have been due to planned capital spending. Unreserved fund balance at the end of fiscal 2009 equaled $163 million, or 8% of spending, up slightly from $159 million and 8.3% in fiscal 2008. For fiscal 2010, the district had to close a $123 million budget gap after already severe spending cuts in fiscal 2009 due to reductions in state aid. In addition to cutting about $100 million in core, ongoing costs, the district reduced its budgeted undesignated and unreserved fund balance to 1%; below the 2% policy. Further deterioration of overall financial flexibility, if realized, could cause downward rating pressure.

Led by dramatic losses in construction, the county's overall economic performance has weakened significantly. Employment in the Las Vegas-Paradise metropolitan statistical area (MSA) declined 1.4% in 2008 following a slowed 1.7% rise in 2007, which comes after average annual increases of 5.9% from 2003 to 2006. Losses in tourism and business and professional jobs have led to a 6.17% decline in employment in September 2009 compared to September 2008. Hardest hit has been the construction sector, which peaked at 13% of total employment in 2006 and has since shed over 26,000 jobs, bringing it down to a still above average 8% of all jobs in the MSA as of September 2009. Compounding the job losses, the county's labor force continued to increase into 2009, resulting in an unemployment rate of 13.9% in September 2009 compared to 7.7% a year prior.

While a number of large casino/hotel/resort projects have been stalled for financial and economic reasons, the long-term outlook for continued development in the area is good given its strong national and international tourism draw. Debt levels are and should remain moderate as additional bonds have been offset by rising population and assessed valuation (AV), along with rapid amortization of outstanding debt. Direct debt level, including this issuance, is a low $2,556 per capita and 1.8% of market value, while overall debt level is a moderate $4,862 per capita and 3.5% of market value. Debt payout is above average, with roughly 2/3 of outstanding GO debt retired in 10 years. The district has a sizeable pension liability but the funding level is adequate at 76% and the district continues to fund the annual required contribution.

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Fitch Ratings, San Francisco
Karen Ribble, +1-415-732-5611
Amy Doppelt, +1-415-732-5612
Cindy Stoller, +1-212-908-0526 (Media Relations, New York)
cindy.stoller@fitchratings.com