Minneapolis Special School District No. 1

Minneapolis Special School District No. 1 is coterminous with the city of Minneapolis which is a major regional financial, services, and trade center with above average income levels. Unemployment rates have increased, but remain below the national average. While the housing market has experienced challenges, foreclosure rates, which have been above average, have begun to decline. Historically, the district's enrollment declines averaged 3-5% annually; however, in the 2008/09 school year, the drop moderated to 2% and is expected to be less than 1% in the 2009-2010 school year. The district's capital investment focuses on rehabilitation of older buildings and debt levels are expected to remain manageable given reduced issuance and rapid debt amortization.

After a period of budget cuts, the district received voter approval of new operating levies in November 2008. Passed by a strong margin, the approximately $60 million of renewed and additional revenues will fund the maintenance of class sizes, new books and technology enhancements, and increased investment in math and early literacy programs. The district's unreserved general fund balance strengthened to 13% of spending in fiscal 2008 and is expected to remain roughly level for fiscal 2009. Federal stimulus funds allowed the district to offset what would have been an 8%-10% reduction in state aid; however, the outlook for state support in fiscal 2011 and beyond poses a significant risk to the district's financial position. In 2010, the tax increase helped preclude the need for severe budget cuts, but Fitch notes the budget also rests on a 0% wage increase for teacher salaries. Should current negotiations end outside budgeted expectations, the district would likely face financial challenges.

The district's debt ratios are manageable, at $2,400 per capita and 2.1% of fair market value including overlapping debt. Amortization is rapid. The capital plan, currently under development, is likely to be sizable, similar to most urban school districts; however, the district expects to continue to retire more debt than it issues on an annual basis. The plan will focus on rehabilitation and maintenance of existing facilities as well as addressing excess capacity.

The state's credit enhancement program for school districts provides that the state will make payments to the bond paying agent for debt service upon notification from the participating district that it will not be able to provide the funds. Moneys for this purpose are appropriated annually to the department of education from the state general fund. The program requirements assure timely payment to bondholders.