Standard & Poor's Ratings Services has revised its outlook to negative from stable and affirmed its 'A+' school issuer credit rating (ICR) on Floyd County School District, Ga.'s series 2009 general obligation (GO) special-purpose local-option sales tax (SPLOST) bonds.

"We based the outlook revision on our view of the structural imbalance in the district's general fund, which we understand stems from state aid cuts coupled with rising health care costs," said Standard & Poor's credit analyst Hilary Sutton. "We believe the failure to cure this imbalance will significantly diminish the district's general fund reserves and financial flexibility," said Ms. Sutton.

Standard & Poor's also affirmed its 'AA+' enhanced rating on the district's series 2009 SPLOST bonds. The enhanced rating reflects the district's participation in the voluntary Georgia State Aid Intercept program and added enhancements to the authorizing bond resolution.

The ICR also reflects our view of the district's:

• Strong available general fund balance at fiscal 2011 year-end;
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• Property tax base that, despite recent assessed value (AV) declines and moderate concentration, retains good income and strong property wealth levels;
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• Local economy, which is somewhat concentrated in the health care services sector; and
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• Low overall debt burden, coupled with very rapid debt amortization and no future debt plans.
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The negative outlook reflects Standard & Poor's view of the structural imbalance in the district's general fund -- both past and projected. Additional drawdowns of the total available general fund balance to levels we consider only adequate, combined with the failure to adopt structurally balanced budgets, could result in a lower rating. However, if the district closes the budget gap in fiscal 2013 and adopts a structurally balanced budget in 2014, we could return the outlook to stable.

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