OREANDA-NEWS. Fitch Ratings affirms the 'AA+' rating for the State of Georgia School Aid Intercept Program.

The Rating Outlook is Stable.

SECURITY

If a participating school district or system fails to remit to its bond paying agent the full amount of its debt service payment, the State Board of Education (BOE) will intercept any state appropriation due to the school district and from that amount transmit sufficient funds to the paying agent so that the full debt service payment can be made.

KEY RATING DRIVERS

STATE INTERCEPT OBLIGATION: The rating is based on the state's obligation to intercept school district aid in a timely manner as needed to pay debt service. Administrative, structural and legal protections provide credit enhancement for qualifying school district debt at a level one notch below the state's own 'AAA' general obligation (GO) bond rating.

TIMELY PAYMENT OF DEBT SERVICE: Program mechanics allow sufficient time for state funds to be made available to pay debt service by the debt service payment date.

STRONG STATE OVERSIGHT: The state has a demonstrated commitment to education funding, with state funds providing the bulk of overall school funding; all state payments are subject to intercept. The state exercises careful oversight of school finances and debt issuance.

RATING SENSITIVITIES
STATE RATING: The rating on the credit enhancement program is directly linked to the state's GO debt rating.

PROGRAM CHANGES: Change in the statutes, regulations, or administrative procedures governing the credit enhancement program that alter the current mechanisms to ensure timely payment of debt service could trigger rating action.

CREDIT PROFILE

The 'AA+' rating on the school aid intercept program reflects the state of Georgia's overall credit quality, as well as the breadth and strength of the state's school aid intercept law and associated security features. Sections 20-2-170 and 20-2-480 of the Official Code of Georgia Annotated stipulate that any school district or system may, prior to the issuance of any bond, authorize the state BOE to withhold any state appropriation due to that issuer and apply as much of it as necessary for the payment of any debt service then due. The intercept has never been called on.

Georgia's financial support and oversight of its schools is strong. The state provides the majority of K-12 public school funding, primarily through its formula-based Quality Based Education (QBE) program. QBE is the single largest component of the state's budget. State law and regulations require Georgia's 180 school districts to submit their annual balanced budgets and audits to the state for inspection, and those in deficit situations receive heightened attention until their deficiencies are corrected. Georgia's state constitution limits school district GO debt to 10% of assessed value. Under a 1996 constitutional amendment, many school districts in the state use their respective counties' 1% special local option sales tax for capital projects and related debt retirement with voter approval.

Upon request, Fitch will assign the program rating to the bonds of any participating school district or system based on the following conditions, which mirror the state's own requirements for participation in the program:

--Moneys are due to the paying agent at least 15 days in advance of the bond payment date to allow time for the state to exercise the intercept mechanism, if necessary.
--The paying agent and the issuer are obligated to notify the BOE if the payment has not been remitted on time.
--Debt payments should not be scheduled during June (when sufficient remaining interceptable funds may not be available), July (in case state budget approval is delayed), or the last two weeks in December (when certain school and state officials may be unavailable). School aid is paid at the end of each month in approximately equal installments and school districts and systems generally have a June 30 fiscal year end.
--Per Fitch's criteria, there is at least 1.25x to 1.5x coverage of historical annual school aid to pro forma maximum annual debt service (1.5x minimum applies to districts with less established service areas and/or more volatile expected enrollment trends), as well as sufficient coverage from remaining annually appropriated interceptable funds of debt service on each debt service payment date.