S&P - Public Finance Criteria (2007). - The Global Clearinghouse

Tax-Secured Debtthe date of issuance, which may be applied to any orall GO bonds, including GO refunding bonds,issued by the district during that period.Participating districts are required to submit to thestate department of education audited financial statementsand budget documents annually, as well asreport any material changes or events that mightaffect their eligibility for participation in the program.The business administrator of a participating districtis required to transfer to its paying agent moneyssufficient to cover each debt service payment atleast 15 days prior to the scheduled payment datefor guaranteed bonds. If unable to do so, the districtmust notify the paying agent and the statetreasurer. The paying agent must notify the statetreasurer if sufficient funds are not transferred tothe paying agent at least 10 days prior to the scheduleddebt service payment date. The state treasurerwill transfer sufficient funds to the paying agent tomake the debt service payment no later than thescheduled payment date if sufficient funds have notbeen transferred to the paying agent.A participating school district for which the statehas made a guarantee payment is obligated to repaythe state, with interest and, in certain instances, anadditional penalty. The state may obtain such reimbursementfrom moneys that otherwise would beused to support the district’s educational programs.The state is authorized to intercept any paymentsfrom its general fund, the state school fund, incomefrom the common school fund, and any other operatingmoneys provided by the state to the district. Ifthe state treasurer determines that interceptedfunds, interest, and penalty payments will be insufficientto provide timely reimbursement, the statemay require the district to meet its repayment obligationswith the help of the state attorney general’soffice. Legal remedies include compelling the districtto levy a property tax to pay debt service onits bonds and other obligations when due.In the event the state is required to make a debtservice payment on behalf of a participating district,if sufficient state funds are not on hand oravailable for such purpose, the state treasurer mayobtain a loan from the common school fund orother qualified state funds. The constitutionalamendment allows the state to issue property taxsupportedGO bonds to provide funding to satisfyits guarantee obligations under the program, includingthe repayment of borrowed moneys from thecommon school fund.Pennsylvania State Aid Intercept Program(‘A’ or ‘A+’ depending on legal protections)Governing statutes: Pennsylvania’s state aid interceptprogram is based on the withholding provisions ofAct 150, which amended section 633 of the PublicSchool code. Standard & Poor’s also assigns a programrating to lease bond obligations ofPennsylvania’s public school building authority basedon the provisions of Sections 785 and 790 of thePennsylvania Public School Code. This ‘A’ rating willnot typically move in conjunction with that of thestate; the A+ rating will move with the state’s rating.Eligibility requirements: The program automaticallyapplies to all school districts.Program provisions: Under these provisions, thesecretary of education automatically withholds stateaid from any school district that fails to meet debtservice or fails to pay lease rentals due a municipalauthority or nonprofit corporation. The withheldamount is the lesser of unpaid principal and interestor lease requirements, or the amount of state aidremaining for the fiscal year. These funds are transferreddirectly to the bond trustee, or the municipalauthority or nonprofit corporation. The secretary ofeducation requires a school district’s annual financialreport to include debt service payable duringthe fiscal year.Additional Standard & Poor’s requirements: Toreceive a program rating, Standard & Poor’srequires minimum historical state aid coverage of atleast 1x on maximum eligible debt service. To satisfythe debt service coverage requirement, the districtmust consider the timing and amount of debtservice payments and state aid receipts. Amendingthe bond resolution regarding the notification timingin the event of a potential default can helpenhance the program rating.Resolution based enhancements: A school districtmay receive a higher program rating if it includescertain structural elements in its bond resolution.Amendments to the Pennsylvania public schoolcode enacted in 1998 allow a school district to voluntarilystructure its bonds so that a failure tomake a required sinking fund deposit prior to thedebt service payment date triggers the intercept ofthe district’s receivable state education aid. Prior tothe amendment, this intercept was triggered onlywhen a school district failed to pay or provide forthe payment of debt service at the date of maturityor mandatory redemption, whether or not the districtestablished a sinking fund.The ability to leverage state aid receipts under theamended legislation into a higher program rating iscontingent on the school district’s inclusion ofstructural provisions in the bond legal documents.These provisions must specify notification and timingrequirements such that the state is notified of animpending shortfall, state aid is withheld, and thenecessary funds are transferred to the fiscal agentprior to the debt service payment date. As with thebasic enhancement program, the district mustdemonstrate at least 1x coverage of maximum98 Standard & Poor’s Public Finance Criteria 2007