Fitch Ratings assigns its 'A+' to the following Falcon School District No. 49, CO certificates of participation (COPs):

--$67.9 million COPs, series 2015.

The COPs are expected to price during the week of Feb. 9. Proceeds will be used to restructure all of the district's outstanding COPs.

In addition, Fitch assigns its 'AA-' rating to the district's outstanding GO bonds.

The Rating Outlook is Stable.

SECURITY

The COPs are payable from base rental payments made by the district to the trustee (Zions First National Bank) for use of school facilities, subject to annual appropriation.

KEY RATING DRIVERS

REVENUE FLEXIBILITY; GROWING BASE: The district's financial profile is supported by a voter-approved exemption from state-wide revenue growth restrictions and an expectation of continued strong growth in enrollment as the remainder of the Colorado Springs metropolitan statistical area (MSA) approaches maturity.

SOLID RESERVES; OPERATING PRESSURE EVIDENT: The district's consistently reported operating surpluses (after transfers) are tempered by less than actuarial funding of pensions, pent up growth-related capital demands and the resultant growing fixed cost burden. Regular capital contributions from current funds and solid reserves are countered with the current debt restructuring that comes at a cost to free up funds for operations, reflecting some level of operating pressure.

LONG TERM LIAIBILITIES EXPECTED TO RISE: The district's fiscally conservative population has repeatedly rejected the district's GO bond ballots despite rapid but moderating enrollment growth. Overall debt is expected to go from moderate to high as the district attempts to fund its capital facility needs. The district's carrying costs are at the high end of moderate and will rise modestly with scheduled pension contribution increases enacted as part of pension reform legislation.

SOUND LEGAL PROVISION OF COPS: The legal provisions of the COPs are sound and include a leasehold interest in essential assets of the district. The one-notch distinction between the GO bonds and the COPs reflects the annual appropriation risk of the COPs.

LARGE MILITARY PRESENCE: The predominance of the military in the MSA poses industry concentration as such installations are subject to periodic realignments. The county's unemployment rate is trending down but remains somewhat elevated. District income levels are above average.

RATING SENSITIVITIES

LONG TERM LIABILITY MANAGEMENT: Fitch believes the district will adequately manage its growing fixed cost burden while maintaining ample cushion. An inability to do so will result in downward rating pressure.

CREDIT PROFILE

Falcon School District No. 49, CO is located in central El Paso County. About 30% of the district is within the city limits of Colorado Springs.

GROWTH CORRIDOR OF COLORADO SPRINGS MSA

The district's ample land and easy access have fueled strong population growth as other portions of the Colorado Springs MSA approach maturity. The district's estimated 2015 population of 61,500 is poised for further expansion as a large portion of the county's current permitting and building activity is within district boundaries.

Almost 20,000 single family homes are planned within the district including large master-planned communities. As a result, the district's assessed value (AV) is starting to rebound from a moderate recessionary loss of 6.5% in fiscal 2012. AV grew by 3.8% in fiscal 2015 due solely to new construction. The district expects higher AV gains in the next reassessment cycle (fiscal 2016) which Fitch considers reasonable given current positive market trends. The current median home value is above average at $220,000.

The district is within easy commuting distance of the MSA's large employment base that includes Fort Carson, Peterson Air Force Base, Schriever Air Force Base, and the U.S. Air Force Academy. These military installations are an important sector of the local economy but do result in industry concentration. Lockheed Martin, Memorial Health System, and Progressive Insurance Company constitute the area's largest private employers. The county's unemployment rate trended down to 5.1% in November 2014 due primarily to a 1.4% labor force contraction. The rate remains above the state's average of 4% but below the U.S. average of 5.5% for the same period.

ENROLLMENT PRESSURE

Recent enrollment growth has moderated to 2%-3% annual growth from the high 10% average annual gains realized from 2000-2010. Failed GO bond elections in 2010, 2011, and 2014 have resulted in pent up facility capacity demand with 19 of the district's 22 instructional buildings reaching or exceeding capacity. The district reports that up to 15% of its classrooms are in modular buildings. Management does not report organized opposition to its ballot propositions but points to a very conservative and tax-averse general population.

GROWING DEBT BURDEN

The district has $94 million in outstanding debt and may approach voters with another GO bond package in the next five years. Management will purchase additional modular buildings, expand its on-line learning program, or impose a multi-track schedule in the event voters do not approve its GO bond ballot.

DEBT RESTRUCTURING; OPERATING SUPPORT AT A COST

Fitch believes the current debt restructuring for a net present value loss is a sign of developing operating pressure. Voters approved a $7.5 million O&M override levy in 2005 for the repayment of COPs issued for new facilities. In 2014, voters approved a ballot measure to extend the override in perpetuity and to allow the use of excess override funds for certain general fund purposes. The district will use $9 million in accumulated override funds to pay down a portion of the COPs. The current refunding will restructure all of the district's remaining outstanding COPs but will extend the final maturity by nine years. Annual debt service will decline from almost $8 million to $4.7 million but the net present value loss is projected at 1.7% of refunded COPs. Approximately $2 million (2% of spending) in excess override funds will support operations including compensation, technology, safety and security, and improved or expanded programs starting in fiscal 2015.

LONG TERM LIABILITIES EXPECTED TO RISE

The district's ability to manage its growing fixed cost burden associated with pent up capital needs and rising, though minimal, pensions is key to rating stability. Fitch expects debt metrics to rise from the current moderate at $3,894 per capita and 3.6% of market value. All of the district's $26 million of GO bonds mature in seven years. The aggregate GO and COP pay-out rate of 49% in 10 years is expected to decline with future issuance.

Pension and other-post employment benefit (OPEB) benefits are provided through the district's participation in the School Division Trust Fund administered by the Public Employee Retirement Association of Colorado (PERA), a cost-sharing multiple employer plan. The district's annual pension payments are statutorily determined. The school division's pension funded ratio is low at 57% based on the Fitch-adjusted 7% investment rate of return. The district's pension contributions increased by 25% to $8.4 million over the last two fiscal years as a result of previously enacted reform legislation that includes approximately 1 percentage point annual increases through 2018.

The total carrying costs including debt service, state-required pension funding, and OPEB pay-go are on the high end of the moderate range at 21% of governmental spending in fiscal 2014 and expected to rise.

POSITIVE FINANCIAL PERFORMANCE

The district's ability to manage recessionary revenue losses and maintain a satisfactory cushion is an important driver in the 'AA-' ULTGO rating. The district recorded positive general fund results, net of pay-go outlays and transfers to the capital reserve fund, in each of the last five fiscal years. Inclusive of the restricted 3% ($3 million) emergency reserve required by state law, the district's financial cushion has held steady at 11%-17% of spending since fiscal 2009, in line with the district's 10% fund balance policy. Fiscal 2013 continues this trend with one-time capital costs lowering the unrestricted fund balance (adjusted to include the 3% emergency reserve) to a still solid $11 million or 12% of spending.

Unaudited fiscal 2014 modest surplus results were supported partially by the transfer of a state-sponsored on-line charter school to the district at the request of the state. The absorption of these 3,100 charter students (a 23% surge in total enrollment) had a neutral to positive financial impact as many of these students were accompanied by enhanced levels of state aid due to their higher risk profile. In-district charter schools operate as component units of the district which retains a portion of their state aid for administrative costs.

The adopted fiscal 2015 budget is balanced, provides pay hikes of 2%-2.5%, and is based on a 2% gain in the funded pupil count (FPC). Management reports that the year-to-date FPC growth totals 3.5%, allowing the district to increase its budgeted pay-go by $1 million (for a total of $3 million). The district projects a nominal draw-down of $100,000 for fiscal year end.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978987

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