Rating Action: Moody’s assigns Aa2 to Maricopa Co. SD 4 (Mesa Unified), AZ’s 2021 GOs, confirms Aa2 GOULT rating and assigns Aa3 issuer rating; outlook stableGlobal Credit Research – 08 Apr 2021New York, April 08, 2021 — Moody’s Investors Service has assigned Aa2 ratings to the Maricopa County School District 4 (Mesa Unified), AZ’s $60 million School Improvement Bonds, Project of 2018, Series D (2021) and confirmed the district’s general obligation unlimited tax (GOULT) rating of Aa2. Concurrently, Moody’s has assigned a Aa3 issuer rating to the district. The issuer rating represents the district’s ability to repay debt and debt-like obligations without consideration of any pledge, security, or structural features. This action concludes a review for possible downgrade initiated on January 26, 2021 in conjunction with the release of the US K-12 Public School Districts methodology. Post issuance, the district will have $332.4 million in outstanding GOULT bonds. The outlook is stable.RATINGS RATIONALEThe Aa3 issuer rating reflects the district’s location within the Phoenix metro area’s growing economy offset somewhat by below-average resident income and wealth measures. The district has had very modest declines in enrollment, with new development generally offsetting any declines from an aging demographic. The rating further reflects the district’s healthy financial position, supported by prudent financial controls and below-average fixed costs. The rating incorporates a weak institutional framework for Arizona school districts, given their somewhat limited ability to generate additional local revenue, offset by the district’s strong track record of voter-approved override levies, including a 2019 increase to the maximum allowable rate. The rating incorporates an elevated balance sheet leverage, comprising primarily a large unfunded pension liability and rapidly amortizing general obligation (GO) bond debt.The Aa2 rating on the district’s GOULT bonds is one notch higher than the district’s issuer rating. The one notch distinction reflects Arizona school district GO bond security features that include the physical separation through a “lockbox” for pledged property tax collections and a security interest created by statute.RATING OUTLOOKThe stable outlook reflects our expectation that the district’s financial position will remain satisfactory, at or around current levels, given relatively stable enrollment, prudent financial controls, and manageable balance sheet leverage.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Sustained growth in reserves and liquidity- Significant appreciation of resident socioeconomic measures- Improved pension funding metricsFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Deterioration of the district’s financial position- Substantial increase in balance sheet leverage- Enrollment declines that translate to budget pressureLEGAL SECURITYThe GO bonds are secured by the annual levy of ad valorem taxes, unlimited as to rate or amount, on all taxable property within the district. The debt service portion of the property tax levy is collected, held in segregation and transferred directly to the paying agent by the county. The money is held in a debt service fund at the county and cannot be borrowed against by the district for cash shortages.USE OF PROCEEDSBond proceeds will be used to repair, renovate, replace and/or demolish existing school facilities; purchase and upgrade technology, furniture and equipment; and purchase pupil transportation vehicles.PROFILEMesa Unified School District No. 4 encompasses approximately 200 square miles in southeast Maricopa County (Aaa Stable), about 12 miles southeast of Phoenix (Aa1 Negative), and serves a population of about 504,000 residing in Mesa (Aa2 Stable) and portions of Chandler (Aaa Stable), Tempe (Aa1 Stable), Apache Junction and Gilbert (Aaa Stable). The district provides K-12 education, operating 87 schools with enrollment of 62,490 in fiscal 2020.METHODOLOGYThe principal methodology used in these ratings was US K-12 Public School Districts Methodology published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1202421. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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