The Rating Outlook is Stable.
The bonds are secured by an unlimited property tax on all taxable properties in the district.
KEY RATING DRIVERS
IMPROVED FINANCIAL OUTLOOK: Removal of the Rating Watch Negative reflects the district's materially improved financial position, including significant expenditure reductions and rising revenues that are expected to result in structural balance beginning in fiscal 2015.
POSITIVE CERTIFICATION: The
FINANCIAL CHALLENGES REMAIN: Although the district's financial profile has improved, fund balances are expected to hover just above the 3% required minimum at fiscal years end 2014 and 2015, and policymakers will need to exercise spending restraint in an environment marked by numerous expenditure pressures.
MIXED ECONOMIC PROFILE: The local economy benefits from its location within the extremely large and diverse
ADEQUATE DEBT PROFILE: Carrying costs are low and capital needs are manageable, but debt amortization is slow, the district participates in the state's weakly funded pension plan that will likely experience significant contribution rate increases, and the district is paying OPEB on a pay-go basis, as is common among California school districts.
FINANCIAL PERFORMANCE IS KEY: Material deterioration or sustainable improvement of the district's fiscal position may lead to a negative or positive rating action, respectively.
The district educates a student population of about 9,300 in the city of
IMPROVED FINANCIAL POSITION
In January the COE negatively certified the district's 1st interim financial report, suggesting the district may not meet its financial obligations by fiscal year end 2014, including maintenance of a minimum 3% general fund balance. The district also assigned an FA to assist the district in convalescing the district's strained fiscal position.
Since then the district's financial position has improved markedly due to board approval of
The COE formerly forecast negative and falling fund balances beginning in fiscal 2015. The district's improved financial projections have led the COE to positively certify the district's 2nd interim report, suggesting the district will meet its financial obligations over a three-year forecast period. The COE also rescinded its FA.
FINANCIAL CHALLENGES REMAIN
The district's financial projections are significantly improved compared to earlier in the year, but management will have to contend with several expenditure pressures. These pressures include continued declining enrollment (offsetting some gains from rising per pupil funding levels), expiring labor concessions in fiscal 2015, likely rising CalSTRS costs, and pent-up wage, service, and deferred maintenance pressures. Fitch expects these spending pressures will significantly narrow out-year projected surpluses. Further, fiscal 2014 is still projected to result in a deficit, lowering the unrestricted fund balance to just
MIXED ECONOMIC CHARACTERISTICS
The local economy benefits from its location within the extremely large and diverse
ADEQUATE DEBT PROFILE
The district's total net debt burden is moderate at
The district is preparing a master capital facilities plan that could lead to significant capital improvements over the coming years. The district retains
The district participates in weakly funded CalSTRS, as do all school districts in the state. CalSTRS' 2012 funded level was just 67% and falls to an estimated 63.5% when Fitch adjusts the system's 7.5% discount rate to a standardized 7%. CalSTRS contribution rates are set by the legislature and have not been increased in recent years to address significant investment losses.
The governor recently proposed significant pension contribution rate increases over a multi-year period to eventually pay the full annual required contribution. If approved by the legislature, this plan could result in substantial new spending requirements, though it would place the pension plan on a more sustainable financial footing.
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.
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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