The Rating Outlook is Negative.
The district's GO bonds are secured by an unlimited ad valorem property tax on all taxable property within the district.
The SFID's GO bonds are secured by an unlimited ad valorem property tax on all taxable property within the SFID.
KEY RATING DRIVERS
CONTINUED NEGATIVE OUTLOOK: The Negative Outlook reflects concerns regarding draws on financial reserves despite an improving state funding environment. Failure to stabilize unrestricted fund balance levels by fiscal 2015 with projected improvement for future years would indicate financial pressure inconsistent with the current rating.
IMPROVING ECONOMY, CONCENTRATED TAXPAYERS: The local economy is mostly industrial, anchored by the
MANAGEABLE BUT GROWING LONG-TERM LIABILITIES: The current debt burden is moderate with average amortization, but debt levels are expected to increase for the construction of new school facilities. Debt and retiree benefits are affordable, though Fitch expects carrying costs to increase due to poor funding of state pension plans in which the district participates.
FUND BALANCE IMPROVEMENT: A downgrade would likely result if unrestricted fund balance levels fail to stabilize and prospects for ultimate improvement are lacking.
The school district covers 13 square miles composed of SFID (89% of district assessed value [AV]) and two community facilities districts in southwestern
PROJECTED DEFICITS DESPITE INCREASED FUNDING
Due to a trend of declining enrollment and state fiscal distress, the district experienced general fund net operating deficits after transfers during fiscal years 2010 through 2012. To correct these imbalances the district achieved significant savings through workforce reduction, furlough days, early retirement incentives and increased class sizes. These efforts reduced expenditures in each of the last five fiscal years but have limited the district's expenditure flexibility going forward.
The district reported breakeven results in fiscal 2013, reversing a projected deficit of approximately 1.2% of budgeted spending at last review. The district's unrestricted fund balance was reduced, despite favorable results. Although recent reductions in unrestricted reserves are relatively small, they have thinned the district's fiscal cushion, which Fitch views as somewhat low for the rating. The fiscal 2013 unrestricted general fund balance decreased to
With an improved state revenue picture going forward, reflecting implementation of the local control funding formula (LCFF), the district opted to increase spending, including spending for the restoration of furlough days and pay increases across all employee groups. The district projects to draw down unrestricted reserves to
INDUSTRIAL BASE WITH CONCENTRATION
The area is mostly industrial with logistics companies benefiting from the proximity to the airport. The city of
AV of both the district and SFID have been relatively stable with only two years of modest declines throughout the recession. District and SFID AV now exceed their peak values in fiscal 2010 and continued positive momentum appears likely as Zillow indicates a strong recovery in home prices in the area since 2012.
Taxpayer concentration has moderated with overall tax base growth and shifts in taxpayer mix. The district's principal property taxpayers constitute 13% of the district's AV, and 15% of SFID AV, down from the prior year at 19% and 22%, respectively. The largest taxpayer, UPS Worldwide Forwarding, represents 3% of the total tax base for both districts, followed by apartment buildings and other industrial establishments.
The New Model Colony, a major residential and commercial development in the city that had been delayed for years, is completing the first phase of construction with over 400 homes scheduled for occupancy in
MODERATE LONG-TERM LIABILITIES BURDEN
The district's overall debt burden is moderate at
District employees are covered under the
Additionally, the district manages a separate other post-employment benefits (OPEB) plan to which it contributed a modest
Total carrying costs, including debt service and pension ARC, and OPEB contribution equaled a low 11.4% of governmental fund spending in fiscal 2013. However, carrying costs are expected to increase as pension contribution rates rise to address substantial unfunded liabilities in the pension systems.
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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