NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the following rating for Roseville City School District, California (the district):
--$49.2 million general obligation (GO) bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The GO bonds are secured by an unlimited ad valorem tax on all taxable property within the district.
KEY RATING DRIVERS
SOUND FINANCIAL PROFILE: Prudent financial management drives solid financial performance, characterized by sound reserve levels, ample expenditure flexibility, and an uptrend in enrollment.
MIXED LOCAL ECONOMY: The district benefits from its proximity to the Sacramento employment market. However, the regional housing market was disproportionately affected by the recession and has not fully recovered.
MANAGEABLE LONG-TERM LIABILITIES: Overall debt levels are moderately high. Carrying costs are affordable but are expected to grow given expected increases in pension costs. Rapid amortization and lack of additional debt plans somewhat offset this concern.
REDUCED RISKS FROM STATE DISTRESS: The November 2012 approval of Proposition 30 tax increases by California voters removed the threat of mid-year funding cuts for the district in fiscal 2013. The governor's fiscal 2014 state budget, if adopted, would present a more favorable near-term fiscal outlook for the district.
RATING SENSITIVITIES
RATING MOVEMENT UNLIKELY: The rating is sensitive to shifts in fundamental credit characteristics, but the Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The district comprises Roseville City (the city) and unincorporated areas of Placer County. The district is located 16 miles northeast of Sacramento and serves about 10,000 students.
SOUND FINANCIAL PROFILE
The district has maintained operating surpluses in five of the last six fiscal years despite state fiscal distress. In fiscal 2012, the district generated a $378,000 surplus (0.6% of total general fund spending), and unrestricted fund balance ended at a sound 14.8% of spending. The district's fiscal 2013 second interim report projects a small $736,000 (1.0% of spending) deficit, but Fitch expects a balanced budget given the district's historically conservative budgeting practices.
Fitch expects district finances to remain strong in the near future given the improving state funding environment. The district has been issuing tax revenue anticipation notes in each of the last several years and would thus benefit from the proposed state budget's plan to pay down more deferrals over the next several years.
CONTINUED ENROLLMENT GROWTH EXPECTED
District enrollment has grown consistently over the last decade, although the rate of growth has declined recently due to the weakened regional economy. Nevertheless, future enrollment growth is expected due to housing developments which are currently being constructed. As a result, the district estimates enrollment will increase by 1,800 students (18% of current enrollment), starting in three to five years.
MIXED LOCAL ECONOMY
The district is primarily residential but benefits from its proximity to Sacramento's employment market. Private sector employers in the capitol area include Hewlett-Packard, Intel, Telefunken, insurers, and health care providers.
Income levels are above average, with median household income in 2012 equal to 115% and 134% of state and national averages, respectively. The city's unemployment rate was 8.0% in March 2013, which is lower than state levels but slightly higher than national levels. The city's labor force decreased by 0.5% between March 2012 and March 2013, while national labor force grew by 0.1% during that same time period.
District assessed value (AV) declined by a total of 12% from 2010 to 2012 but grew by 0.3% in fiscal 2013. According to Zillow, city home prices appear to have bottomed out. Housing starts are still much lower than pre-recession levels, but there has been a recent uptick.
MANAGEABLE LONG-TERM LIABILITIES
Overall debt levels are moderately high at $5,870 per capita and 4.5% of AV. Amortization is rapid, with just under 70% of principal retired in 10 years. The district plans to continue building new schools, which will be funded upfront by developers rather than by GO debt.
The district participates in the California Public Employees' Retirement System (CalPERS) as well as the more poorly funded California State Teachers' Retirement System (CalSTRS) pension system. Contribution rates for CalPERS are actuarially based, but those for CalSTRS are set by statute, and have not been increased for some time to reflect recent years' investment losses. Fitch expects the district's contribution rate for both plans will rise over the coming years, perhaps significantly, after the legislature begins to address the system's growing unfunded liabilities. Contributions to CalPERS alone are expected to increase by 50% over the next five years.
Total carrying costs, calculated by dividing debt service, pension, and other post-employment benefit costs by governmental (less capital) fund spending, equal almost 17%. While rapid amortization elevates these costs, underfunding of actuarially-based payments for CalSTRS understates them. Fitch expects total carrying costs to increase given future growth in pension costs.
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, National Association of Realtors, Zillow.
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=792516
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.