SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings takes the following rating action on Berryessa Union School District, CA (the district) as part of its continuous surveillance effort:
--$17 million unlimited tax general obligation (GO) bonds (Election of 1999), series A, B and C affirmed at `AA'.
The Rating Outlook is Stable.
RATING RATIONALE:
--The district has stabilized operating performance and general fund balance levels by carefully managing budgetary pressures.
--Overall debt levels are moderately low with manageable future capital needs.
--The large and diverse local economy and district tax base are expected to stabilize following recent declines.
--Student enrollment trends are declining less than projected.
KEY RATING DRIVERS:
--The district's ability to maintain a sound financial position despite potential state funding cuts and budgetary pressures;
--Expected continued stability in the district's tax base and enrollment levels.
SECURITY:
The bonds are secured by an unlimited ad valorem property tax on all taxable property within the district.
CREDIT SUMMARY:
The district is located in the heart of Silicon Valley, northeast of San Jose, serving K-8 students in its 10 elementary and three middle schools. Enrollment declines have been less than projected, declining a modest 1.1% over the past 10 years. Projections for a 3.2% enrollment decline over the next three years are conservative as the local economy appears to be stabilizing. The San Jose area economy is large and diverse, although it has weakened considerably with recent unemployment rates at state and above national levels and is vulnerable to cyclicality due to above average exposure to the high technology and manufacturing sectors. Area and district wealth levels are mixed at slightly below county and MSA levels but above state and national levels. Following significant increases over the past four years, the district's tax base declined 7% in fiscal year 2010. The district's tax base has begun to stabilize with an AV increase of 2% in fiscal year 2011 as the county has aggressively revalued properties over the past few years and the presence of many pre-Prop 13 homes within the district. The district's tax base remains sizable at over $8.1 billion with a diverse mix of residential, industrial and commercial properties. The top 10 taxpayers comprise a low 4.3% of total district assessed value.
Financial performance at the district remains sound despite pressure from declines in state and federal funding. Management has been successful reducing expenditures and carrying forward some one-time revenues, resulting in a sizable general fund surplus in fiscal year 2009. The unreserved general fund balance at fiscal year end 2010 was a sound $5.8 million or 14% of spending following a small $168,200 operating deficit the year prior. Management was able to offset a projected $4.4 million general fund operating deficit in fiscal 2010 through conservatively forecasting state revenues and implementing significant cost reductions. While a $1.8 million general fund operating deficit was projected for fiscal 2011, a small operating surplus of $267,000 is expected with an unreserved general fund balance of $6.9 million or 11.2% of spending. Given significant state revenue uncertainties for fiscal 2012 and 2013, management has again conservatively budgeted for revenue declines, which may be less than projected given recent positive indications from the state, and prepared additional staffing cuts, increased class sizes, furlough days and other expenditure reductions if necessary in order to maintain unreserved fund balance at or above the 3% of expenditure level. Given state revenue payment deferrals, liquidity has been supplemented with small $4.3 - $6.8 million annual short-term borrowings and available amounts from the district's capital projects fund, $1.4 million at fiscal year end 2010. Fitch believes management's conservative budgeting will enable it to maintain sound financial reserve levels and adequate liquidity.
Debt levels are moderately low with net direct debt at $635 per capita and 0.6% of full value and overall debt at $3,606 capita or 2.8% of full value. Future capital needs are not significant and debt amortization is rapid at 36% in five years and 80% in 10 years. Maximum debt service of approximately $7.5 million is 12% of current expenditures given an increasing debt service amortization schedule though 2029. The district has been funding approximately 36% or $1.2 million on fiscal 2010 of the annually required contributions for other post-employment benefits (OPEB) with the overall $22.9 million OPEB liability amortized through 2039. The district's pension liabilities are limited to its participation in the California state pension plans. The district's statutorily required annual contributions in fiscal 2010 to CalSTRS and CalPRS were $2.6 million and $792,681, respectively, which together represent a manageable 5.6% of total spending.
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, IHS Global Insight, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 16, 2010;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.
For information on Build America Bonds, visit 'www.fitchratings.com/BABs'.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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