SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has assigned an underlying rating of 'AAA' to the Canyons School District Board of Education (the district), Utah $60 million general obligation (GO) bonds, series 2013.
The bonds will be sold by competitive bid on Sept. 24, 2013. Proceeds will be used to finance various capital projects.
Fitch has also affirmed the following underlying ratings:
--$140.6 million GO bonds, series 2011 and 2012 at 'AAA'.
The Rating Outlook is Stable.
The underlying ratings and Outlook reflect the district's credit quality without consideration of the guaranty provided by the Utah School Bond Default Avoidance Program.
SECURITY
The bonds are secured by the proceeds of an ad valorem tax levied at a rate sufficient to pay principal and interest.
KEY RATING DRIVERS
SOLID FINANCIAL POSITION: The district ended its fourth fiscal year of operations with an increasingly strong unrestricted general fund balance, ample liquidity, a low debt burden, adequately funded pension liabilities, and fully funded other post-employment benefit liabilities.
CONTINUED FINANCIAL FLEXIBILITY: The district retains the flexibility to increase tax rates, make staff reductions, modify labor agreements, and adjust class sizes if necessary.
GOOD LABOR RELATIONS: The district continues to benefit from positive labor relations which have allowed it to partially offset salary increases with significant labor concessions.
MANAGEABLE CAPITAL IMPROVEMENT NEEDS: The district has identified significant facility repair and replacement costs, but it is not being pressured by student enrollment growth and has sufficient facility capacity. Therefore, it can plan its capital improvement program and associated bond issues in stages to avoid pressuring local taxes.
SOMEWHAT MIXED SOCIOECONOMIC CHARACTERISTICS: The value of the district's tax base has begun to rebound and the district benefits from its proximity to the Salt Lake County economic hub. Nevertheless, socioeconomic characteristics vary markedly between the district's component communities.
RATING SENSITIVITIES
While the rating is sensitive to fundamental changes in financial management and performance, Fitch does not expect the district to alter its current conservative approach.
CREDIT PROFILE
In November 2007, voters in the eastern portion of the previous Jordan School District approved a ballot measure to secede and form a separate district. Consequently, a new Canyons School District (located in the southern part of the Salt Lake City metropolitan area) and the remaining Jordan School District began operating in fiscal 2010 under separate school boards. Canyons School District covers 192 square miles and has a 2013 enrolment of 33,528 students attending 46 schools and an adult and community education program.
CANYONS' RESPONSIBILITY FOR PAYMENT OF JOINT DEBT
Holders of the original Jordan School District GO bonds benefit from an unlimited property tax levy on the aggregate TAV of the previous Jordan School District. Both the debt and the TAV were divided proportionately between the two districts based on the TAV in the year immediately preceding the division. Canyons School District's share is 58%. Each district is legally obligated to tax the residents within its boundaries for its share of the outstanding debt. Salt Lake County collects the property tax revenues from within each school district's boundaries and distributes those revenues to the two school districts. Jordan School District then invoices Canyons School District for its share of the full debt service payment. District officials report that repayment of the joint debt continues to proceed smoothly, including mutually agreed prepayment of certain bonds on Feb. 1 and Aug. 15, 2013.
MANAGEABLE LONG-TERM LIABILITIES
In June 2010, 50.7% of Canyons School District voters approved a $250 million GO bond authorization for school capital improvement projects. With the series 2013 bonds, $208 million of that authorization will have been issued. The district expects to issue the $42 million balance in fiscal 2016. The overall debt burden is expected to remain low. The district anticipates requesting voter authorization for further GO bonds in fiscal 2017 at the earliest, around the time that the final capital projects being funded by the 2010 authorization will be completed.
Overall debt is a low $1,971 per capita and 1.7% of market value. Debt amortization is average at 57.5% in 10 years. The district's fiscal 2012 carrying costs related to annual debt service, annually required pension contributions, and OPEB payments amounted to a low 14.4% of total governmental spending. The district meets fully its annual pension obligations to the adequately funded Utah Retirement Systems and the district's OPEB liabilities are currently fully funded. Despite recent increases in pension contributions, Fitch does not expect that these carrying costs will increase to the point that they weigh unduly on the district's financial operations.
STRONG FINANCIAL OPERATIONS
The district ended fiscal 2012 with a strong unrestricted general fund balance of $63.8 million or 31.2% of spending, up from an already strong $60.8 million (30.8%) the year prior. This increase is attributable to increased property tax revenues and keeping expenditures below budget (due, in large part, to delaying hiring for a new high school until fiscal 2013 although the positions had been funded in the fiscal 2012 budget). The district generated a $5.2 million net operating surplus after transfers, rather than a budgeted $1.3 million net deficit.
Similarly, the district expects to end fiscal 2013 with an even larger unrestricted general fund balance of $73.7 million or 34.6% of spending. This increase is attributable to actual spending 3.5% below budget, again largely due to conservative budgeting. The district is projecting a $5.3 million net operating surplus after transfers, rather than a budgeted $2.1 million net deficit. District officials anticipate that the total general fund balance will hold between $65-$77 million during fiscal years 2014-2017, and they intend to continue rolling forward a fully funded 5% economic stabilization reserve. Fitch considers these projections reasonable given the district's performance history.
The district experienced tax rate increases in fiscal years 2010-2013 totaling 17.2% due to reconfiguring its tax levies, as permitted by the state, and automatic adjustments for TAV declines. While the district retains the option to increase its tax rate further given the significant room remaining under its tax rate caps, it does not expect to do so. Alternatively, the district expects that it would draw down some of its very high general fund balances before it would increase the tax rate.
In addition to the district's healthy general fund balances and tax rate flexibility, the district also has considerable financial flexibility related to staffing levels, class sizes, and number of school days (subject to state approval). In addition to strong liquidity from general fund cash and investments, the capital outlay fund includes monies generated from the capital tax levy that could be available for general fund support in an emergency situation if the state approved the necessary waiver. Including all governmental funds, the district has access to approximately $171 million in cash and investments.
GOOD LABOR RELATIONS; SENIOR ADMINISTRATOR TRANSITIONS
The district continues to benefit from positive labor relations, which have allowed it to partially offset salary increases with significant labor concessions, such as the incremental elimination of all 10 professional development days for teachers.
Recently, the school board appointed a long-term staff member as interim superintendent following the inaugural superintendent's resignation. A permanent appointment is expected in spring 2014. The school board is also seeking to make an interim business administrator appointment. This would allow the new superintendent to be involved in selecting the permanent replacement for the inaugural business administrator, whose contract was not renewed. District officials stated that these senior administrator transitions have not impacted the district's financial management and operations.
SOMEWHAT MIXED SOCIOECONOMIC CHARACTERISTICS
Canyons School District is primarily residential with an established commercial base, and it benefits from being an integral part of the Salt Lake City metro economy. Salt Lake County's unemployment rate declined to 4.9% in June 2013 from 5.8% a year prior, in line with improving state and national trends.
While the district's overall socioeconomic characteristics are good, with above-average per capita money income and median household income and a below-average individual poverty rate, the socioeconomic characteristics of specific communities within the district vary widely. The district includes some of the wealthiest communities in the state, while other areas are more challenged with significant portions of their students eligible for free and reduced lunch programs.
After a cumulative 7.3% TAV decline during fiscal years 2011-2013, the district is expecting a 5% TAV increase in fiscal 2014 due to new growth and appraisal increases. Good long-term residential and commercial property growth prospects, rising house prices, and progressive absorption of foreclosed properties support the district's projection of 1%-3% annual TAV growth going forward.
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, and National Association of Realtors.
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=802156
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