In the course of routine surveillance, Fitch Ratings downgrades Capistrano Unified School District School Facilities Improvement District No. 1's (California) $51.2 million of outstanding general obligation (GO) bonds to 'A+' from 'AA'. The Rating Outlook remains Stable.
The downgrade to 'A+' from 'AA' reflects the district's deteriorating financial position due to sharply reduced state aid. Consequently, the district is forecasting a significant draw down in general fund balance for fiscal 2010, and risk budgeting for a negative fund balance for fiscal 2011 pending significant wage concessions or implementation of substantial budget reductions.
The 'A+' rating and Stable Outlook reflect the district's other positive credit characteristics, including a relatively wealthy tax base, stable enrollment and low debt levels. Also considered in the rating is the district's record of strong assessed valuation (AV) growth, although the district has incurred one modest annual loss in tax base value as a result of housing market turmoil. Achieving budgetary balance in fiscal 2011 and preserving operating flexibility in 2012 and beyond will be critical in maintaining the 'A+' rating.
The district's financial position is under serious pressure. The district's budgeted year ending fiscal year 2010 (FY10) total general fund balance was a slim $8.4 million (2.2% of outlay), reduced from a projected $35.9 (9.1%) million in FY09. The large deficit was almost wholly driven by steep cuts from the state in both revenue limit and categorical funding. Furthermore, the district believes it must cut general fund expenditures by at least $25 million in FY11 and a further $4.3 million in FY12 to be confident of maintaining the minimum 2% fund balance level set for it by the state. For FY11, that sum is roughly equivalent to a 10% salary reduction for all district employees. If spending is not reduced at all from FY10 budgeted levels, the district projects a negative ending general fund balance of -$16.8 million (4.1% of outlay) in FY11. The district is still in negotiations with all of its bargaining units, and in mediation with its teachers' representatives.
The district's revenue limit funding derived from the state has dwindled from $31.6 million in FY09 to just $2.1 million budgeted for FY10. This brings the district close to 'basic aid' status, although the district is still significantly dependent on the state, budgeting to receive $66.1 million of its $347 million in general fund revenues in programmatic funding from the state.
Located in Orange County (the county), the district's boundaries contain the great majority of the city of San Juan Capistrano (the city) and a portion of Mission Viejo. The area is relatively wealthy, with the city and the county's median household income at 11% and 23% above the state median, respectively. Both the city and the county also enjoy below average poverty and unemployment rates compared with state and national averages. The district provides services to approximately 50,135 students, and enrollment is expected to remain stable for the next two years. The School Facilities Improvement District No. 1 (SFID #1) comprises 66.5% of the district's total AV. Both the district and SFID #1 have experienced strong recent AV growth, averaging approximately 6% since fiscal 2006, although both entities suffered their first (modest) valuation declines in FY10 (-1.6% for SFID #1 and 2.6% for the district).
The district has approximately $51 million in GO debt outstanding. Direct debt levels for the district are low at $257 per capita and 0.1% of market value. Estimated overall debt levels are moderate at approximately $1,253 per capita and 0.6% of market value.
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Fitch Ratings
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Karen
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or
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(Media Relations, New York)
cindy.stoller@fitchratings.com
