In the course of routine surveillance, Fitch Ratings affirms the Los Angeles Unified School District's (California) general obligation (GO) and GO refunding bonds, issued on or before August 2006, at 'A+'.
Fitch also affirms the following certificates of participation (COPs) at 'A':
--Refunding COPs (Multiple Properties Project), series 1998A;
--COPs (Multiple Properties Project), series 2000B;
--COPs (Administration Building Project I), series 2001B;
--COPs (Administration Building Project II), series 2002C;
--COPs (Multiple Properties Project), series 2003B;
--COPs (Refinancing Project 1 and Refunding Project 1), series 2004A.
The Rating Outlook for all ratings is Stable.
Simultaneously, Fitch withdraws all ratings for this issue and will no longer provide rating coverage on the district or the outstanding bonds.
The 'A+' GO bond rating reflects the district's large, diverse underlying economic and assessed valuation base and satisfactory financial reserves. These factors are somewhat offset by the district's upcoming fiscal pressures, declining enrollment, and its students' high educational and service needs. The district has massive capital improvement and deferred maintenance programs which have been strongly supported by voters. The school construction and modernization program has successfully completed a huge number of projects, with a substantial amount of additional needs identified, some of which will need assessed valuation (AV) gains in order to be funded. A consultant hired by the district foresees AV declines over the next four years which could cause some capital funding delays. Any slowdown in state funding matches could also delay the program.
The district has good financial management policies with which it endeavors to comply. Having successfully closed large budget gaps in fiscal years 2009 and 2010, the district's remaining options for resolving any further deficits should they develop in fiscal 2010, and already identified budget gaps in fiscal years 2011 and 2012 will be particularly challenging. Likely options include additional personnel reductions and class size increases. The district's projected enrollment declines through 2015 and increased competition from charter schools will pressure its general and categorical funding. State funding in fiscal 2008 made up a high 87% of total revenues.
The district's historical financial operations have been volatile, running five years each of operating surpluses and deficits during fiscal years 1998-2008. The fiscal 2008 operating deficit brings the unreserved general fund balance to 3.6% of spending, the lowest level since fiscal 2004. Estimates for fiscal 2009 show a moderate operating deficit, which could bring the total general fund balance to about 9% of spending. The district's fiscal 2010 budget is balanced using a number of non-recurring measures and preserves minimal year-end reserves.
While per capita debt levels are low to moderate, they will continue to incrementally increase as further voter-authorized debt is issued. The district expects to issue all $11.7 billion of authorized but unissued debt over the next 10 years. Adding that full amount to the district's existing debt profile would raise per capita debt to high levels. The district's OPEB liability is very high and the district and its strong labor unions are making progress on limiting its future growth.
Los Angeles Unified School District is the second largest in the nation, with a total enrollment of approximately 813,000 students (including early and adult education program students). The district covers 710 square miles of the western section of Los Angeles County, and includes the city of Los Angeles (approximately 80% of the district), eight other complete cities, portions of 24 other cities, and several unincorporated areas of the county which include residential and industrial areas. The district currently has 885 K-12 school and alternative work centers and 196 other schools and centers, for a total of 1,081 school sites.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, '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.
Contacts:
Fitch Ratings, San Francisco
Alan Gibson, 415-732-7577
Amy
Doppelt, 415-732-5612
or
Media Relations:
Cindy Stoller,
212-908-0526, New York
Email: cindy.stoller@fitchratings.com
