In the course of routine surveillance, Fitch Ratings affirms the 'AA-' rating on $53.4 million outstanding Lucia Mar Unified School District (USD), CA general obligation (GO) bonds. The Rating Outlook is revised to Negative from Stable.
The Outlook revision to Negative is primarily a result of the anticipated decline of fund balance levels in the context of falling revenues amidst significant state budget cuts. The 'AA-' GO rating reflects the district's weakened but adequate financial position, continued assessed value growth, relatively stable economy, and low debt burden. Fitch's concerns include the district's future financial flexibility, given the uncertainty of state funding and a substantial draw down of the general fund balance in fiscal 2009. A downgrade could be triggered if the district is unable to maintain satisfactory unreserved fund balances going forward, given the potential for state funding cuts.
The district is in San Luis Obispo County, where May unemployment reached 8.4% (vs. 11.2% for the state and 9.1% for the nation). The county's mortgage foreclosure levels were 6.7% in first-quarter 2009, also lower than the state and nation. The district assessed valuation growth slowed in 2009 to a moderate 4.9%. After four years of declining enrollment, the district is anticipating modest gains through 2011, attributed to the closing of a nearby private school.
Financial operations remain strained but adequate. Despite layoffs, the district's total fund balance declined from $13.2 million or 15.1% of spending at fiscal year end 2008 to $9 million or 10.1% of spending at fiscal year end 2009. For fiscal 2010, management plans to maintain its total fund balance level through the use of federal stimulus dollars. However, federal stimulus funding is not projected past fiscal 2010, and the district is projecting the total fund balance in 2011 to decline to only 3% of spending.
Debt levels, including capital appreciation bonds, remain low at $1,716 per capita or 1.1% of market value, including overlapping debt. Amortization is average with 55.9% repaid in 10 years.
The district is located along the California central coast between Santa Maria and San Luis Obispo. Lucia Mar is the largest school district in San Luis Obispo County, covering 550 square miles and serving the adjoining communities of Arroyo Grande, Grover Beach, Nipomo, Oceano, Pismo Beach, and Shell Beach. More than 10,710 students attend Lucia Mar's 11 elementary schools, three middle schools, two comprehensive high schools, one continuation high school, and one adult education program.
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