Fitch Ratings affirms its 'A' rating on Vacaville Unified School District, California's (the district) $93.7 million in outstanding general obligation bonds (GOs). The Rating Outlook is Stable.
The 'A' rating reflects the district's adequate unreserved fund balance, low debt burden, and management's aggressive cost-cutting response to significant declines in state revenue. The rating further reflects a long-term negative enrollment trend, which limits the growth potential of its constitutionally protected revenues derived from the state. Also, the district's tax base is concentrated with some vulnerability in the largest taxpayer.
The district's financial position is solid with an audited $6.3 million in unreserved general fund balance at the end of fiscal 2008, a slightly above average 6.6% of annual spending and transfers out. Management estimates that the total fund balance declined in fiscal 2009, but a 13.5% cut in budgeted fiscal 2010 expenditure is intended to bring the district back to an operating surplus. The district projects solid liquidity in the general fund for fiscal 2010, with a total ending fund balance of $10.1 million, of which $9.6 million or 12.4% of budgeted spending and transfers out will be unrestricted. Fitch notes that reserves are threatened in the long-term by potential reductions in state revenue limit funding driven by shrinking average daily attendance, which has declined at an average annual rate of 2.2% from fiscal 2004-2008. Fiscal 2009 saw a 2.9% increase in attendance, which the district attributes to home value declines making property in the area now affordable for families with children. Nonetheless, management is using conservative projections of more modest student declines than the historical trend in the coming years.
Encompassing the city of Vacaville (the city) as well as some small unincorporated areas, the district is located in Solano County approximately 30 miles south-west of Sacramento, and 55 miles north-east of San Francisco. The district includes a well-developed tax and employment base, as well as a sizable residential component that currently is experiencing strain. Serving 12,204 students, the district's assessed valuation had, until recently, grown strongly. The district expects assessed value for fiscal 2010 to show a 7.1% decline due to declining property values. Fitch data indicates that the city's experience of the current housing turmoil is similar in magnitude to California's as a whole, as measured by quarterly mortgage foreclosure and delinquency rates. Wealth levels show the city having a higher median household income than the state average and significantly lower rates of unemployment. The district's tax base is concentrated, with the largest 10 taxpayers making up 20% of total assessed value. The group is dominated by Genentech at 13%, which may be vulnerable to loss from the company's recent acquisition by LaRoche.
The district's overall debt burden is a low 1.7% of assessed value and $2,161 per capita. There are no immediate plans to issue any further debt. Fitch notes that the debt is amortized slowly, with just 18.8% of principal retired in the next ten years.
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Contacts:
Fitch Ratings
Tom Cowell, 212-908-9130, New York
Karen Ribble,
415-732-5611, San Francisco
or
Media Relations:
Cindy
Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com