Fitch Ratings has assigned the following rating to bonds issued by Shasta Union High School District (the district):
--$11.2 million 2011 general obligation (GO) refunding bonds 'AA-'.
The bonds will be sold via negotiation on the week of either Jan. 17 or 24, 2011. The proceeds will advance refund a portion of the district's GO bonds (election of 2001), series 2002 to achieve debt service savings.
In addition, Fitch has affirmed the following ratings:
--$25 million GO bonds (election of 2001) series 2002 and 2003 at 'AA-'.
The Rating Outlook is Stable.
RATING RATIONALE:
--By responding appropriately to declines in student enrollment, taxable assessed valuation (TAV), and reduced federal and state funding, the district has maintained a sound financial position. The district's finances are characterized by strong general fund balances, good reserves, a low debt burden which amortizes rapidly, and minimal future capital needs;
--The district's elected officials and administrators remain committed to prudent financial management and recognize that most of the district's future financial flexibility is related to personnel expenditures;
--While Redding (70% of the district) has an increasingly diversified economy with growing wealth levels, the unincorporated portion (30% of the district) has a somewhat limited economy reliant on agriculture.
KEY RATING DRIVERS:
--Maintenance of solid general fund balances and reserves, despite potential state revenue volatility due to student enrollment trends;
--Maintenance of low debt burden.
SECURITY:
The bonds are secured by an annually levied, unlimited ad valorem property tax.
CREDIT SUMMARY:
The district covers most of the city of Redding (a northern California regional commercial hub) and unincorporated portions of Shasta County. While Redding's economy is increasingly diversified, unincorporated Shasta County remains heavily agricultural. The seasonal nature of agricultural work likely contributes to the district's below-average wealth indicators and high unemployment rate (15.2% in September 2010). Strong TAV growth through fiscal 2009 was followed by modest declines in fiscal years 2010 and 2011, largely due to the county's Proposition 8 rollbacks which will be recaptured when the property market recovers. The district is projecting a further modest TAV decline in fiscal 2012, followed by slow growth between fiscal years 2013 - 2016.
Between fiscal years 2007 and 2010, the district experienced a 21.9% decline in general fund revenues, as state revenue declines were only partially offset by increased federal funding. A further 4% decline is projected for fiscal 2011. A key factor is declining student enrollment since 2007 which is expected to persist through 2012 before flattening out in line with enrollment trends at the district's feeder elementary schools. Although the district has designated a general fund reserve ($2.7 million) to mitigate the negative impact of declining enrollment on the general fund, it is relying instead on personnel reductions through natural attrition, retirements, and layoffs.
The unreserved general fund balance in fiscal 2010 was $11.7 million (28% of spending), the result of steady fund balance increases since fiscal 2006 when the unreserved general fund balance was only $4.4 million (8.8% of spending). While the unreserved general fund balance is projected to continue growing in fiscal 2011 to $12.3 million, it is projected to decline thereafter to a still sound $7.2 million by fiscal 2013, largely due to student enrollment decline. In addition, the district maintains a $3.3 million reserve for unforeseen expenditures, which could be utilized for general fund purposes with a majority board vote. This reserve is expected to remain intact through fiscal 2013.
In line with the district's conservative financial management practices, the debt burden is low and there are no plans to issue additional debt. Overall net debt is $1,636 per capita, or 1.9% of TAV. The district's direct debt amortizes rapidly at 72.9% in 10 years. While the district makes its annual required CalSTRS and CalPERS pension contributions in full, it does have a significant unfunded liability for other post-employment benefits of $7.1 million.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., and IHS Global Insight
Applicable Criteria & Related Research:
--'Tax-Supported Rating Criteria' (Aug. 16, 2010);
--'U.S. Local Government Tax-Supported Rating Criteria' (Oct. 8, 2010).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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
Primary Analyst
Alan Gibson, +1-415-732-7577
Director
Fitch,
Inc., 650 California Street, 4th Floor, San Francisco, CA 94108
or
Secondary
Analyst
Andrew Ward, +1-415-732-5617
Associate Director
or
Committee
Chairperson
Kathy Masterson, +1-415-732-5622
Senior Director
or
Media
Relations:
Cindy Stoller, +1-212-908-0526
Email: cindy.stoller@fitchratings.com