Fitch Ratings affirms the following Rocklin Unified School District (USD), California rating:
--$3.4 million general obligation (GO) bonds, series 1991C at 'AA'.
The Rating Outlook is revised to Stable from Negative.
SECURITY
The bonds are secured by an unlimited ad valorem property tax pledge.
KEY RATING DRIVERS
STRONG GENERAL FUND BALANCES: The district's financial position improved notably in fiscal 2011 as evidenced by a strong unrestricted general fund balance which the district projects will decline only slightly in fiscal 2012. While outyear projections show further unrestricted general fund balance declines, they remain well above state minimum reserve requirements.
BUDGETARY FLEXIBILITY OFFSETS LIQUIDITY CONCERNS: The revision to a Stable Outlook recognizes that the district's exposure to state funding deferrals and potential reductions is offset by considerable budgetary flexibility in both expenditure reduction options and availability of liquidity support.
ABOVE-AVERAGE SOCIOECONOMIC CHARACTERISTICS: Socioeconomic indices are generally favorable, with above-average wealth levels and below-average unemployment, and the property market is beginning to improve.
MANAGEABLE DEBT: Direct debt levels are moderately low, both on a per capita basis and as a measure of the tax base, with limited future debt plans.
WELL-MANAGED EMPLOYEE BENEFIT LIABILITIES: The district's pension and other post-employment benefit (OPEB) obligations are well-managed; the district has created an OPEB benefit trust to pre-fund its OPEB liabilities.
CREDIT PROFILE
CONSTRAINED FINANCES
The district's liquidity position weakened materially in fiscal 2010, due to a $1.8 million general fund drawdown and delayed state payments. Consequently, the size of the district's tax revenue anticipation note (TRAN) borrowing in fiscal 2011 more than doubled, to $10 million from $4.7 million.
The district's financial situation improved in fiscal 2011, achieving a net operating surplus of $3.6 million (5.1% of spending) and a strong unrestricted general fund balance of $12.3 million (17.5% of spending). The district benefited from ongoing student enrollment increases and cost savings totaling $2.5 million, resulting mostly from program and service reductions and one-time compensation concessions made by all employees, including unpaid furlough days. The district's stronger financial results at fiscal 2011 year-end, coupled with still constrained liquidity (largely due to increased state funding deferrals), allowed the district to somewhat scale back its TRAN borrowing in fiscal 2012 to $6.4 million.
The district projects that it will end fiscal 2012 with a $1.3 million net operating deficit after transfers, but a still healthy unrestricted general fund balance of $11.9 million or 15.4% of spending. Fitch notes that, due to additional state funding deferrals, the district expects to end fiscal 2012 needing a $2.5 million interyear loan from the district's capital funds. While this temporary loan is expected to be repaid in September 2012 on receipt of the state's deferred payments, it demonstrates the general fund liquidity pressures facing the district in the context of constrained state funding.
ABOVE-AVERAGE SOCIOECONOMIC CHARACTERISTICS
Located in the southwest portion of Placer County, the district is located 14 miles northeast of Sacramento. The greater Sacramento area economy continues to struggle and remains vulnerable to further economic dislocation due to its large cohort of government workers facing employment uncertainty given state budget challenges. However, the district's unemployment rate (7.6% in March) is well below the regional average (11.6%). Resident wealth levels are above average, with median household income at 132% of the state and 155% of the nation.
After experiencing steady growth, taxable assessed valuation (TAV) declined a cumulative 13.9% during fiscal years 2010-2012. In fiscal 2013, however, the district is assuming 2% TAV growth due to limited new development and positive absorption of some vacant commercial properties locally.
MANAGEABLE DEBT
Direct debt levels are moderately low at $2,695 per capita or 1.5% of TAV. Debt amortization is average, and no future GO borrowing is currently planned, although the district might issue new debt to partially fund construction of a new elementary school in a few years time.
The district's pension liabilities are limited to its participation in the state pension plans (CalPERS and CalSTRS). The district's annual contributions to those plans amounted to a manageable 6.6% of general fund spending in fiscal 2011. The district has partially pre-funded its closed-plan OPEB liabilities, by setting up a benefit trust which was reported at 58% funded in fiscal 2011. The OPEB ARC for fiscal 2011 of $678,496 represented less than 1% of general fund spending.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from CreditScope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, and National Association of Realtors.
Applicable Criteria and Related Research:
Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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