|[November 19, 2012]
Fitch Rates Jurupa USD, CA's $23.8MM GO Refunding Bonds 'AA-'; Outlook Revised to Negative
SAN FRANCISCO --(Business Wire)--
Fitch Ratings assigns an 'AA-' rating to Jurupa Unified School District,
CA's (News - Alert) (the district) $23.8 million 2012 general obligation (GO) refunding
In addition, Fitch affirms the following rating at 'AA-':
--$53.1 million district GO bonds, series 2002, series 2004, and
refunding series 2011.
Purpose of Current Debt Issue: Advance refund the outstanding 2004
general obligation bonds and pay the costs of issuance. The bonds will
be sold via negotiation the week of Nov. 26.
The Rating Outlook is revised to Negative from Stable.
The bonds are secured by an unlimited ad valorem tax on taxable property
within the district.
KEY RATING DRIVERS
STRUCTURAL IMBALANCE: The Negative outlook reflects the district's
structural imbalance apparent in the fiscal 2013 budget, relatively
limited expenditure flexibility, and Fitch's view that ongoing revenue
pressures are likely due to the district's exposure to volatile state
funding despite the recent passage of Proposition 30.
HEALTHY FINANCIAL POSITION: The current rating is largely supported by
the district's satisfactory reserve levels and generally positive
financial margins maintained through conservative budgeting practices,
expenditure reductions, and use of federal stimulus funds.
STABILIZING TAX BASE: The district's tax base recorded two consecutive
years of very modest growth, pointing to some stabilization after three
years of declining to flat performance.
PRESSURED ECONOMY; ONGOING RECOVERY: Economic indicators point to an
ongoing economic recovery with a declining through still high
unemployment rate, a return to job growth, and stabilizing home values
that remain below pre-recession levels. The local economy retains
long-term strengths due to its proximity to major Southern California
labor markets and its valuable location for trade and transportation
ABOVE AVERAGE DEBT BURDEN: The district's overall debt burden is above
average primarily due to overlapping debt issuance. The district's
direct debt amortizes at a rapid rate.
WHAT COULD TRIGGER A RATING ACTION:
STRUCTURAL IMBALANCE: The district's inability to correct projected
operating deficits could result in a downgrade.
Jurupa Unified School District covers an approximately 44 square mile
area in northwest Riverside County. The district's enrollment in fiscal
2013 is projected at 19,586.
BUDGETARY IMBALANCE; REDUCED EXPENDITURE FLEXIBILITY
The district's budgetary estimates for fiscal 2013 improved dramatically
following voter approval of Proposition 30 (Prop. 30), avoiding the
significant midyear reduction in revenues included in the state's budget
if the measure had failed. However, even without the midyear revenue
cut, the district expects to incur a $6.4 million operating deficit
(after transfers) as reduced state funding, decreasing enrollment, and
the expiration of federal stimulus funds result in 12.1% less revenue
(budgeted) in fiscal 2013 compared to fiscal 2009.
Fitch expects the district's operations to remain pressured given its
reliance on state funding in light of longer-term state revenue and
budgeting uncertainties despite the recent passage of Prop. 30.
Over the past several years the district reduced expenditures by
reducing its workforce, raising class sizes, obtaining concessions from
labor groups that included salary freezes and furlough days, and other
actions. In part due to the significant steps already taken, Fitch views
the district's expense reduction options going forward as relatively
limited with class days already at the state required minimum and
remaining categoricl flexibility insufficient to fully offset the
Fitch notes that while the impasse with the teachers' union was
successfully mediated for fiscal 2013, the district agreed to increase
its health benefit spending above the established per employee cap.
Fitch expresses concern about what it perceives as recent labor tensions
as the inability to obtain needed concessions from labor could restrict
future expenditure flexibility.
SOLID FINANCIAL POSITION; CONSERVATIVE BUDGETING PRACTICES
The district's financial position remains solid at the end of fiscal
2012 (unaudited) with a projected unrestricted ending fund balance
(combined committed, assigned, and unassigned balances under GASB 54) at
$20.3 million or 13.2% of spending.
Fitch views the current unrestricted balance as a satisfactory mitigant
to credit concerns, including state funding risks, and expects it to
remain adequate following the projected spend down in fiscal 2013 to
10.5% of spending. However, the Negative Outlook reflects Fitch's
concerns that the district may not have sufficient tools to cure the
projected structural imbalance in fiscal 2013 and future years.
The district has shown a willingness and ability to reduce expenditures
to match declining revenues by recording operating surpluses (net of
transfers) in five of the past six fiscal years (including unaudited
fiscal 2012). Fitch views an operating deficit in fiscal 2013 as likely,
but notes that the district has historically outperformed budgetary
estimates by a significant margin. For example, the fiscal 2011 and 2012
budgets projected operating deficits of $7.3 million and $7.2 million,
respectively but recorded operating surpluses of $6.3 million (4.2% of
fiscal 2011 spending) and $2.6 million (1.7% of unaudited fiscal 2012
PRESSURED ECONOMY; STABILIZING TAX BASE
The district is part of a large and diverse regional economy that is
recovery at a moderate pace although it remains weak following the
housing-led recession. The county's unemployment rate declined to a high
12.8% (August 2012) after recording year-over-year employment growth of
2.2% and a modest increase in labor force.
Fitch views the region's economy as vulnerable and expects the return to
former peak levels of employment and economic activity to be a lengthy
process. Nevertheless, the area benefits from several advantages
including its important location for transportation and distribution,
housing affordability and land available for development, and its
proximity to several large and diverse Southern California labor markets.
The district's tax base recorded its second consecutive year of very
modest growth with a 0.8% increase in taxable assessed value (AV) for
fiscal 2013. While the district's AV remains 8.6% below fiscal 2008
levels, the recent performance supports other data showing a
stabilization of home values in the area. The district's tax base
remains non-concentrated with the top ten taxpayers, largely consisting
of industrial owners, comprising approximately 12.5% of fiscal 2012 AV.
The district's boundary largely consists of the recently incorporated
cities of Eastvale and the City of Jurupa Valley. The district operates
16 elementary schools, three middle schools, three comprehensive high
schools, one continuation high school, and one adult education program.
MANAGEABLE DEBT LEVELS
The district's direct debt consists of GO bonds, certificates of
participation, and lease-backed debt for energy improvements and a
warehouse and training facility. The district does not retain any
additional GO debt authorization and does not plan on additional debt
issuances over the next couple of years. Outstanding principal amortizes
at a rapid rate with approximately 67% retired within 10 years.
The district's overall debt burden is above average at $5,132 per capita
and 6.7% of AV due to overlapping issuances, particularly from tax
allocation bonds (not reported previously).
The district participates in two statewide pension plans and makes the
full annual contribution. In fiscal 2011, the district's combined
contribution to the two plans was approximately $10.1 million or a
manageable 6.7% of spending. The district also offers other
post-employment benefits (OPEB). As of July 1, 2012, the district had an
unfunded liability of $25.6 million.
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 (News - Alert) Global Insight, National
Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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