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Fitch Rates $38MM Temecula Valley USD, CA's GOs 'AA-'; Outlook StableFitch Ratings has assigned a 'AA-' rating to the following Temecula Valley Unified School District, California's: --$37.5 million general obligation bonds, 2012 election, series 2016-B. The bonds will sell via negotiated sale the week of May 2nd. Proceeds will be used to finance and make improvements to eligible public schools facilities. Fitch also has affirmed the district's 'AA-' Issuer Default Rating (IDR) and the 'AA-' rating on: --$34.8 million general obligation bonds, 2012 election, series 2013-A. The Rating Outlook is Stable
SECURITY KEY RATING DRIVERS The 'AA-' rating is based on solid long-term revenue growth prospects pursuant to the state's guaranteed funding formula, the district's solid expenditure flexibility enabled by good labor relations, management's willingness and ability to make spending cuts as necessary to maintain a targeted 10% average financial cushion, and the district's moderate long-term liability burden relative to its resource base. The district's local economy, located mainly in the city of Temecula, benefits from high wealth levels, low unemployment, and ready access to three large and diverse employment markets. The city is largely a wealthy bedroom community, located within commuting distance to the large and diverse employment markets of Los Angeles, Orange (News - Alert) County and San Diego. Tourism is also a major draw, with a large Native American casino and a significant wine producing industry; the construction of a new regional hospital will contribute to greater diversification. The district's population has remained steady although school enrollment has been experiencing slight decreases.
Revenue Framework: 'a' factor assessment
Expenditure Framework: 'aa' factor assessment
Long-Term Liability Burden: 'aa' factor assessment
Operating Performance: 'a' factor assessment
RATING SENSITIVITIES ADEQUATE FINANCIAL CUSHION: The 'AA-' rating and Stable Outlook assume management action to maintain fund balance throughout the economic cycle at levels consistent with Fitch's current evaluation of the district's financial resilience. Failure to do so could negatively affect the operating performance assessment and the overall rating.
CREDIT PROFILE
Revenue Framework State funding and local property taxes provide the majority of district revenues, which are ultimately determined by a formula based on ADA and overall state revenues. Although the district has experienced a consistent increase in revenues in FY 2015 and 2016, enrollment continues in a slight downward trend. Historical revenue growth has exceeded both inflation and U.S. economic performance. Future revenue performance will be based on growth trends in local property taxes and state per pupil funding levels may peak over the medium term. As the state's economy continues to experience growth, the district in-turn is expected to receive increased revenue through the local control funding formula (LCFF). LCFF is to be fully funded by fiscal year 2020-21. In each year until then the state will provide a funding percentage or 'gap funding' that will move the district closer to 100% of the new funding model. The district has only received 51% of it due gap funding to date.
Expenditure Framework The district counts on a solid ability to make cuts in personnel costs via labor concessions or changes to headcount. Fixed costs for debt service and retiree benefits are a low burden on revenues. The teacher's pension contribution rates are scheduled to rise but remain manageable. OPEB is not a material consideration as only five employees qualify.
Long-Term Liability Burden
Operating Performance Fitch's scenario analysis tool indicates that in an unaddressed moderate economic downturn the district's reserves would drop quickly. However, the district has faced comparable stress scenarios in the past, which it absorbed by aggressively cutting expenditures relative to revenue declines and funding deferrals. Fitch expects that the district will take such responsive offsetting action in future downturns. Management practices overall have been prudent in addressing revenue contraction in past years. The district's operational deficits in recent years have been manageable and somewhat offset by the current and projected rise in revenues. The district's calculated decision to draw down on fund balances does not compromise the 8%-10% reserves level the district has consistently targeted. Additional information is available at 'www.fitchratings.com'. In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis.
Applicable Criteria
Additional Disclosures 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 (News - Alert) 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. View source version on businesswire.com: http://www.businesswire.com/news/home/20160426006981/en/ |