Fitch Rates Grant Joint Union High School Dist, California, Approx $34MM GO Bonds 'A'.
The bonds are expected to be sold through negotiation during the week of June 17th. The bonds are secured by an unlimited ad valorem tax. Proceeds from the bonds will be used to finance specific construction and modernization projects approved by the voters under a 2006 $230 million voter authorization, primarily construction of the East Natomas Education Complex.
The 'A' rating reflects the district's historic assessed valuation (AV) growth, low taxpayer concentration, and sound financial position along with high leverage of the tax base, slow debt amortization, and the currently weak Sacramento area housing market. The Evolving Rating Outlook reflects the uncertainties inherent in the Nov. 6, 2007 voter authorization to unify the district with three of its feeder elementary school districts. While the unification has no legal challenges and does not affect the tax base for the district's GO bonds, it will take time for the new unified district's operations, management, and financial trends to become clear.
Although general fund balances are adequate with strong state funding support, Fitch believes the district's practice of certificates of participation (COPs) as bridge financing until AV generates enough property tax revenues to support GO bonds presents risks. Although the district believes this practice provides protection against construction cost increases, bridge financing generates additional borrowing costs and has the potential to create an operational burden if AV growth is insufficient to allow the COPs to be refunded with GO bonds. The already evident housing construction slowdown will impact near-term enrollment, which could further pressure financial operations given the already declining trend.
On June 6, 2006, district voters authorized the issuance of up to $230 million in GO bonds. This authorization exceeds the district's capacity to fund debt within California's Proposition 39 tax rate limit of $30 per $100,000 AV. Therefore, to date, the district has issued $55.0 million in GO bonds, plus interim bridge funding comprising $133 million issued in COPs sold during 2007 for the East Natomas project. Now, due to stronger than projected AV increases, the district has the tax limit capacity to issue $34 million in GO bonds. The district will refund the remaining outstanding COPs with GO bonds when tax base growth permits.
The district is located in 100 square miles of Sacramento and Placer counties, and operates seven junior high schools, four comprehensive high schools, one special education center, and five alternative programs. Fiscal 2008 student enrollment is 11,525, and has declined for two consecutive fiscal years. The district is projecting that enrollment will grow to 13,000 by 2012. In order to meet the needs of its current and future student population, the district has a 10 year, $360 million capital improvement program which includes construction of a new junior high and high school complex called East Natomas Education Complex.
While the local housing market's current weakness has resulted in new home construction at a near standstill, the district reports more than 14,000 new residential units currently working their way through the Sacramento and Placer County planning processes. The district expects that current market conditions will delay but not cancel these projects, which are projected to increase AV by almost $5 billion. The timing of when this additional AV goes onto the tax rolls will affect when the district is able to issue the authorized but unissued $141 million of election of 2006 GO bonds.
The district's total general fund balances are sound. After declines in fiscals 2004 and 2005, the total general fund balance improved in fiscal 2007 to $14.2 million or 11.3% of spending. This was due primarily to increased state funding and expenditures growing at a slower rate than revenues.
Net direct debt is a moderate $2,113 per capita or 3.1% of AV. Overall net debt, which takes overlapping debt into account, is a much higher $3,960 per capita or 5.8% of AV.