26.08.2015, 09:08
Fitch Affirms Hillsborough CSD, CA's GOs at 'AAA'; Outlook Stable
OREANDA-NEWS. Fitch Ratings has affirmed Hillsborough City School District, California's (the district) general obligation (GO) bonds at 'AAA' as follows:
--$29.9 million (election of 2002) GO bonds, series B.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from an unlimited property tax on all taxable property within the district.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: The 'AAA' rating reflects the district's strong financial position, exhibited by its historically favorable operations, sound reserve levels, and a high degree of remaining expenditure flexibility.
DIVERSE REVENUES; STRONG COMMUNITY SUPPORT: The district benefits from more diverse revenues than most school districts, including a parcel tax levied in perpetuity and considerable private foundation revenues.
WEALTHY, RESILIENT ECONOMY: The City of Hillsborough enjoys very strong economic features including extremely high wealth levels, ready access to the large and diverse San Francisco Bay Area employment market, a strong housing market, and a resilient tax base at record high levels.
MODERATE DEBT: Debt levels are manageable with slow amortization. Fitch believes the district maintains ample financial flexibility to absorb expected significant increases in pension costs due to the state's goal of having annual payments made on an actuarial rather than statutory basis.
RATING SENSITIVITIES
The rating is sensitive to changes in the district's strong financial operations and management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The district educates approximately 1,500 students in the wealthy suburban community of Hillsborough (the city). The city serves approximately 11,200 residents located in San Mateo County, and benefits from good access to the employment markets of San Francisco and San Jose via two major freeways.
STRONG FINANCIAL MANAGEMENT
The district's strong financial position stems in part from its basic aid status, whereby the district's local tax base generates more revenues than would be guaranteed by the state under the state education funding formula. Revenues in excess of the minimum guarantee are retained by the district for any operational purpose. These surplus revenues are projected to be $5.3 million in fiscal 2015 (21% of estimated general fund spending). The state's local control funding formula (LCFF) does not materially affect the district's financial position as state funding makes up a small portion of the district's total funding.
The district estimates fiscal 2015 general fund operations produced an $800,000 operating deficit (after transfers), decreasing the unrestricted fund balance to $3.2 million, a still sound 12.6% of projected spending. The drawdown was primarily driven by the restoration of certain programs and the addition of new personnel. The district also benefits from a $534,000 special reserve for noncapital spending that could be used for any operational purpose. This reserve raises the district's total financial cushion to a solid $3.7 million (14.8% of spending).
The district's multiyear projections show stable operations through the fiscal 2018 forecast period, with reserves remaining sound. The district's forecasts have tended to be conservative, but the current forecast does not include wage increases, which are likely to continue as the district negotiates new labor agreements. As a potential offset to increasing expenditures, AV growth in fiscal 2016 exceeds management's budgeted estimates which will have a positive impact on budgeted revenues.
DIVERSE REVENUES; STRONG COMMUNITY SUPPORT
The district receives revenue from a parcel tax levied in perpetuity with an annual inflationary escalator, equaling $2.2 million in fiscal 2015, or 9.4% of general fund spending. The district also receives $3.5 million annually, or 16% of estimated fiscal 2015 general fund expenditures, from a private foundation, which has historically shown consistent support of the district's needs. These combined revenue sources raise per pupil funding to very high levels compared to most California districts, providing the district with a high degree of financial flexibility and protection against fluctuations in state revenues.
WEALTHY, RESILIENT ECONOMY
Wealth levels in the district are extremely high, with per capita income levels fourfold above state and national averages, and an exceptionally high per capita assessed value (AV) of $657,000. County unemployment has consistently performed favorably, declining to 3.2% in May 2015 from 4% the prior year, well below the state (6.5%) and the nation (5.6%).
The district's tax base is almost entirely residential and proved resilient during the national economic downturn, declining just 0.1% in fiscal 2011, with four years of subsequent gains. Fiscal 2016 secured AV increased a healthy 8.1% following a 6.6% gain the year prior.
MODERATE DEBT
The district's debt profile is manageable at 2.4% of AV, but quite high at nearly $16,000 per capita. Concerns about elevated per capita debt levels are offset by the extremely high resident wealth and income. Amortization is slow, with only 37% of principal retired within 10 years, due largely to the issuance of capital appreciation bonds.
The board prudently took action in fiscal 2012 to fully fund its OPEB liability by fiscal 2027 at the latest by implementing a plan that formulaically sets OPEB payments based on the district's unappropriated ending fund balance. The district will consider placing such funds in an irrevocable trust, but has not yet elected to do so.
The district's obligations to retirees are manageable but likely to pose an increasing burden due to participation in the California State Teachers' Retirement System (CalSTRS). The district also participates in the California Public Employees' Retirement System (CalPERS). Whereas contribution rates for CalPERS are actuarially based, those for CalSTRS are set by statute and were below the level required to amortize the system's unfunded liability for some time. CalSTRS reported a funded ratio of 76.5% for fiscal 2014. Fitch estimates that funded ratio to be 72.5% based on a more conservative 7% rate of return assumption. School districts' CalSTRS contribution rates will rise significantly over the coming years to the actuarially required level.
--$29.9 million (election of 2002) GO bonds, series B.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from an unlimited property tax on all taxable property within the district.
KEY RATING DRIVERS
STRONG FINANCIAL MANAGEMENT: The 'AAA' rating reflects the district's strong financial position, exhibited by its historically favorable operations, sound reserve levels, and a high degree of remaining expenditure flexibility.
DIVERSE REVENUES; STRONG COMMUNITY SUPPORT: The district benefits from more diverse revenues than most school districts, including a parcel tax levied in perpetuity and considerable private foundation revenues.
WEALTHY, RESILIENT ECONOMY: The City of Hillsborough enjoys very strong economic features including extremely high wealth levels, ready access to the large and diverse San Francisco Bay Area employment market, a strong housing market, and a resilient tax base at record high levels.
MODERATE DEBT: Debt levels are manageable with slow amortization. Fitch believes the district maintains ample financial flexibility to absorb expected significant increases in pension costs due to the state's goal of having annual payments made on an actuarial rather than statutory basis.
RATING SENSITIVITIES
The rating is sensitive to changes in the district's strong financial operations and management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The district educates approximately 1,500 students in the wealthy suburban community of Hillsborough (the city). The city serves approximately 11,200 residents located in San Mateo County, and benefits from good access to the employment markets of San Francisco and San Jose via two major freeways.
STRONG FINANCIAL MANAGEMENT
The district's strong financial position stems in part from its basic aid status, whereby the district's local tax base generates more revenues than would be guaranteed by the state under the state education funding formula. Revenues in excess of the minimum guarantee are retained by the district for any operational purpose. These surplus revenues are projected to be $5.3 million in fiscal 2015 (21% of estimated general fund spending). The state's local control funding formula (LCFF) does not materially affect the district's financial position as state funding makes up a small portion of the district's total funding.
The district estimates fiscal 2015 general fund operations produced an $800,000 operating deficit (after transfers), decreasing the unrestricted fund balance to $3.2 million, a still sound 12.6% of projected spending. The drawdown was primarily driven by the restoration of certain programs and the addition of new personnel. The district also benefits from a $534,000 special reserve for noncapital spending that could be used for any operational purpose. This reserve raises the district's total financial cushion to a solid $3.7 million (14.8% of spending).
The district's multiyear projections show stable operations through the fiscal 2018 forecast period, with reserves remaining sound. The district's forecasts have tended to be conservative, but the current forecast does not include wage increases, which are likely to continue as the district negotiates new labor agreements. As a potential offset to increasing expenditures, AV growth in fiscal 2016 exceeds management's budgeted estimates which will have a positive impact on budgeted revenues.
DIVERSE REVENUES; STRONG COMMUNITY SUPPORT
The district receives revenue from a parcel tax levied in perpetuity with an annual inflationary escalator, equaling $2.2 million in fiscal 2015, or 9.4% of general fund spending. The district also receives $3.5 million annually, or 16% of estimated fiscal 2015 general fund expenditures, from a private foundation, which has historically shown consistent support of the district's needs. These combined revenue sources raise per pupil funding to very high levels compared to most California districts, providing the district with a high degree of financial flexibility and protection against fluctuations in state revenues.
WEALTHY, RESILIENT ECONOMY
Wealth levels in the district are extremely high, with per capita income levels fourfold above state and national averages, and an exceptionally high per capita assessed value (AV) of $657,000. County unemployment has consistently performed favorably, declining to 3.2% in May 2015 from 4% the prior year, well below the state (6.5%) and the nation (5.6%).
The district's tax base is almost entirely residential and proved resilient during the national economic downturn, declining just 0.1% in fiscal 2011, with four years of subsequent gains. Fiscal 2016 secured AV increased a healthy 8.1% following a 6.6% gain the year prior.
MODERATE DEBT
The district's debt profile is manageable at 2.4% of AV, but quite high at nearly $16,000 per capita. Concerns about elevated per capita debt levels are offset by the extremely high resident wealth and income. Amortization is slow, with only 37% of principal retired within 10 years, due largely to the issuance of capital appreciation bonds.
The board prudently took action in fiscal 2012 to fully fund its OPEB liability by fiscal 2027 at the latest by implementing a plan that formulaically sets OPEB payments based on the district's unappropriated ending fund balance. The district will consider placing such funds in an irrevocable trust, but has not yet elected to do so.
The district's obligations to retirees are manageable but likely to pose an increasing burden due to participation in the California State Teachers' Retirement System (CalSTRS). The district also participates in the California Public Employees' Retirement System (CalPERS). Whereas contribution rates for CalPERS are actuarially based, those for CalSTRS are set by statute and were below the level required to amortize the system's unfunded liability for some time. CalSTRS reported a funded ratio of 76.5% for fiscal 2014. Fitch estimates that funded ratio to be 72.5% based on a more conservative 7% rate of return assumption. School districts' CalSTRS contribution rates will rise significantly over the coming years to the actuarially required level.
Комментарии