Fitch Downgrades South Whittier Elementary School District (CA) $21.1MM ULT GOs to 'A'

NEW YORK--(BUSINESS WIRE)--In the course of routine surveillance, Fitch Ratings downgrades to 'A' from 'A+' its rating on South Whittier Elementary School District, California's (the district) $21.1 million in outstanding unlimited tax (ULT) general obligation bonds (GOs) (Election 2004, series A and Election 1998, series A). The Rating Outlook remains Stable.

The downgrade to 'A' from 'A+' reflects significant projected declines in the district's unreserved general fund balance, high general fund dependence on state revenue in an severely stressed state fiscal environment, and a worsening trend in student attendance that drives an uncertain revenue outlook given the district's state revenue limit funding based on a per-pupil formula. The Stable Outlook reflects the district's skillful financial management, efforts to aggressively curtail spending, and comprehensive planning to preserve district liquidity in the event of further state revenue deferments or reductions.

The district's financial position has weakened since Fitch's last review. Audited unreserved general fund balance levels fell to 8.4% of spending and transfers out, from 10.1% in FY04. Two consecutive actual and budgeted draw-downs ($2.7 million drawdown in FY09 and $400,000 in FY10) are projected to reduce unreserved fund balance to 5.2% of spending.

Declaring a formal Fiscal Emergency, the district's board has taken wide-ranging action to significantly curtail spending in FY10 and continue reductions through FY14. Citing the formal emergency, the district has elected to suspend certain aspects of its agreements with bargaining units, cutting teacher, management and support staff salaries by at least 9% across the board, and laying off almost 12% of its full-time equivalent employees. Salary growth is also now formally frozen. These actions were driven by the state's deferral of three annual FY10 aid payments to the district into FY11, and general cuts in categorical and other funding on which the district is highly dependent. Both the district's labor unions have filed unfair labor action petitions with the state's Public Employee Relations Board.

South Whittier Elementary School District is located in Los Angeles County, California. It encompasses parts of the cities of Whittier and Santa Fe Springs, but mostly contains largely unincorporated communities. The tax base is relatively limited, demonstrated by the district's high dependence on the state for its general fund revenue (73% of total). The demographic profile of the district is largely Hispanic, and management reports that economic pressures have been such that student families are leaving the district for other nations, further depressing the district's enrollment and thus its share of constitutionally-provided per-pupil revenues. The district's direct net debt has remained stable since the bonds were issued, from $713 per capita in 2005 to $741 per capita today.

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