Fitch Affirms Murray City School District, UT's GO Bonds at 'AAA'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings has affirmed its underlying 'AAA' rating on the following Murray City School District, UT's (the district) general obligation bonds (GO).

--$40.9 million GO bonds, series 2012A and 2012B;

--$5.5 million GO bonds, series 2002.

The GO bonds also carry an 'AAA' rating reflecting the guaranty provided by the Utah School Bond Default Avoidance Program.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an unlimited ad valorem tax on all taxable property within the district. The bonds are additionally secured through the Utah School Bond Default Avoidance Program.

KEY RATING DRIVERS

HEALTHY FINANCIAL PROFILE: The district's financial profile remains healthy with strong unrestricted general fund balances, consistently balanced financial performance, a good degree of financial flexibility, and significant restricted reserves to finance capital projects.

IMPROVED FINANCIAL PERFORMANCE: The district raised property taxes, benefited from increased state funding, and trimmed expenditures to return to positive operating margins in fiscal 2013 and 2014 (unaudited) after recording an atypical, but modest, operating deficit in fiscal 2012.

LOW DEBT BURDEN: The district's debt management practices are conservative and the district's overall debt burden is expected to remain low after including an expected issuance of $8 million in lease revenue bonds in 2014.

DIVERSE, REGIONAL ECONOMY: The local area is part of the economically diverse Salt Lake City metropolitan region and serves as a retail, healthcare, and employment center. The city benefits from above average employment growth and a low unemployment rate (3.4% in May 2014).

STABLE SCHOOL DISTRICT: District enrollment is relatively stable with some potential growth expected over the next few years with ongoing development in the largely built-out city. District facilities have sufficient capacity to absorb the expected growth.

RATING SENSITIVITIES:

The rating is sensitive to shifts in fundamental credit characteristics including the district's healthy financial profile. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

STABILIZED FINANCIAL PERFORMANCE

The district returned to positive financial performance in fiscals 2013 and 2014 (unaudited) after recording an operating deficit of $914,000 (1.4% of spending) in fiscal 2012. The improvement was driven by increased property taxes, an improved state funding environment, and efforts by the district to constrain and trim expenditures. The results were more in-line with the district's historical financial performance with operating surpluses of $868,000 (2.3% of spending) and $117,000 in fiscals 2013 and 2014, respectively.

HEALTHY FINANCIAL PROFILE

The district's financial profile remains healthy with strong reserve levels and a good degree of financial flexibility. At the end of fiscal 2013, the unrestricted general fund balance was $9.2 million or a strong 24.2% of spending. Based on unaudited information, Fitch expects the unrestricted balance will increase to approximately $9.3 million in fiscal 2014.

The district retains significant flexibility to balance financial operations in future fiscal years if it chooses to employ them. Among the available options is the ability to raise class sizes, reduce compensated teacher days, and increase property taxes. Fitch notes that the district has utilized each of these options to varying degrees in the past to maintain balanced financial operations.

MANAGEABLE LONG-TERM LIABILITIES

The district's overall debt burden is low at approximately $1,743 per capita and 1.24% of fiscal 2014 assessed value. The amortization rate is just below average with approximately 46% of outstanding principal retired within 10 years. Overall debt ratios for the district are expected to remain low after including the district's plans to issue $8 million in lease revenue bonds in 2014 to partially fund a new transportation, warehouse, and district office complex.

The district participates in the Utah Retirement Systems defined benefit pension plan, which is 80.9% based upon a Fitch-adjusted 7% rate of return assumption. Pension contributions for the district amounted to $4.2 million or 7.9% of governmental spending in fiscal 2013. While somewhat elevated, the annual contribution amount is expected to remain relatively stable over the next few years.

Other post-employment benefit (OPEB) contributions are made on a pay-as-you-go basis with the fiscal 2013 contribution equal to about $408,000 or 0.8% of governmental spending. At the end of fiscal 2013, the unfunded actuarial liability for the closed OPEB plan was approximately $5.1 million, down from the previously estimated $6.2 million in fiscal 2011. The district has committed approximately $5.2 million of its unrestricted general fund reserves towards retiree benefits, although management anticipates continuing to pay the annual contribution from operations and does not expect to spend down the reserve.

DIVERSE, REGIONAL ECONOMY

Murray City School District encompasses an area of approximately 10 square miles that includes most of Murray City, which is located in the economically diverse greater Salt Lake City area. The district operates seven elementary schools, two junior high schools, and one high school. District enrollment levels have been relatively stable over the past three years with an enrollment of approximately 6,351 in 2013. The district expects manageable enrollment growth over the next few years as a residential development project within the district's boundaries is completed.

Murray City benefits from its strategic location in Salt Lake County and position as a regional retail, healthcare, and employment center. The local economy benefits from above average employment and labor force growth along with a low unemployment rate (3.4% in May 2014). In addition, the property market appears to have stabilized. Rising home values and some new development drove taxable assessed value growth of 4.5% and 4.2% in tax years 2013 and 2014, respectively.

Additional information is available at 'www.fitchratings.com'.

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 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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=891014

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Contacts

Fitch Ratings
Primary Analyst
Matthew Reilly, +1-415-732-7572
Director
Fitch Ratings, Inc.
650 California St., 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Karen Ribble, +1-415-732-5611
Senior Director
or
Committee Chairperson
Jessalynn Moro, +1-212-908-0608
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Matthew Reilly, +1-415-732-7572
Director
Fitch Ratings, Inc.
650 California St., 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Karen Ribble, +1-415-732-5611
Senior Director
or
Committee Chairperson
Jessalynn Moro, +1-212-908-0608
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com