SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has assigned an underlying rating of 'AAA' to the following Canyons School District Board of Education (the district), Utah bonds:
--$42 million general obligation (GO) bonds, series 2015.
The bonds will be sold by competitive bid on March 26, 2015. Proceeds will be used to finance various capital projects.
Fitch has also affirmed the following underlying ratings:
--$190.9 million GO bonds, series 2011, 2012, and 2013 at 'AAA'.
The Rating Outlook is Stable.
The underlying ratings and Outlook reflect the district's credit quality without consideration of the guaranty provided by the Utah School Bond Default Avoidance Program.
SECURITY
The bonds are repayable from the proceeds of an ad valorem tax levied at a rate sufficient to pay principal and interest.
KEY RATING DRIVERS
SOLID FINANCIAL POSITION: The district ended its fifth fiscal year of operations with a strong unrestricted general fund balance and ample liquidity and borrowable resources.
CONTINUED FINANCIAL FLEXIBILITY: The district retains the flexibility to increase tax rates, make staff reductions, modify labor agreements, and adjust class sizes if necessary.
MANAGEABLE LIABILITIES AND CAPITAL NEEDS: The district's debt burden is low and its carrying costs are manageable. The district has identified significant facility repair and replacement costs, but it is not being pressured by student enrollment growth and has sufficient facility capacity.
SOMEWHAT MIXED SOCIOECONOMIC CHARACTERISTICS: The value of the district's tax base has rebounded and the district benefits from its proximity to the Salt Lake County economic hub. Nevertheless, socioeconomic characteristics vary markedly among the district's component communities.
RATING SENSITIVITIES
The rating is sensitive to fundamental changes in financial management and performance. Fitch does not expect the district to alter its current conservative approach.
CREDIT PROFILE
Canyons School District covers 192 square miles and had a 2015 enrollment of 33,676 students attending 46 schools and an adult and community education program. It is the fifth largest school district in Utah.
SOLID FINANCIAL POSITION
The district ended fiscal 2014 with a strong unrestricted general fund balance of almost $72 million or 32.6% of spending, very slightly down from $72.5 million (34.1%) the year prior.
The district expects to end fiscal 2015 by adding between $2 million and $4 million to its unrestricted general fund balance due to a combination of revenue increases and under-expenditures. Fitch considers this expectation to be reasonable in light of the district's past budgetary outperformance. Similarly, the district is likely to outperform its general fund balance draw down projections in each of the following three fiscal years given the conservative assumptions used. Nevertheless, there could be some reduction due to delaying property tax rate increases and labor cost inflation. Fitch is not concerned about small variations in annual results given the very strong general fund balances and demonstrated ability to control both spending and revenues. The district intends to continue rolling forward its fully funded 5% economic stabilization reserve and fully funded OPEB reserve as part of its unrestricted general fund balance.
The district experienced tax rate increases in fiscal years 2010-2013 totaling 17.2%. While the district retains the option to increase its operating tax rate further given the significant room remaining under its tax rate caps, it does not expect to do so in the near term.
CONTINUED FINANCIAL FLEXIBILITY
In addition to the district's healthy general fund balances and tax rate flexibility, the district has considerable financial flexibility related to staffing levels, class sizes, and provision of support services. Strong liquidity comes from general fund cash and investments, and from the capital outlay fund. The latter includes monies generated from the capital tax levy that could be available for general fund support in an emergency situation if the state approved the necessary waiver. Including all governmental funds, the district has access to $225.9 million in cash and investments, although this amount is likely to decline as capital outlay funds are utilized.
MANAGEABLE LIABILITIES AND CAPITAL NEEDS
Until fiscal 2010, Canyons School District's territory was part of a larger Jordan School District. Holders of the original Jordan School District's GO bonds benefit from an unlimited property tax levy on the aggregate TAV within its former more extensive boundaries. Both the debt and the TAV were divided proportionately between the two districts based on the TAV in the year immediately preceding the division. Canyons School District's share is 58%. Each district is legally obligated to tax the residents within its boundaries for its share of the outstanding debt. Salt Lake County collects the property tax revenues from within each school district's boundaries and distributes those revenues to the two school districts. Jordan School District then invoices Canyons School District for its share of the full debt service payment. Repayment of the joint debt continues to proceed smoothly and recently the two school districts worked together on GO refunding bonds for interest savings.
In June 2010, 50.7% of Canyons School District voters approved a $250 million GO bond authorization for school capital improvement projects. The series 2015 bonds will be the fourth and final issuance under that authorization. The district is currently updating its capital improvement plans given that its current bond-funded projects will all be completed by 2018. The district will be considering the timing and size of a future bond election to support its future capital improvement needs. However, since the district is not being pressured by student enrollment growth and it has sufficient facility capacity, it can plan its capital improvement program and future bond issuance plans in stages to avoid pressuring local taxes.
The district intends to draw down on its capital outlay fund, which ended fiscal 2014 with a balance of $109.7 million, to around $32 million-$37 million by fiscal years 2018 and 2019. This will allow successful completion of its current bond-funded capital improvement project commitments while maintaining funds sufficient to meet ongoing maintenance, upgrade, and emergency needs in conjunction with annual revenues and future bond issuances.
Overall debt is a low $1,881 per capita and 1.6% of market value. Debt amortization is average at 56.6% in 10 years. The district's OPEB actuarial accrued liability is currently fully funded. The district's fiscal 2014 carrying costs related to annual debt service, annually required pension contributions, and OPEB payments amounted to a manageable 17.1% of total governmental spending.
SOMEWHAT MIXED SOCIOECONOMIC CHARACTERISTICS
Canyons School District is primarily residential with an established commercial base, and it benefits from being an integral part of the Salt Lake City metro economy. Salt Lake County's unemployment rate declined further to 3.2% in November 2014 from an already low 3.5% a year prior, in line with improving state and national trends.
The district's overall socioeconomic characteristics are good, with above-average per capita money income and median household income and a below-average individual poverty rate. However, the socioeconomic characteristics of specific communities within the district vary widely. The district includes some of the wealthiest communities in the state, while other areas are more challenged with significant portions of their students eligible for free and reduced lunch programs.
After a moderate 7.2% TAV decline during fiscal years 2011-2013, the district has experienced 5% TAV growth in each of fiscal years 2014 and 2015 due to new growth and appraisal increases. Ongoing residential and commercial construction in Draper and Midvale will contribute towards projected 2%-3% annual TAV increases going forward.
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, and 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=981164
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