Fitch Affirms Roseville City School District, CA's GOs at 'AA'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings has affirmed the following rating for Roseville City School District, California (the district):

--$9.6 million general obligation (GO) bonds at 'AA'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are secured by an unlimited ad valorem tax on all taxable property within the district.

KEY RATING DRIVERS

SOUND FINANCIAL PROFILE: Financial performance has been consistently strong with sound reserve levels, good expenditure discipline, and ongoing management action to maintain structural budget balance.

FUNDING VOLATILITY: The district is largely dependent on the state of California for funding with limited ability to raise local revenues. State revenues are currently rising at a healthy pace, and the district has managed exposure to the state's volatile funding environment well.

HEALTHY SUBURBAN ECONOMY: The district serves an affluent, economically stable suburban service area in the Sacramento metropolitan area. The state capital region remains highly dependent on governmental employment.

MANAGEABLE LONG-TERM LIABILITIES: Overall debt levels are moderate. Carrying costs of debt service and retirement liabilities are affordable but rising with increases in pension costs. Rapid amortization and lack of additional debt plans somewhat offset this concern.

RATING SENSITIVITIES

The rating is sensitive to shifts in fundamental credit characteristics, particularly the district's strong financial management, but the Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

The district comprises Roseville City (the city) and unincorporated areas of Placer County. It is located 16 miles northeast of Sacramento and serves about 10,000 students.

SOUND FINANCIAL PROFILE

The district has maintained operating surpluses in five of the last six fiscal years even during the most recent period state fiscal distress. In fiscal 2014, the district generated a $1.3 million general fund surplus (1.8% of spending), and unrestricted fund balance ended at a healthy 12.8% of spending. The district's fiscal 2015 second interim report projects a $2.3 million spend down of fund balance that is driven by nonrecurring expenses. The district expects to return to slight operating surpluses in fiscal 2016 and beyond, and unrestricted fund balance is forecast to remain above 10% across the forecast horizon. Fitch expects district finances to remain strong in the near future given the improving state funding environment, generally rising enrollment and ongoing management focus on maintaining structural budget balance.

The district remains exposed to volatile state funding and tax limitations that prevent meaningful local revenue raising. The district has navigated these pressures well by managing its expenses with discipline, but the revenue environment is a credit weakness.

MIXED LOCAL ECONOMY

The district is primarily residential but benefits from its proximity to Sacramento's employment market. Private sector employers in the capitol area include Hewlett-Packard, Intel, Telefunken, insurers, and health care providers.

Economic indicators are strong. Income levels are above average, with median household income at 134% of the national level and per capita income at 121% of the national level. The city's unemployment rate was very low at 4.8% in March 2015.

The district's tax base is diverse and healthy, having recovered from a sharp recessionary downturn. District assessed value (AV) rose 7.9% to $12.9 billion in fiscal 2015. Values have rebounded 17.4% from their recent trough in 2012 and have more than fully recouped a recessionary decline of 13%. Anecdotal reports from management and recent housing market data suggest that development has resumed at a healthy pace.

MANAGEABLE LONG-TERM LIABILITIES

Overall debt levels are high on a per capita basis at about $5,400, but moderate in relation to the district's tax base at 3.7% of AV. Amortization is rapid, with about 80% of principal retired in 10 years. The district plans to continue building new schools, which will be funded upfront by developers rather than by GO debt. It has no debt issuance plans over the next five years and no outstanding voter authorizations for GO debt.

The district participates in the California Public Employees'

Retirement System (CalPERS) as well as the more poorly funded California State Teachers' Retirement System (CalSTRS) pension system. Both plans are currently increasing contribution rates, but the costs appear quite affordable for the district.

Total carrying costs of debt service, pension, and other post-employment benefit costs equaled a moderate 17.4% of governmental funds spending in 2014. The number was increased significantly by a paydown of debt due to an influx of developer fees. In a more typical year, fiscal 2013, carrying costs were low at just 8.1% of spending. Fitch expects total carrying costs to increase given future growth in pension costs, but to remain in the low to moderate range.

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, CoreLogic Case-Shiller 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=985065

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Andrew Ward
Director
+1-415-732-5617
Fitch Ratings, Inc.
650 California St. 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Stephen Walsh
Director
+1-415-732-7573
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Andrew Ward
Director
+1-415-732-5617
Fitch Ratings, Inc.
650 California St. 4th Floor
San Francisco, CA 94108
or
Secondary Analyst
Stephen Walsh
Director
+1-415-732-7573
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations:
Elizabeth Fogerty, New York, +1 212-908-0526
Email: elizabeth.fogerty@fitchratings.com