Fitch Affirms El Rancho USD's (CA) $18.5MM in ULT GOs at 'A-'; Revises Outlook to Negative
NEW YORK-(Business Wire)-September 29, 2009 - In the course of routine surveillance, Fitch Ratings affirms its 'A-' rating on El Rancho Unified School District (USD), California's (the district) $18.5 million in outstanding unlimited tax (ULT) general obligation bonds (GOs) (series 2003, 2004, 2005 and 2007). Fitch also revises the Rating Outlook to Negative from Stable.
The Outlook revision reflects the large shortfalls in revenue projected for fiscal 2010, triggering a significant $9.1 million net general fund deficit for the year. The shortfall in revenue and draw on fund balance will put the district into a negative general fund balance in fiscal 2011 or 2012 unless management is able to dramatically reduce expenditures.
The rating reflects the district's modest debt level, sound underlying economy, solid assessed valuation growth, and the presence of a significant unreserved general fund balance. The rating further reflects the district's recent history of strained financial operations and the negative trend in the district's enrollment.
The district's audited unreserved fund balance in fiscal year 2008 (FY08) grew to $4.9 million, or 5.3% of expenditures, and the district projects a significant surplus in FY09, resulting in an unreserved fund balance of $8.4 million on a budgetary basis. However, due to a large revenue shortfall from state sources, the district projects a $9.1 million deficit in FY10. Fitch believes that the size of the shortfall in FY10 could result in a negative general fund balance in FY11 if management in unable to significantly cut general fund spending.
Based in Los Angeles County, the district is coterminous with the city of Pico Rivera, located approximately 11 miles southeast of downtown Los Angeles. The district is highly dependent on funding from the state, deriving 72% of its general fund revenues from state sources. Wealth levels in Pico Rivera are broadly average for the state, and although the city's tax base contracted this year for the first time since the current recession began, the reduction in value was a modest 2.3%.
The district's debt levels are low on both a per capita basis and as a share of market value, at $876 per capita and 1.5% of market value. This level of indebtedness has stayed very stable over time.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, '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.
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.
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