Fitch Rates Moreland School District, California $11.5MM GOs 'AA'; Stable Outlook

Business Wire, Feb 23, 2005

SAN FRANCISCO -- Fitch Ratings assigns an 'AA' rating to $11.5 million Moreland School District (the district), Santa Clara County, California's 2004 general obligation (GO) refunding bonds. The bonds will sell via negotiation led by Piper Jaffray & Co. on or about Feb. 23. In addition, Fitch affirms the district's 'AA' rating on $84.9 million outstanding GO bonds. The Rating Outlook is Stable.

The 'AA' rating reflects the district's strong assessed valuation growth, high wealth levels, and relatively low debt levels. These positives are slightly offset by the slow debt amortization and some financial strain resulting in a modestly declining fund balance. Located in Santa Clara County (the county) and residing mostly in San Jose, but also including parts of Campbell and Saratoga, the district was impacted by the recession: unemployment in Santa Clara reached as high as 8.5% in 2002. However, the area experienced a modest recovery in 2004, with unemployment averaging 7.1% for the year, declining to 5.5% in December 2004.

The district's assessed valuation has increased consistently, averaging 7.7% since 2001 and reaching $4.3 billion in fiscal 2005. Wealth levels for the county are very high, with median household buying income and per capita buying income at 140% and 118% of state levels, respectively. The district enjoys good community support, receiving a number of grants from local businesses and foundations. Further, the 2002 bond measure was approved by 72% of the voters.

Despite the stable and growing tax base, the district's financial operations have been under pressure as reflected by declining fund balances. The district implemented sizable expenditure cuts and was able to end fiscal 2004 with a small operating gain before one-time transfers out. The fiscal 2004 ending general fund balance totaled $930,000, or 3.1% of expenditures and transfers out, down slightly from fiscal 2003. Cash on hand at the 2004 year-end ($2 million) was markedly improved from the prior year's $147,000. Partially offsetting Fitch's concern about operating deficits and declining reserves are the district's special reserves and surplus property, which improve its financial flexibility. Including the special reserves, fiscal 2004 reserves totaled 5.4% of spending. In addition to a potential one-time revenue source, the district's surplus property, valued at over $119 million, provides additional income through long-term leases. However, further drawdowns of the general fund could result in rating pressure.

Enrollment in the district has been declining slowly since 1999 (about 6.7%) to 4,323 in fiscal 2005, resulting in minimal growth-driven capital needs in the future. The district recently issued the final series of GO bonds authorized in 2002 and has no remaining authorization. Direct debt is low at $1,463 per capita, or 1.7% of market value. Overall debt is a more moderate $2,932 per capita, or 3.4% of market value.