|[September 16, 2013]
Fitch Rates Canyons School District, UT's GOs 'AAA'; Outlook Stable
SAN FRANCISCO --(Business Wire)--
Fitch Ratings has assigned an underlying rating of 'AAA' to the Canyons
School District Board of Education (the district), Utah $60 million
general obligation (GO) bonds, series 2013.
The bonds will be sold by competitive bid on Sept. 24, 2013. Proceeds
will be used to finance various capital projects.
Fitch has also affirmed the following underlying ratings:
--$140.6 million GO bonds, series 2011 and 2012 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.
The bonds are secured by 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 fourth fiscal year of
operations with an increasingly strong unrestricted general fund
balance, ample liquidity, a low debt burden, adequately funded pension
liabilities, and fully funded other post-employment benefit liabilities.
CONTINUED FINANCIAL FLEXIBILITY: The district retains the flexibility to
increase tax rates, make staff reductions, modify labor agreements, and
adjust class sizes if necessary.
GOOD LABOR RELATIONS: The district continues to benefit from positive
labor relations which have allowed it to partially offset salary
increases with significant labor concessions.
MANAGEABLE CAPITAL IMPROVEMENT NEEDS: 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. Therefore, it can plan its capital improvement program and
associated bond issues in stages to avoid pressuring local taxes.
SOMEWHAT MIXED SOCIOECONOMIC CHARACTERISTICS: The value of the
district's tax base has begun to rebound and the district benefits from
its proximity to the Salt Lake County economic hub. Nevertheless,
socioeconomic characteristics vary markedly between the district's
While the rating is sensitive to fundamental changes in financial
management and performance, Fitch does not expect the district to alter
its current conservative approach.
In November 2007, voters in the eastern portion of the previous Jordan
School District approved a ballot measure to secede and form a separate
district. Consequently, a new Canyons School District (located in the
southern part of the Salt Lake City metropolitan area) and the remaining
Jordan School District began operating in fiscal 2010 under separate
school boards. Canyons School District covers 192 square miles and has a
2013 enrolment of 33,528 students attending 46 schools and an adult and
community education program.
CANYONS' RESPONSIBILITY FOR PAYMENT OF JOINT DEBT
Holders of the original Jordan School District GO bonds benefit from an
unlimited property tax levy on the aggregate TAV of the previous Jordan
School District. 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. District officials report that repayment of the
joint debt continues to proceed smoothly, including mutually agreed
prepayment of certain bonds on Feb. 1 and Aug. 15, 2013.
MANAGEABLE LONG-TERM LIABILITIES
In June 2010, 50.7% of Canyons School District voters approved a $250
million GO bond authorization for school capital improvement projects.
With the series 2013 bonds, $208 million of that authorization will have
been issued. The district expects to issue the $42 million balance in
fiscal 2016. The overall debt burden is expected to remain low. The
district anticipates requesting voter authorization for further GO bonds
in fiscal 2017 at the earliest, around the time that the final capital
projects being funded by the 2010 authorization will be completed.
Overall debt is a low $1,971 per capita and 1.7% of market value. Debt
amortization i average at 57.5% in 10 years. The district's fiscal 2012
carrying costs related to annual debt service, annually required pension
contributions, and OPEB payments amounted to a low 14.4% of total
governmental spending. The district meets fully its annual pension
obligations to the adequately funded Utah Retirement Systems and the
district's OPEB liabilities are currently fully funded. Despite recent
increases in pension contributions, Fitch does not expect that these
carrying costs will increase to the point that they weigh unduly on the
district's financial operations.
STRONG FINANCIAL OPERATIONS
The district ended fiscal 2012 with a strong unrestricted general fund
balance of $63.8 million or 31.2% of spending, up from an already strong
$60.8 million (30.8%) the year prior. This increase is attributable to
increased property tax revenues and keeping expenditures below budget
(due, in large part, to delaying hiring for a new high school until
fiscal 2013 although the positions had been funded in the fiscal 2012
budget). The district generated a $5.2 million net operating surplus
after transfers, rather than a budgeted $1.3 million net deficit.
Similarly, the district expects to end fiscal 2013 with an even larger
unrestricted general fund balance of $73.7 million or 34.6% of spending.
This increase is attributable to actual spending 3.5% below budget,
again largely due to conservative budgeting. The district is projecting
a $5.3 million net operating surplus after transfers, rather than a
budgeted $2.1 million net deficit. District officials anticipate that
the total general fund balance will hold between $65-$77 million during
fiscal years 2014-2017, and they intend to continue rolling forward a
fully funded 5% economic stabilization reserve. Fitch considers these
projections reasonable given the district's performance history.
The district experienced tax rate increases in fiscal years 2010-2013
totaling 17.2% due to reconfiguring its tax levies, as permitted by the
state, and automatic adjustments for TAV declines. While the district
retains the option to increase its tax rate further given the
significant room remaining under its tax rate caps, it does not expect
to do so. Alternatively, the district expects that it would draw down
some of its very high general fund balances before it would increase the
In addition to the district's healthy general fund balances and tax rate
flexibility, the district also has considerable financial flexibility
related to staffing levels, class sizes, and number of school days
(subject to state approval). In addition to strong liquidity from
general fund cash and investments, the capital outlay fund 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 approximately $171 million in cash and investments.
GOOD LABOR RELATIONS; SENIOR ADMINISTRATOR TRANSITIONS
The district continues to benefit from positive labor relations, which
have allowed it to partially offset salary increases with significant
labor concessions, such as the incremental elimination of all 10
professional development days for teachers.
Recently, the school board appointed a long-term staff member as interim
superintendent following the inaugural superintendent's resignation. A
permanent appointment is expected in spring 2014. The school board is
also seeking to make an interim business administrator appointment. This
would allow the new superintendent to be involved in selecting the
permanent replacement for the inaugural business administrator, whose
contract was not renewed. District officials stated that these senior
administrator transitions have not impacted the district's financial
management and operations.
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
to 4.9% in June 2013 from 5.8% a year prior, in line with improving
state and national trends.
While 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, 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 cumulative 7.3% TAV decline during fiscal years 2011-2013, the
district is expecting a 5% TAV increase in fiscal 2014 due to new growth
and appraisal increases. Good long-term residential and commercial
property growth prospects, rising house prices, and progressive
absorption of foreclosed properties support the district's projection of
1%-3% annual TAV growth 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 (News - Alert) 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
U.S. Local Government Tax-Supported Rating Criteria
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