|[October 01, 2013]
Fitch Downgrades Cerritos Community College Dist (CA) GO Bonds to 'AA'; Outlook Stable
SAN FRANCISCO --(Business Wire)--
Fitch Ratings has downgraded Cerritos Community College District, CA (News - Alert)
(the district) general obligation (GO) bonds as follows:
--$2.7 million GO bonds series 2004A to 'AA' from 'AA+';
--$24.2 million GO bonds series 2005A to 'AA' from 'AA+';
--$30.6 million GO bonds series 2006B to 'AA' from 'AA+'.
The Rating Outlook is Stable.
The bonds are secured by an unlimited property tax pledge of the
KEY RATING DRIVERS
WEAKENED DEBT PROFILE: The downgrade to 'AA' from 'AA+' reflects the
district's weakened debt profile following a 2012 GO issuance that
extended amortization and deferred repayment of most principal and
accreted interest for more than 20 years. In addition, the recent
authorization of additional GO borrowing by district voters would more
than double outstanding debt levels.
STRONG OPERATING PERFORMANCE: The district maintained balanced
operations throughout the recent downturn, reducing spending to match
substantial revenue declines. Reserve levels are healthy and remain well
in excess of state minimum requirements.
EXPOSURE TO STATE FINANCES: The district is heavily dependent on state
revenues, which fell sharply during the recent downturn. Funding
prospects have improved following voters' approval of Proposition 30 and
California's overall improved finances, but the district remains
vulnerable to state revenue volatility.
MIXED ECONOMIC CHARACTERISTICS: The district's service area profile is
generally below average and consistent with the broader Los Angeles
FINANCIAL FLEXIBILITY: A material reduction in reserve levels or
persistent operating deficits would raise downwards rating pressure. The
Stable Outlook suggests this is unlikely during the next two years.
Cerritos Community College is located in southeastern Los Angeles
County, encompassing 52 square miles including the cities of Artesia,
Bellflower, Cerritos, Downey, Hawaiian Gardens, La Mirada, Norwalk and
portions of Bell Gardens, Lakewood, Long Beach, Santa Fe Springs and
South Gate. The district provides collegiate-level instruction to
approximately 23,000 students annually.
WEAKENED DEBT PROFILE
The downgrade to 'AA' from 'AA+' reflects the district's weakened debt
profile following a 2012 GO issuance. The 2012 GO issue represents
approximately 40% of the par value of the district's outstanding
principal, or more than 56% of outstanding principal plus accreted
interest. Amortization is very slow due to the use of capital
appreciation bonds and long-dated current-interest bonds, with 14% of
outstanding principal and accreted interest repaid within 10 years.
Overall debt levels remain low at 1.7% of taxable assessed value (TAV),
but are likely to rise with anticipated new issuances. District voters
approved $350 million in new GO authorization at the end of 2012, which
would raise the par value of overall debt levels to a still moderate
2.7% of TAV if issued immediately. New issuances are expected over a
10-year period and will support an expansive capital program to
rehabilitate or replace multiple campus facilities.
The district participates in two state-sponsored employee pension plans
and is likely to face ongoing increases in contribution rates to address
substantial unfunded liabilities. Funding for CalSTRS is a particular
concern, as statutory contribution rates remain well below the level
required to amortize existing obligations. In addition, the district
offers other post-employment benefits (OPEBs) and had a relatively small
unfunded OPEB liability of $14.3 million at the end of 2012, partially
offset by a non-trust reserve of $4.2 million.
STRONG OPERATING PERFORMANCE
Financial operations remain sound due to prudent expense management in
response to prolonged disruptions in state funding. The district
projects ending fiscal 2014 with a budget surplus and unreserved general
fund balance equal to a strong 13.7% of spending; well above the 3%
state minimum. Management has consistently achieved operating surpluses
and the district's only recent deficit, in 2011, resulted from prudent
transfers to support an early retirement incentive and additions to an
Management projections for 2015 and 2016 anticipate continued positive
operating performance, which Fitch considers likely based on the
district's strong track record. The district has a history of
conservative budgeting and has regularly outperformed budget estimates.
EXPOSURE TO STATE FINANCES
The district is heavily dependent on state funding for operations and
remains vulnerable to state revenue volatility. State funds account for
approximately 80% of total general fund revenues, and are subject to
cuts during downturns in the state's financial condition. The district
has ably managed this volatility in recent years, maintaining operating
balance despite a 13% reduction in state apportionment revenues between
2009 and 2012. Nonetheless, a reversal of the state's recent fiscal
progress could result in renewed pressure on the district's finances.
Funding prospects for the district have improved recently with the 2012
approval by state voters of temporary taxes under Proposition 30. In
addition, the state's improved revenue collections are expected to
increase general support for K-14 schools through growth in the
Proposition 98 funding guarantee.
MIXED ECONOMIC CHARACTERISTICS
The district encompasses multiple jurisdictions within southeastern Los
Angeles County with mixed economic characteristics. TAVs have remained
relatively stable, declining a cumulative 4.3% in 2010 and 2011 before
returning to growth in 2012, and TAV levels now exceed pre-recession
Median household incomes for Los Angeles County are below the state
average, but higher than the national average. The county's unemployment
rate remains elevated at 10.2% as of June 2013, as compared to a
national rate of 7.8%, but employment levels have risen steadily for 36
consecutive months. Year-over-year employment growth accelerated in
2013, with June 2013 employment levels 3.6% higher than the previous
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.
Applicable Criteria and Related Research:
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14,
Applicable Criteria and Related Research:
U.S. Local Government Tax-Supported Rating Criteria
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