|[January 16, 2014]
Fitch Rates Deer Valley USD No. 97, AZ GOs 'AA-'; Outlook Stable
AUSTIN, Texas --(Business Wire)--
Fitch Ratings has assigned an 'AA-' rating to the Deer Valley Unified
School District No. 97 of Maricopa County, Arizona (the district)
general obligation (GO) debt:
--$34.6 million school improvement bonds, Project of 2008, series E
The bonds are scheduled for a negotiated sale the week of Jan. 27th.
Proceeds will be used for various campus improvements and to pay related
costs of issuance.
In addition, Fitch affirms its 'AA-'rating on the district's $180.8
million in outstanding GO debt.
The Rating Outlook is Stable.
The bonds are general obligations of the district payable from an
unlimited ad valorem tax levied against all taxable property in the
KEY RATING DRIVERS
SOUND FINANCES; CHALLENGES REMAIN: The district's financial position is
sound, although near term finances will be pressured by enrollment
declines and increased operating expenditures associated with resumption
of a full day kindergarten program.
RECOVERING LOCAL ECONOMY: The district's fiscal 2015 tax base
(reflecting a two-year lag) reflects strong growth after five years of
precipitous declines associated with the recession and housing collapse.
Wealth and employment metrics trend favorable to state and U.S. averages.
MANAGEABLE DEBT PROFILE: Fitch expects the district's overall debt and
carrying costs to remain moderate based on a manageable capital program
and rapid amortization.
POTENTIAL FOR WEAKENED FINANCIALS: Notably reduced financial flexibility
as evidenced by further material diminishment in reserves would pressure
the current rating.
Deer Valley Unified School District is geographically one of the largest
in the state. It encompasses nearly 370 square miles with a population
of approximately 246,875 residents. The district is part of the larger
Phoenix-Mesa-Glendale metropolitan statistical area (MSA) economy and
employment base. Interstate 17 bisects the district from north to south.
SOUND FINANCES DESPITE RECESSIONARY PRESSURES; CHALLENGES REMAIN
Arizona reduced school district funding due to recessionary budget
pressures over the past five years. The impact of lower funding levels
on Deer Valley's balance sheet was exacerbated by rules which limit
school districts' ability to build substantive general fund reserves.
Despite these challenges, voter-approved budget overrides and strong
cost controls have allowed the district to maintain an adequate
financial position. Relatively flat expenditures over the past five
years reflect foregone salary increases and a variety of program
reductions, including the elimination of full-day kindergarten in 2008.
Fiscal 2013 unrestricted reserves of $14.6 million represent an adequate
7.7% of expenditures and transfers out. Despite the state's resumption
of annual inflation adjustments in its allocations to school districts
in fiscal 2014, the district's finances will be pressured due to its
1.3% fiscal 2013 enrollment loss and plans to fund $3.5 million in
capital expenditures with general fund monies. Management projects
fiscal 2014 unrestricted reserves at $11 million (6% of expenditures and
Officials plan to reinstate a full day kindergarten program in fiscal
2015 to recapture enrollment lost over the past five years. The district
has not yet identified the funding source for resuming the program and
anticipates it will take four to five years to break even. Fiscal 2015
finances will also be pressured by another year of district projected
nrollment declines. The district's financial cushion appears adequate
in the near term; however, ongoing reserve draws would diminish the
district's financial flexibility and put pressure on the current rating.
SHORT-TERM BORROWING EXPECTED TO CONTINUE
The district has historically issued tax anticipation notes (TANs) in
advance of property tax collections, and additionally relies on a line
of credit (LOC) with Maricopa County to mitigate the impact of timing
differences of expenditures and the receipt of state aid and property
tax revenues. TANs of $30 million in fiscal 2013 (15% of fiscal 2013
total budgeted revenue) were supplemented by LOCs of $23.5 million (28%
of revenue in short term borrowing in total). TANs are repaid from
general fund property tax revenue; the LOCs are repaid upon receipt of
state payments. Management anticipates short term borrowings to continue
at similar levels in the near term.
The district's overall debt is moderate at 3.2% of market value.
Proceeds of this final 2008 authorization will be used to remodel
schools and build a new elementary school within an area of the district
realizing enrollment growth.
The district received authorization to issue $158 million of GOs in
November 2013 by a solid 58% of voters. Officials expect to issue
against this authorization over the next five to seven years.
Technology, modernization and new facility projects are included in the
authorization. Fitch anticipates the district's debt to remain
manageable given current debt levels and a very rapid 10-year
amortization rate of 95%.
The district participates in a state sponsored, cost-sharing
multiple-employer pension program. The state established annual required
contribution levels. The state program's funding level at fiscal 2012
year-end was satisfactory at 75.8% but below average at an estimated
68.1% based on Fitch's more conservative 7% investment rate assumption.
Management anticipates local contributions leveling off over the near
term after a succession of modest increases recently, which Fitch
considers reasonable based on improving funding and performance trends.
The district provides post-employment healthcare benefits to retirees
through the state program, and the financial contributions are
relatively small. The district's carrying costs (including debt service,
pension and OPEB contributions) are manageable at 18.6% of governmental
RECOVERING LOCAL ECONOMY
The metropolitan statistical area's diverse economy and employment base
remains the hub of the state's economy, despite having realized
significant weakening from the housing market collapse that was one of
the most severe in the nation. The district projects strong fiscal 2015
tax base growth, reflecting fiscal 2013 valuation gains and new
construction activity. This strengthening trend is prevalent throughout
Maricopa County. The district's tax base is diverse and without taxpayer
The district's economic metrics are favorable to regional, state and
national norms. Income levels run 140% the U.S. average, based on median
household income. Maricopa County's unemployment rate of 6.6% as of
October 2013 is favorable to that of Arizona (8%) and the U.S. (7%).
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, 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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