|[July 21, 2014]
Fitch Affirms Mountain View School District, CA GOs at 'AA-'; Outlook Negative
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the following Mountain View School District,
California (the district) ratings:
--$0.3 million general obligation (GO) election of 1977 bonds, series
2001-3 at 'AA-';
--$5.9 million Mountain View School Facilities Improvement District No.
1, CA (News - Alert) (SFID) GO (election of 2001) bonds, series 2001A at 'AA-';
--$ 1.6 million SFID GO (election of 2001) bonds, series 2001B at 'AA-'.
The Rating Outlook is Negative.
The district's GO bonds are secured by an unlimited ad valorem property
tax on all taxable property within the district.
The SFID's GO bonds are secured by an unlimited ad valorem property tax
on all taxable property within the SFID.
KEY RATING DRIVERS
CONTINUED NEGATIVE OUTLOOK: The Negative Outlook reflects concerns
regarding draws on financial reserves despite an improving state funding
environment. Failure to stabilize unrestricted fund balance levels by
fiscal 2015 with projected improvement for future years would indicate
financial pressure inconsistent with the current rating.
IMPROVING ECONOMY, CONCENTRATED TAXPAYERS: The local economy is mostly
industrial, anchored by the Los Angeles/Ontario International Airport
(the airport), with mixed wealth metrics and elevated unemployment. The
housing recovery and new residential development at the New Model Colony
has spurred recent tax base growth.
MANAGEABLE BUT GROWING LONG-TERM LIABILITIES: The current debt burden is
moderate with average amortization, but debt levels are expected to
increase for the construction of new school facilities. Debt and retiree
benefits are affordable, though Fitch expects carrying costs to increase
due to poor funding of state pension plans in which the district
FUND BALANCE IMPROVEMENT: A downgrade would likely result if
unrestricted fund balance levels fail to stabilize and prospects for
ultimate improvement are lacking.
The school district covers 13 square miles composed of SFID (89% of
district assessed value [AV]) and two community facilities districts in
southwestern San Bernardino County, approximately 40 miles east of Los
Angeles. The district serves a total 2013 population of 20,180, which
has grown modestly over the last decade despite declining enrollment.
PROJECTED DEFICITS DESPITE INCREASED FUNDING
Due to a trend of declining enrollment and state fiscal distress, the
district experienced general fund net operating deficits after transfers
during fiscal years 2010 through 2012. To correct these imbalances the
district achieved significant savings through workforce reduction,
furlough days, early retirement incentives and increased class sizes.
These efforts reduced expenditures in each of the last five fiscal years
but have limited the district's expenditure flexibility going forward.
The district reported breakeven results in fiscal 2013, reversing a
projected deficit of approximately 1.2% of budgeted spending at last
review. The district's unrestricted fund balance was reduced, despite
favorable results. Although recent reductions in unrestricted reserves
are relatively small, they have thinned the district's fiscal cushion,
which Fitch views as somewhat low for the rating. The fiscal 2013
unrestricted general fund balance decreased to $1.5 million, or 8.1% of
general fund spending, down from 11.4% in fiscal 2009.
With an improved state revenue picture going forward, reflecting
implementation of the local control funding formula (LCFF), the district
opted to increase spending, including spending for the restoration of
furlough days and pay increases across all emloyee groups. The district
projects to draw down unrestricted reserves to $1.4 million, or 7.6% of
general fund spending in fiscal 2014, while increases to fund balance
are projected for future years. These projections include both the
increased revenue from LCFF as well as the projected cost of recently
settled labor contracts. The district's forecast appears reasonable, and
achievement of such expectations will be critical to maintenance of the
existing rating along with moving the Rating Outlook back to Stable.
INDUSTRIAL BASE WITH CONCENTRATION
The area is mostly industrial with logistics companies benefiting from
the proximity to the airport. The city of Ontario's (the city)
unemployment rate has improved significantly to 8.5% in May 2014, down
from 10.5% one year prior. Unemployment remains above the state (7.1%)
and nation (6.1%), which is consistent with the historical trend. Wealth
metrics are mixed relative to state and national averages and have
declined in recent years, though the local poverty rate is low.
AV of both the district and SFID have been relatively stable with only
two years of modest declines throughout the recession. District and SFID
AV now exceed their peak values in fiscal 2010 and continued positive
momentum appears likely as Zillow indicates a strong recovery in home
prices in the area since 2012.
Taxpayer concentration has moderated with overall tax base growth and
shifts in taxpayer mix. The district's principal property taxpayers
constitute 13% of the district's AV, and 15% of SFID AV, down from the
prior year at 19% and 22%, respectively. The largest taxpayer, UPS
Worldwide Forwarding, represents 3% of the total tax base for both
districts, followed by apartment buildings and other industrial
The New Model Colony, a major residential and commercial development in
the city that had been delayed for years, is completing the first phase
of construction with over 400 homes scheduled for occupancy in December
2014. When all phases are completed, the development is expected to
bring as many as 19,000 new households and 8,100 additional students to
the district. The district is currently in discussion with the developer
regarding the creation of a second SFID to secure funding for the
construction for additional schools.
MODERATE LONG-TERM LIABILITIES BURDEN
The district's overall debt burden is moderate at $4,537 per capita
(2.3% of AV). Amortization of direct debt is average, with 48% of
principal scheduled to be repaid within 10 years. Management indicated
that new debt will likely be issued in early 2016 for the construction
of a new school to serve the first phase of New Model Colony residents.
District employees are covered under the California State Teachers'
Retirement System (CalSTRS) and the California Public Employees'
Retirement System (CalPERS). Funding levels for the plans are 63.5% for
CalSTRS and 78.8% for CalPERS, based on Fitch's estimated 7% rate of
return. The district's annual required contribution (ARC) was $990,000
in fiscal 2013.
Additionally, the district manages a separate other post-employment
benefits (OPEB) plan to which it contributed a modest $110,000 or 0.5%
of governmental fund spending in fiscal 2013.
Total carrying costs, including debt service and pension ARC, and OPEB
contribution equaled a low 11.4% of governmental fund spending in fiscal
2013. However, carrying costs are expected to increase as pension
contribution rates rise to address substantial unfunded liabilities in
the pension systems.
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.
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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