SAN FRANCISCO, Costa Rica – SAN FRANCISCO–(BUSINESS WIRE)–Mar 3, 2016–Fitch Ratings has affirmed the ‘AAA’ rating on the following Jordan School District, Utah (the district) bonds:
–$126.1 million general obligation (GO) bonds, series 2006, 2007, and 2014 (refunding).
This ‘AAA’ underlying rating reflects the district’s credit quality without consideration of the ‘AAA’ rated guaranty on the GO bonds provided by the Utah School Bond Default Avoidance Program.
The Rating Outlook is Stable.
The bonds are general obligations of the district payable from an unlimited ad valorem tax levied on all eligible taxable property within the former boundaries of the Jordan School District. The taxable area includes the Canyons School District (GO bonds rated ‘AAA’, Stable Outlook) which is responsible for repayment of 58% of the debt.
KEY RATING DRIVERS
FINANCIAL STRENGTH: Jordan School District (SD) continues to maintain strong credit characteristics, including high general fund balances, ample liquidity, prudent financial management, and tightly controlled personnel costs.
FUNDAMENTALLY RESILIENT TAX BASE: Debt is repaid from levies on the original district’s broad and somewhat diverse tax base. The entire tax base has rebounded well from recession-related taxable assessed valuation (TAV) declines due to ongoing residential and commercial development and existing properties’ appraisal increases.
SOUND SECURITY STRUCTURE: In addition to the unlimited ad valorem property tax pledge of the original district, the series 2014 refunding bonds are supported by an interlocal agreement between the Jordan and Canyons school districts to avoid any ambiguity as to the support of both districts for this refunding.
MANAGEABLE DEBT BURDEN: Fitch anticipates that future increases to the district’s currently very manageable, rapidly amortizing debt burden will remain consistent with the district’s high rating level. However, based on a 2013 bond measure failure, voter authorization of additional bonded indebtedness cannot be taken for granted. The need for additional capacity could thus strain operating resources in the medium term.
WELL LOCATED: The district benefits from its location within the Salt Lake County economic hub.
STABLE CREDIT CHARACTERISTICS: The rating is sensitive to shifts in fundamental credit characteristics of both the Jordan and Canyons school districts, particularly related to solid general fund results and low debt burden. The Stable Outlook reflects Fitch’s expectation that such shifts are unlikely.
Jordan SD is the fourth largest in Utah, with almost 53,000 students spread across 55 schools. It is located approximately 12 miles south of Salt Lake City, encompassing an approximately 150 square mile mixture of urban, suburban, and rural areas within Salt Lake County.
On Nov. 6, 2007, voters in the eastern portion of Jordan SD’s previous footprint approved a ballot measure to secede and form a separate district. Consequently, a new Canyons SD (the eastern portion) and the remaining Jordan SD (the western portion) began operations on July 1, 2009 (fiscal year 2010) under separate school boards.
Fitch also rates the Canyons SD’s GO bonds at ‘AAA’, Outlook Stable. This rating recognizes Canyons School District’s solid financial position, continued financial flexibility, good labour relations, and manageable liabilities and capital improvement needs. The value of the Canyons SD’s tax base has more than fully recovered from recession-related losses and the district benefits from its proximity to the Salt Lake County economic hub. However, socioeconomic characteristics vary markedly between the district’s component communities.
SOUND SECURITY STRUCTURE
Existing bondholders benefit from an unlimited property tax levy on the aggregate TAV of the previous Jordan SD footprint. Both the debt and the TAV were divided proportionately between the two districts based on fiscal 2009 TAV (42% for the remaining Jordan SD and 58% for the new Canyons SD). Each district is legally obliged 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 them to the two school districts. Jordan School District then invoices Canyons School District for its share of the full debt service payment. This debt repayment process has been working smoothly for the last seven years.
For the refunding series 2014 bonds, the two school districts entered into an interlocal agreement which creates a contractual obligation in addition to the existing statutory obligation.
FUNDAMENTALLY STRONG ECONOMY AND RESILIENT TAX BASE
Jordan SD is significantly residential, with moderately large retail/commercial centres, and continues to benefit from being an integral part of the Salt Lake County economic hub. The county’s unemployment rate declined to 2.8% in December 2015, well below the national unemployment rate of 4.8%. The district’s socio-economic characteristics are somewhat mixed, reflecting the range within its component communities, but above-average relative to the nation.
The recent recession saw some downward TAV pressure on the entire tax base responsible for debt repayment. This was largely due to state revaluation of centrally assessed properties (particularly Kennecott Utah Copper, by far Jordan SD’s largest taxpayer) and Salt Lake County assessor revaluations of local properties. However, in fiscal 2015, Jordan SD TAV rebounded strongly by 12.6% with further strong TAV growth projected for fiscal 2016. At the same time, Canyons SD experienced a 5% increase, with further growth also projected. Both districts continue to experience ongoing residential and commercial development which, in Jordan SD’s case, helps offset volatile centrally assessed property valuations.
STRONG FINANCIAL OPERATIONS
The district ended fiscal 2015 with near-breakeven operations. This resulted in a very strong unrestricted general fund balance of $129.2 million or 44.1% of spending, comparable to fiscal 2014’s $127.6 million or 45.1% of spending. General fund liquidity remains very strong.
The district is budgeting a large net operating deficit after transfers in fiscal 2016 ($18.3 million), followed by significant deficits in each of the following three years, in part because of the state requirement to budget use of the unassigned general fund balance ($22.5 million at fiscal 2015 year-end). Typically the district significantly outperforms its conservative budgets and its general fund balances are expected to remain very strong. Nevertheless, the district does expect to draw down its total general fund balance by $2.7 million in fiscal 2016 for retiree benefit payouts. The district’s general fund balance will remain very strong.
As part of its committed general fund balance, the district has $57.1 million reserved for its closed other post-employment benefit (OPEB) plan’s liabilities. Following the expected $2.7 million drawdown in fiscal 2016, further drawdowns are likely as those OPEB liabilities are paid off and to the degree the district needs to use pay-as-you-go funding for capital.
Any remuneration increases for fiscal 2017 will be determined after the state legislature makes its education appropriation decisions for that year.
DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE
The district has a very low debt burden. In fiscal 2015, overall debt was $595 per capita and a low 0.6% of market value. Approximately 85% of the district’s outstanding GO debt is amortized within 10 years.
In November 2016, the district will likely seek voter authorization to issue new GO debt in the next few years to meet the capital needs arising from projected ongoing student enrolment growth. Fitch does not expect the progressive issuance of new debt from 2017 on to affect credit quality. However, based on voters’ defeat in November 2013 of a $495 million GO bond authorization, the district was not able to rely solely on further bonded indebtedness to finance all of its future capital needs over the next five to seven years. Consequently, it has significantly drawn down its capital projects fund balance in order to construct two new elementary schools. Additionally, the district has continued to use operational solutions regarded as suboptimal by local communities (e.g. year-round schedules, boundary changes, and long-distance busing). The district is currently working with local communities and their elected officials on how best to meet the district’s capital and operational needs going forward.
The district meets fully its annual pension obligations to the Utah Retirement Systems and estimates that its $57.1 million OPEB reserve more than fully funds obligations under its closed OPEB plan. The district’s total debt service, pension, and OPEB carrying costs were a manageable 16.1% of fiscal 2015 total governmental expenditures.
Additional information is available at ‘ www.fitchratings.com ‘.
Fitch recently published exposure drafts of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015 and
Exposure Draft: Incorporating Enhanced Recovery Prospects into U.S. Local Tax-Supported Ratings, dated Feb. 2, 2016). The drafts include a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to less than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published in the first quarter of 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.
In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope and Lumesis.
Exposure Draft: Incorporating Enhanced Recovery Prospects into US Local Tax-Supported Ratings (pub. 02 Feb 2016) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=875108
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942
Tax-Supported Rating Criteria (pub. 14 Aug 2012) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012) https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1000419
Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000419
Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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CONTACT: Fitch Ratings
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SOURCE: Fitch Ratings
Copyright Business Wire 2016
PUB: 03/03/2016 03:44 PM/DISC: 03/03/2016 03:43 PM