|[March 18, 2013]
Fitch Affirms Lake Tahoe Unified School Dist, CA's GOs at 'AA-'; Outlook Stable
SAN FRANCISCO --(Business Wire)--
Fitch Ratings affirms the 'AA-' rating on the following Lake Tahoe
Unified School District, California (the district) general obligation
--$14.6 million election of 1999 series A and B;
--$2.1 million refunding bonds series 2002;
--$6.2 million refunding bonds series 2005.
The Rating Outlook is Stable.
The bonds are secured by unlimited ad valorem property taxes on all
taxable property within the district.
KEY RATING DRIVERS
SOUND FINANCIAL CUSHION: A satisfactory level of general fund reserve
remains despite recent operating deficits and state funding volatilities.
ADEQUATE FINANCIAL MANAGEMENT: The district has a history of proactive
financial management and retains substantial expenditure flexibility.
Fitch expects the district to make necessary cuts if funding does not
increase as proposed in the governor's budget.
LIMITED ECONOMY: The tourism-centered local economy endured three
consecutive years of assessed value (AV) declines. Wealth level
indicators are below state and national averages.
MODERATE DEBT: The overall debt burden is moderate, although bonds are
long dated with slow amortization. The district does not incur costs
related to other post-employment benefits (OPEB). Pension contribution
requirements are currently affordable, but will likely rise.
FAILURE TO MAINTAIN RESERVES: A failure to resolve the district's
remaining structural budget imbalance, resulting in a significant
decline in reserves from the current level, would put downward pressure
on the rating.
The 250 square miles district serves 30,000 residents of the city of
South Lake Tahoe and portions of the unincorporated areas of El Dorado
County and Lake Tahoe Basin. The district operates four elementary
schools, one middle school, two high schools and a continuation school,
with around 3,800 students.
SOUND FINANCIAL PROFILE
Fiscal 2012 ended with a $428 thousand (1.3% of spending) net operating
deficit after transfers, offsetting the $302 thousand surplus produced
in fiscal 2011. Fiscal 2013 is projected to incur another operating
deficit; however, management expects the unreserved general fund balance
to remain at a satisfactory level of 9% of spending.
Faced with enrollment declines and the challenging state funding
environment, the district relied on one-time federal funding, attrition,
class size increases, transportation savings, and draws on reserves to
balance budgets in recent years. A reduction of three teacher days was
planned for fiscal 2013 but later restored with the receipt of
additional one-time funding. Liquidity position is satisfactory, given
the general fund's access to other internal funds.
The district has substantial flexibility to increase class sizes, reduce
the number of paid teacher days, or cut programs, if cost saving is
needed. The Nvember 2012 approval of Proposition 30 by California
voters (increasing income and sales taxes temporarily) removes the
threat of mid-year funding cuts for the district.
Improved state revenues appear likely to boost school funding in fiscal
2014 and help restore state revenues that were deferred during the
recession. Fitch expects the district's financial conservatism,
commitment to maintaining satisfactory reserve levels, and remaining
expenditure flexibility to result in continued sound financial position.
WEAK ECONOMY AND TAX BASE
Ski-related tourism dominates the local economy, with taxpayer
concentration in hotels and resorts. Good snow levels have helped revive
local businesses. Student enrolment appears to have stabilized after a
Unemployment rates exhibit seasonal volatility, but overall trends are
positive. The county's seasonally adjusted annual unemployment rate has
shown a steady decline from its peak of 12.5% in 2010, down to a still
elevated 10.3% in 2012. Per capita income for the district is 10% below
Fiscal 2013 assessed value (AV) is 10% below the peak value after 3
years of decline, although Fitch believes recent home price
stabilization may indicate AV stabilization in the near term.
MODERATE DEBT, SLOW AMORTIZATION
Debt burden remains moderate, with total debt at $4,196 per capita, or
2.1% of market value. The district has no GO authorization capacity left
and has no plans to issue additional debt.
Debt amortization is slow, and series 2010 and 2012 GOs have a long
final maturity date of 2045. A portion of the outstanding GO bonds are
capital appreciation bonds (CABs) structured in such a way that annual
debt service increases consistently and gradually.
The district does not provide other post-employment benefits (OPEB).
Total fiscal 2013 debt service and pension carrying costs are equivalent
to a moderate 15% of governmental funds spending, less capital projects.
Though currently affordable, pension costs are expected to rise.
The district participates in the poorly funded CalSTRS pension system
for teachers, as do all schools in the state. CalSTRS contribution rates
are set by statute and they have not been increased to reflect the weak
investment return environment over the past several years. The system's
Fitch-adjusted funded ratio (assumes 7% investment return) has fallen to
a low 65.7%. Future contribution rates likely will need to rise
substantially from current levels and Fitch believes districts would
likely bear at least part of the burden.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
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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