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Fitch Rates Boulder Valley School District No. RE-2, CO's GO Bonds 'AA+'; Outlook StableFitch Ratings has assigned an 'AA+' rating to the following Boulder Valley School District No. RE-2, CO's general obligation (GO) bonds: --$250 million GO bonds, series 2015. Fitch also assigns an 'AA' rating to the series 2015 bonds based on the enhancement provided by the Colorado School Enhancement Program which is rated 'AA' by Fitch. (For more information on the Colorado School Enhancement Program see Fitch Affirms CO School Credit Enhancement Program at 'AA'; Outlook Stable, dated Aug. 22, 2013.) The bonds are scheduled to sell competitively on April 14. Bond proceeds will be used to replace three elementary schools, construct one new K-8 school, and improve various district-wide facilities. Fitch also affirms the 'AA+' on the following outstanding debt: --Approximately $324 million outstanding GO bonds, series 2007, 2009, 2009B. The Rating Outlook is Stable. SECURITY The bonds are general obligations of the district payable from an unlimited ad valorem tax levied on all taxable property located within the district. The bonds are further secured by the Colorado School Credit Enhancement Program rated 'AA' by Fitch. KEY RATING DRIVERS SOLID FINANCES: District operations feature conservative budgeting practices leading to balanced finances with satisfactory reserves. The district benefits from strong public support for district initiatives as reflected in a history of voter approval of tax levy increases and bond programs. RISING DEBT AND CARRYING COSTS: The wealthy tax base of the district will allow the overall debt burden to remain moderate despite a large voter-approved GO bond program. However, annual debt service will nearly double by 2019, leading total carrying costs to become high. Principal amortization remains slow. STRONG ECONOMIC INDICATORS: The area economy is supported by the presence of the University of Colorado. Area income levels are well above, and unemployment levels are lower than, state and national averages. The district's tax base is sizable and diverse. Taxable assessed value (TAV) has returned to growth after recent modest recessionary declines. RATING SENSITIVITIES The rating is sensitive to shifts in fundamental credit characteristics including the district's solid financial management practices. Maintenance of the current rating will require Fitch's concerns about the rising fixed cost burden to be offset by continued sound financial operations and solid reserve levels. CREDIT PROFILE The district is located in northern Colorado, approximately 20 miles northwest of Denver. With an area of 500 square miles which includes the southern half of Boulder County, the city of Boulder and parts of two neighboring counties, the district serves slightly above 30,000 students. DEBT RATIOS REMAIN MODERATE BUT CARRYING COSTS RISING The sizeable $576 million 2014 bond authorization will lead to a higher but still moderate overall debt burden, reflective of the district's wealthy tax base. The overall debt burden remains moderate, totaling 2.9% of market value and $3,996 per capita, despite a large 77% increase in direct debt due to the current offering. The remaining $326 million authorization will be issued in fiscal 2018. The total authorization will be structured to provide level debt service. Debt service is currently moderate at 8.2% of fiscal 2014 governmental spending. However, upon issuance of the entire 2014 authorization, annual debt service will nearly double to $54 million by 2019, causing debt service carrying costs to rise to 15%. The projected tax rate of 10 mills by fiscal 2019 is up from 7.5 mills in fiscal 2015. Principal amortization will remain slow with 29% of principal retiring in 10 years, down from 36% in 2013. The first installment of the 2014 bond program includes $125 million for the replacement of three elementary schools and construction of one new K-8 school plus a transportation facility and other district wide improvements. A strong 60% of voters approved the bond proposal, the largest in the district's history. The new school will be built in the western part of the district which is where enrollment growth is focused within the otherwise maure district. Management expects the 1,000 student capacity of the new school will suffice for at least a decade. SOLID FINANCES BACKED BY PRUDENT FISCAL POLICIES, VOTER SUPPORT The district's budgeting and financial policies support its favorable financial profile. These policies include requirements for a structurally balanced budget, the maintenance of a minimum 3% contingency reserve in addition to the required 3% TABOR reserve, and restricted use of excess fund balances for one-time expenditures. The district's informal policy targets a higher total financial cushion of 10%. In addition, district operations enjoy strong support from voters who have approved five property tax levy increases and several large bond referenda over the past 20 years. The most recent voter-approved budget override, passed in 2010 with 60% approval, is indexed at 25% of the amount of property taxes due under the state school finance act, totaling $31 million or 10.7% of spending in 2015. The levy increase was used to restore cuts in state aid, add to reserves, and fund the expansion of early education programs. The aggregate amount of the district's four levy overrides, all of which are permanent, equals $66 million or 22% of spending. No additional general fund overrides are allowed under state law that limit such overrides to 25% of the district's total program funding. The fiscal 2014 audit posted approximately break-even results despite $2.5 million (0.9% of spending) in transfers for capital outlays. The resulting general fund unrestricted balance equaled $17.6 million or 6.1% of spending. Inclusive of the state-required 3% TABOR reserve, the district's financial cushion equaled 9.2%, above the 6% fund balance policy but modestly below the district's informal 10% target. The revised fiscal 2015 budget is balanced based on 0.8% enrollment growth (net of charter students). The district reports year-to-date enrollment is up by 1.6% and expects additional state aid to lead to a $1 million addition to fund balance. Management projects enrollment to increase by 1% annually. STRONG ECONOMIC INDICATORS The district's area economy is supported by its proximity to Denver, located 20 miles to the southeast, and the presence of the University of Colorado, the district's largest employer. The district serves a population of about 223,000 and 2014 enrollment totaled 26,660, an increase of 1.6% from the prior year. The district expects similar modest increases in student counts over the near term. The 30,000 student university provides stability to the local economic base as evidenced by area unemployment rates which are historically lower than the state and national averages. The county unemployment rate declined in 2014 to a low 4% from 5.2% the year prior, well below the state (5.2%) and U.S. (6.2%) averages. Leading private employers include technology firms such as Ball Aerospace, Oracle (News - Alert), and IBM. Area income levels are well above those of the state and nation. Modest TAV growth over the last two fiscal years has recouped recessionary losses in fiscal years 2011-2012, increasing market value to a high $180,000 per capita. The district projects higher TAV growth of 6%-7% in the upcoming fiscal 2016 reassessment which Fitch views cautiously although recent housing market trends are positive. Zillow reports that the city of Boulder's median home value increased by over 9% to $541,600 over the past year. The district's tax base is diverse, with utilities, technology, real estate, retail, communications, and pharmaceutical firms having a major presence. Google (News - Alert) is planning a $100 million campus that will expand its current workforce by 1,200 by 2017. WEAK PENSION FUNDING District employees are provided pension and other post-employment benefit (OPEB) benefits through the district's participation in the Public Employee Retirement Association of Colorado (PERA). In fiscal 2014, the district's combined contributions to PERA's pension and OPEB funds totaled $33.3 million or 9.7% of governmental spending. As of Dec. 31, 2013, the pension plan funded ratio was a low 60.3% or 57.2% based on a Fitch estimated 7% rate of return. The district's pension contributions will increase by about 1% of payroll annually through 2018 as a result of previously enacted legislation. Overall pension, OPEB, and debt expenditures are manageable at about 18% of governmental spending but will grow sizably with the 2014 bond authorization and increased pension contributions. 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 and the 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 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015 U.S. Local Government Tax-Supported Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=982174 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. |
