TEXT - Fitch raises Utah's Canyons SD underlying GO rating

Wed Feb 13, 2013 5:06pm EST

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Feb 13 - Fitch Ratings has upgraded the underlying rating for the following
Canyons School District Board of Education (the district), Utah general
obligation (GO) bonds:

--$134 million series 2011 and 2012 to 'AAA' from 'AA+'.

The Rating Outlook is revised to Stable from Positive.

The underlying rating and revised Outlook reflect the district's credit quality 
without consideration of the guaranty provided by the Utah School Bond Default 
Avoidance Program.

SECURITY

The bonds are secured by the proceeds of an ad valorem property tax levied at a 
rate sufficient to pay principal and interest.

KEY RATING DRIVERS

SOLID FINANCIAL POSITION: The district ended its third fiscal year of operation 
with an increasingly strong unrestricted general fund balance, ample liquidity, 
a low debt burden that amortizes rapidly, adequately funded pension liabilities,
and fully funded other post-employment benefit liabilities.

POSITIVE OUT-YEAR PROJECTIONS: Medium-term financial projections indicate 
maintenance of its strong general fund balances based on reasonable assumptions.

CONTINUED FINANCIAL FLEXIBILITY: The district retains the flexibility to 
increase taxes, make staff reductions, modify labor agreements, and adjust class
sizes if necessary.

GOOD LABOR RELATIONS: The district continues to benefit from positive labor 
relations which have allowed it to partially offset remuneration cost increases 
with significant labor concessions.

MANAGEABLE CAPITAL IMPROVEMENT NEEDS: The district has identified significant 
facility repair and replacement costs, but it is not being pressured by student 
enrolment growth and has sufficient facility capacity. Therefore, it can plan 
its capital improvement program and associated bond issues in stages to avoid 
pressuring local taxes.

SOMEWHAT MIXED SOCIOECONOMIC CHARACTERISTICS: Proximity to the Salt Lake County 
economic hub enhances the district's own commercial tax base. However, 
socioeconomic characteristics are somewhat mixed and there has been significant 
local tax base decline. The state projects tax base stabilization, which appears
to be supported by improving local property market conditions.

RATING SENSITIVITIES: While the rating is sensitive to fundamental changes in 
financial management and performance, Fitch does not expect the district to 
alter its current conservative approach.

CREDIT PROFILE

In November 2007, voters in the eastern portion of the previous Jordan School 
District approved a ballot measure to secede and form a separate district. 
Consequently, a new Canyons School District (the eastern portion located in the 
southeast corner of Salt Lake County) and the remaining Jordan School District 
began operating in fiscal 2010 under separate school boards. Canyons School 
District covers 192 square miles and has a 2013 enrolment of 33,528 students 
attending 45 schools and an adult and community education program.

CANYONS' RESPONSIBILITY FOR PAYMENT OF JOINT DEBT

Holders of the original Jordan School District GO bonds benefit from an 
unlimited property tax levy on the aggregate TAV of the previous Jordan School 
District. Both the debt and the TAV were divided proportionately between the two
districts based on the TAV in the year immediately preceding the division. 
Canyons School District's share is 58%. Each district is legally obligated 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 those revenues to the two school 
districts. Jordan School District then invoices Canyons School District for its 
share of the full debt service payment. District officials report that repayment
of the joint debt continues to proceed smoothly, including a mutually agreed 
prepayment of certain bonds on Feb. 1, 2013.

MANAGEABLE LONG-TERM LIABILITIES

In June 2010, 50.7% of voters approved a $250 million GO bond authorization for 
school capital improvement projects. To date, the district has issued $148 
million of that authorization. The district intends to issue the balance by 
mid-2016 in tranches of debt sized to avoid pressuring the tax rate. The overall
debt burden will remain low. The district anticipates requesting voter 
authorization in fiscal 2017 for further GO bonds on completion of the capital 
projects being funded by the 2010 authorization.

Overall debt is a low $1,838 per capita and 1.7% of market value. Debt 
amortization is above-average at 67.3% in 10 years. The district's fiscal 2012 
carrying costs related to annual debt service, annually required pension 
contributions, and OPEB payments amounted to a somewhat high 19.8% of total 
governmental spending less capital outlay. However, Fitch notes that the 
district meets fully its annual pension obligations to the adequately funded 
Utah Retirement Systems and the district's OPEB liabilities are currently fully 
funded. Further, Fitch does not expect that these carrying costs will increase 
to the point that they weigh unduly on the district's financial operations.

STRONG FINANCIAL OPERATIONS

The district ended fiscal 2012 with a strong unrestricted general fund balance 
of $63.8 million or 31.2% of spending, up from an already strong $60.8 million 
(30.8%) the year prior. This increase is attributable to increased property tax 
revenues and keeping expenditures below budget (due, in large part, to delaying 
hiring for a new high school until fiscal 2013 although the positions had been 
funded in the fiscal 2012 budget). The district generated a $5.2 million net 
operating surplus after transfers, rather than a budgeted $1.3 million net 
deficit.

Projected fiscal 2013 general fund results and district officials' expectations 
regarding out-year projections suggest that the total general fund balance will 
hold around $65-$75 million through fiscal 2016 and beyond. The district intends
to continue rolling forward its fully funded 5% economic stabilization reserve.

The district experienced tax rate increases in fiscal years 2010-2013 totaling 
17.2% due to reconfiguring its tax levies, as permitted by the state, and 
automatic adjustments for TAV declines. While the district retains the option to
increase its tax rate further given the significant room remaining under its tax
rate caps, it does not expect to do so.

The district also has considerable financial flexibility related to staffing 
levels, class sizes, and number of school days (subject to state approval). In 
addition to strong liquidity from general fund cash and investments, the capital
outlay fund includes monies generated from the capital tax levy that could be 
available for general fund support in an emergency situation if the state 
approved the necessary waiver. Including all governmental funds, the district 
has access to approximately $255 million in cash and investments (net of unspent
bond proceeds).

The district continues to benefit from positive labor relations which allow it 
to partially offset remuneration cost increases with significant labor 
concessions, such as the incremental elimination of 10 professional development 
days for teachers. Concerns about contention between a member of the board of 
education and the superintendent have abated as the parties appear to have 
developed a constructive working relationship.

SOMEWHAT MIXED SOCIOECONOMIC CHARACTERISTICS

Canyons School District is primarily residential, with a strong commercial base,
and continues to benefit from being an integral part of the Salt Lake County 
economic hub. As employment opportunities grow and the labor force stabilizes, 
the county's unemployment rate declined to 4.9% in October 2012 from 5.8% a year
prior, in line with improving state and national trends.

While the district's overall socioeconomic characteristics are good, with 
above-average per capita money income and median household income and a 
below-average individual poverty rate, the socioeconomic characteristics of 
specific communities within the district vary widely. The district includes some
of the wealthiest communities in the state, while other areas are more 
challenged with significant portions of their students eligible for free and 
reduced lunch programs.

The district experienced a cumulative 5.9% TAV decline in fiscal years 
2011-2012, with a projected further decline of 1.5% in fiscal 2013, primarily 
due to ongoing residential declines and price suppression as a result of Utah's 
relatively high foreclosure exposure. However, the state is predicting 1% annual
TAV growth in fiscal 2014 onwards and district officials note positive signs in 
the local housing market such as faster sales, higher house prices, increased 
construction activity, and a tightening housing inventory since the majority of 
foreclosures have now worked their way through the system.
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