BRIEF-Fitch says Indonesian SOEs' leverage may rise without government injections
Dec 7 Fitch on Indonesian state owned enterprises
Nov 19 Fitch Ratings assigns an 'AA-' rating to Jurupa Unified School District, CA's (the district) $23.8 million 2012 general obligation (GO) refunding bonds.
In addition, Fitch affirms the following rating at 'AA-':
--$53.1 million district GO bonds, series 2002, series 2004, and refunding series 2011.
Purpose of Current Debt Issue: Advance refund the outstanding 2004 general obligation bonds and pay the costs of issuance. The bonds will be sold via negotiation the week of Nov. 26.
The Rating Outlook is revised to Negative from Stable.
The bonds are secured by an unlimited ad valorem tax on taxable property within the district.
KEY RATING DRIVERS
STRUCTURAL IMBALANCE: The Negative outlook reflects the district's structural imbalance apparent in the fiscal 2013 budget, relatively limited expenditure flexibility, and Fitch's view that ongoing revenue pressures are likely due to the district's exposure to volatile state funding despite the recent passage of Proposition 30.
HEALTHY FINANCIAL POSITION: The current rating is largely supported by the district's satisfactory reserve levels and generally positive financial margins maintained through conservative budgeting practices, expenditure reductions, and use of federal stimulus funds.
STABILIZING TAX BASE: The district's tax base recorded two consecutive years of very modest growth, pointing to some stabilization after three years of declining to flat performance.
PRESSURED ECONOMY; ONGOING RECOVERY: Economic indicators point to an ongoing economic recovery with a declining through still high unemployment rate, a return to job growth, and stabilizing home values that remain below pre-recession levels. The local economy retains long-term strengths due to its proximity to major Southern California labor markets and its valuable location for trade and transportation industries.
ABOVE AVERAGE DEBT BURDEN: The district's overall debt burden is above average primarily due to overlapping debt issuance. The district's direct debt amortizes at a rapid rate.
WHAT COULD TRIGGER A RATING ACTION
STRUCTURAL IMBALANCE: The district's inability to correct projected operating deficits could result in a downgrade. CREDIT PROFILE Jurupa Unified School District covers an approximately 44 square mile area in northwest Riverside County. The district's enrollment in fiscal 2013 is projected at 19,586.
BUDGETARY IMBALANCE; REDUCED EXPENDITURE FLEXIBILITY
The district's budgetary estimates for fiscal 2013 improved dramatically following voter approval of Proposition 30 (Prop. 30), avoiding the significant midyear reduction in revenues included in the state's budget if the measure had failed. However, even without the midyear revenue cut, the district expects to incur a $6.4 million operating deficit (after transfers) as reduced state funding, decreasing enrollment, and the expiration of federal stimulus funds result in 12.1% less revenue (budgeted) in fiscal 2013 compared to fiscal 2009.
Fitch expects the district's operations to remain pressured given its reliance on state funding in light of longer-term state revenue and budgeting uncertainties despite the recent passage of Prop. 30.
Over the past several years the district reduced expenditures by reducing its workforce, raising class sizes, obtaining concessions from labor groups that included salary freezes and furlough days, and other actions. In part due to the significant steps already taken, Fitch views the district's expense reduction options going forward as relatively limited with class days already at the state required minimum and remaining categorical flexibility insufficient to fully offset the imbalance.
Fitch notes that while the impasse with the teachers' union was successfully mediated for fiscal 2013, the district agreed to increase its health benefit spending above the established per employee cap. Fitch expresses concern about what it perceives as recent labor tensions as the inability to obtain needed concessions from labor could restrict future expenditure flexibility.
SOLID FINANCIAL POSITION; CONSERVATIVE BUDGETING PRACTICES
The district's financial position remains solid at the end of fiscal 2012 (unaudited) with a projected unrestricted ending fund balance (combined committed, assigned, and unassigned balances under GASB 54) at $20.3 million or 13.2% of spending.
Fitch views the current unrestricted balance as a satisfactory mitigant to credit concerns, including state funding risks, and expects it to remain adequate following the projected spend down in fiscal 2013 to 10.5% of spending. However, the Negative Outlook reflects Fitch's concerns that the district may not have sufficient tools to cure the projected structural imbalance in fiscal 2013 and future years.
The district has shown a willingness and ability to reduce expenditures to match declining revenues by recording operating surpluses (net of transfers) in five of the past six fiscal years (including unaudited fiscal 2012). Fitch views an operating deficit in fiscal 2013 as likely, but notes that the district has historically outperformed budgetary estimates by a significant margin. For example, the fiscal 2011 and 2012 budgets projected operating deficits of $7.3 million and $7.2 million, respectively but recorded operating surpluses of $6.3 million (4.2% of fiscal 2011 spending) and $2.6 million (1.7% of unaudited fiscal 2012 spending).
PRESSURED ECONOMY; STABILIZING TAX BASE
The district is part of a large and diverse regional economy that is recovery at a moderate pace although it remains weak following the housing-led recession. The county's unemployment rate declined to a high 12.8% (August 2012) after recording year-over-year employment growth of 2.2% and a modest increase in labor force.
Fitch views the region's economy as vulnerable and expects the return to former peak levels of employment and economic activity to be a lengthy process. Nevertheless, the area benefits from several advantages including its important location for transportation and distribution, housing affordability and land available for development, and its proximity to several large and diverse Southern California labor markets.
The district's tax base recorded its second consecutive year of very modest growth with a 0.8% increase in taxable assessed value (AV) for fiscal 2013. While the district's AV remains 8.6% below fiscal 2008 levels, the recent performance supports other data showing a stabilization of home values in the area. The district's tax base remains non-concentrated with the top ten taxpayers, largely consisting of industrial owners, comprising approximately 12.5% of fiscal 2012 AV.
The district's boundary largely consists of the recently incorporated cities of Eastvale and the City of Jurupa Valley. The district operates 16 elementary schools, three middle schools, three comprehensive high schools, one continuation high school, and one adult education program.
MANAGEABLE DEBT LEVELS
The district's direct debt consists of GO bonds, certificates of participation, and lease-backed debt for energy improvements and a warehouse and training facility. The district does not retain any additional GO debt authorization and does not plan on additional debt issuances over the next couple of years. Outstanding principal amortizes at a rapid rate with approximately 67% retired within 10 years.
The district's overall debt burden is above average at $5,132 per capita and 6.7% of AV due to overlapping issuances, particularly from tax allocation bonds (not reported previously).
The district participates in two statewide pension plans and makes the full annual contribution. In fiscal 2011, the district's combined contribution to the two plans was approximately $10.1 million or a manageable 6.7% of spending. The district also offers other post-employment benefits (OPEB). As of July 1, 2012, the district had an unfunded liability of $25.6 million.
Dec 7 Fitch on Indonesian state owned enterprises
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