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
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
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
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
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
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
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