Feb 13 - Fitch Ratings has affirmed its 'AA-' rating on the following Moreno
Valley Unified School District (the district), CA's general obligation (GO)
--$4.7 million GO bonds, election 2004, series A;
--$38.7 million GO refunding GO bonds, series 2007.
The Rating Outlook is revised to Negative from Stable.
The bonds are secured by an unlimited ad valorem tax pledge on all taxable
property within the district.
KEY RATING DRIVERS
STRUCTURAL IMBALANCE: The Negative Outlook reflects the district's ongoing
fiscal imbalance reflected in operating deficits. Significant expenditure
reductions over the past few years have left the district with a relatively
limited degree of remaining expenditure flexibility. However, revenue pressures
may ease somewhat in fiscal 2014 if proposed state funding increases are
ADEQUATE RESERVES: The district's unreserved fund balance was satisfactory at
13.7% of spending at the end of fiscal 2012 and is expected to remain adequate
in fiscal 2013 despite a modest projected draw.
WEAK ECONOMY; STABILIZING AV: The local economy remains weak with high
unemployment, limited job growth, and below average wealth levels. Taxable
assessed value (AV), however, appears to be stabilizing with a return to growth
in fiscal 2013.
RISING DEBT PROFILE: Overall debt ratios are moderate but will likely rise as
the district pursues a new high school project. Carrying costs for long term
liabilities is manageable and amortization is above average.
REDUCED FINANCIAL CUSHION: Maintenance of adequate reserve levels is fundamental
to the rating given the weak economy and growing debt burden. The inability to
correct the ongoing structural imbalance will likely result in a downgrade.
The district provides public education for grades kindergarten through 12 to
approximately 34,000 students in Riverside County. The district's boundaries
cover approximately 43 miles and include portions of Moreno Valley and Riverside
ONGOING STRUCTURAL IMBALANCE
The district's financial profile has been a key credit positive but appears
pressured by an ongoing structural imbalance. The unrestricted general fund
reserve (combined committed, assigned, and unassigned balances under GASB 54)
was $38.6 million or a satisfactory 13.7% at the end of fiscal 2012. Reserve
levels should remain adequate at the end of fiscal 2013, given the current
projected operating deficit (after transfers) of $3-$4 million, but downward
rating pressure is likely absent restoration of financial balance in fiscal
Financial performance softened in fiscal 2012 with a $6.1 million (2.2% of
spending) operating deficit compared to a relatively modest operating deficit of
0.9% in fiscal 2011. Significant expenditure reductions, including reduced
school days, staff furloughs, cuts to transportation funding, and increased
class sizes have reduced the impact of funding reductions. However, Fitch views
management's remaining expenditure flexibility as relatively limited given the
significant reductions already made.
Financial pressure may ease somewhat in fiscal 2014 if revenue increases are
realized. The governor's proposed fiscal 2014 budget increases K-12 education
funding and reduces the amount of funding deferrals. While the district's
financial balance may be restored by the proposed funding increases, actual
funding will not be determined until the state passes its budget this summer.
WEAK ECONOMY; STABILIZING TAX BASE
The local economy remains weak with relatively high unemployment rates and below
average wealth levels. In October 2012, the unemployment rates in Moreno Valley
and Riverside County were high at 13.9% and 12%, respectively. Wealth levels in
Moreno Valley are below average with per capita income at 62% of the California
Reflecting a stabilizing real estate market, including fewer home foreclosures,
the district's AV grew a modest 3.1% in fiscal 2013 and was flat in fiscal 2012.
While AV remains 15.6% below its fiscal 2009 peak, Fitch views the return to
stability as a credit positive.
MIXED DEBT PROFILE
The district's debt profile remains mixed. Overall debt ratios (including
accreted interest) are a moderate $2,804 per capita and an above average 4.5% of
fiscal 2013 AV.
The district has tentative plans to seek voter authorization in June 2014 for
approximately $200 million in additional GO debt to finance a new high school,
which would double the district's debt load if issued in full. However,
outstanding direct debt amortizes at an above average rate with 61% of principal
(including accreted interest) retired within 10 years, providing the district
with some additional debt capacity.
OPEB AND PENSION PRESSURES
The district's fiscal 2012 contribution amount for other post-employment
benefits and pensions were manageable at 7.7% of general fund spending. Future
increases in contribution rates, however, appear likely with the relatively weak
funding levels of the OPEB plan (7.4%) and the statewide pension plans. Carrying
costs for debt service, pension and OPEB are manageable at 12% of governmental
fund (net of capital) spending.