Feb 14 - Fitch Ratings assigns a rating of 'AA' to the following Santa
Clarita Community College District (the district) bonds:
--Approximately $65 million 2013 general obligation (GO) bonds.
The bonds are scheduled to price on Feb. 27, 2013 via negotiated sale. Proceeds
will be used to advance refund outstanding GO debt for interest savings.
In addition, Fitch takes the following rating actions:
--$109.6 million outstanding GO bonds affirmed at 'AA';
--$20.4 million outstanding certificates of participation (COPs) affirmed at
The Rating Outlook remains Negative.
The GO bonds are general obligations of the district, payable solely from the
proceeds of ad valorem taxes, without limitation as to rate or amount.
The COPS are limited obligations secured by lease rental payments for the use of
certain district properties, subject to abatement. They are additionally
supported by the district's covenant to budget and appropriate lease payments.
KEY RATING DRIVERS
IMPROVED LONG-TERM PROSPECTS: The district's long-term financial prospects have
improved following the November 2012 adoption of Proposition 30 and the
elimination of threatened mid-year reductions in state funding. In addition,
improvements in state revenues are likely to result in funding increases for
fiscal 2014 after several years of steep cuts for California community colleges.
SHORTER-TERM CHALLENGES REMAIN: The district has budgeted for continued deficit
spending in fiscal 2013 following a 2012 deficit that reduced fund balance by
nearly one-third. In addition, unrestricted cash balances remain weak following
several years of state cuts and revenue deferrals. The Negative Outlook reflects
continued risks to district finances from past funding cuts despite improved
STRONG ECONOMIC BASE: The district benefits from its access to and participation
in the broad Los Angeles regional economy and appears to be on the path to
recovery. District residents and households exhibit above-average wealth and
incomes relative to the county, state, and nation.
AFFORDABLE DEBT; SLOW AMORTIZATION: Overlapping debt levels are moderate but
amortization is slow due to the district's extensive use of long-dated capital
appreciation bonds (CABs).
MAINTENANCE OF OPERATING BALANCE: Management's inability to maintain operating
balance would increase downward pressure on the rating. Conversely, continuing
improvements in revenues and fund balance would support a revision of the
Outlook to Stable.
The district is located in northern Los Angeles County along Interstate 5,
approximately 35 miles from downtown Los Angeles, and includes the city of Santa
Clarita and adjacent unincorporated areas.
IMPROVED LONG-TERM PROSPECTS
The district's long-term financial prospects are much improved following recent
voter actions and expected growth in state funding for fiscal 2014 and beyond.
Proposition 30, which was approved by California voters in November 2012,
increases state sales and income taxes on a temporary basis and removes the
threat of mid-year cuts for fiscal 2013. In addition, state revenue growth
appears likely to increase K-14 funding guarantees under Proposition 98, and the
governor has included such higher funding levels in his proposed budget for
These developments represent a sharp turnaround in the district's financial
prospects as compared to one year ago. A threatened mid-year cut of $4.6 million
in fiscal 2013 if Proposition 30 had not passed was eliminated, and the
potential of additional cuts for fiscal 2014 was replaced with proposed funding
increases. These actions appear likely to improve the district's financial
stability over the longer-term, and to support renewed enrollment growth
following several years of declines.
SHORTER-TERM CHALLENGES REMAIN
The district's finances remain vulnerable following several years of funding
reductions, despite improved long-term prospects. Unrestricted general fund
revenues fell by 10.8% in fiscal 2012 and fund balance dropped by nearly
one-third, to 11.6% of unrestricted revenues ($8.9 million). In addition,
unrestricted cash and investments fell sharply following mid-year funding cuts,
and were equivalent to a low 1.1% of operating expenses ($1.4 million) at the
end of fiscal 2012. A conservatively projected deficit of $1.3 million for
fiscal 2013, despite the passage of Proposition 30, would further reduce the
district's financial flexibility. In response to these strains the district is
now planning its first ever cash-flow borrowing for fiscal 2013, which is
currently sized at $9 million (7% of 2012 operating expenses).
STRONG ECONOMIC BASE
The tax base of the district is largely residential and has withstood the recent
housing crisis better than many outlying communities in southern California.
After a long period of steady growth fueled by residential development, district
taxable assessed valuation (TAV) fell by 8% between 2009 and 2013.
Year-over-year home value increases of 4.5% through December 2012, as reported
by Zillow, point to the likely reversal of this trend, as the residential real
estate market continues to improve. Several large-scale residential developments
underway or in the planning stages are also expected to boost the district's
population and TAV over the next few years.
Wealth and income indicators for Santa Clarita are well above county, state, and
national averages, while poverty levels are much lower. Unemployment rates have
historically compared favorably to state and national averages and peaked at a
relatively low 7.8% in 2010. As of December 2012 the unemployment rate for Santa
Clarita was 6.2%, as compared to 9.7% and 7.6%, respectively, for the state and
nation. Employment growth has been inconsistent over the past year despite
declining unemployment, with year-over-year employment declines in six of the
past 12 months.
MANAGEABLE DEBT LEVELS; SLOW AMORTIZATION
Overlapping debt levels for the district are moderate at 3.2% of TAV, but
amortization is very slow due to the district's extensive use of long-dated
capital appreciation bonds on prior GO issuances. Approximately 21% of
outstanding principal and principal accreted through maturity is scheduled for
repayment within the next 10 years. The district will retain $45 million in GO
authorization following this transaction but has no immediate plans for further
The district is a participant in two state-sponsored defined benefit pension
plans and will likely face ongoing increases in contribution rates to address
current low funding levels. Funding for CalSTRS is a particular concern, as
current contribution rates are substantially below the level required to
amortize existing obligations. OPEB costs are funded on a pay-as-you-go-basis,
resulting in a growing liability for these commitments, but the district's
unfunded liability was relatively low at $6.7 million as of 2012. Carrying costs
for long-term obligations, including debt service and contributions towards
retirement benefits, were affordable at 12.6% of 2012 operating expenditures.
Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.
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 Global Insight, Zillow.com, and 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
U.S. Local Government Tax-Supported Rating Criteria