Placer Union schools given 'AA' credit rating, healthy financial profile

Fitch Ratings says district's fiscal outlook is stable
By: Andrew Westrope, Staff Writer
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(PlacerUnionHighSchool District’s rating in bold)

AAA: Highest credit quality – lowest default risk, highly unlikely to be affected by foreseeable events

AA: Very high credit quality – very low default risk, not particularly vulnerable to foreseeable events

A: High credit quality – low default risk, strong capacity for payments

BBB: Good credit quality – currently low default risk, capacity for payments is adequate

BB: Speculative – financially able to meet commitments, but adverse changes could cause default

B: Highly speculative – financial commitments met, but continued payment is vulnerable

CCC: Substantial risk – default is a real possibility

CC: Very high risk – default is probable

C: Exceptionally high risk – default is imminent or inevitable

RD: Restricted default – defaulted but not entered into bankruptcy

D: Default – entered into bankruptcy or other formal winding-up procedure, or stopped business

*Source: Fitch Ratings – Definitions of Ratings and Other Forms of Opinion – February 2013

A global ratings agency has reported a healthy financial profile and stable outlook for Placer Union High School District.

A recent press release from Fitch Ratings out of New York announced a “AA” rating for the district’s $17.1 million general obligation (GO) bonds and a “AA-” for its $1.4 million certificates of participation. On a scale of lowest to highest investment risk, from “AAA” to “D,” the “AA” GO rating indicates general creditworthiness compared to other similar institutions in the state. The report further found the district maintains “consistently positive operating margins, strong reserve levels, and ample liquidity.”

The report showed a $1.8 million net operating surplus for the district at the end of 2012, amounting to 4.8 percent of total general fund spending, and a “robust” unrestricted fund balance equal to 45 percent of total general fund spending. With state Proposition 30’s temporary increase of state sales and income taxes to help offset declining enrollment, Fitch expects the district’s operating expenses to approximately break even in fiscal 2013.

Of the district’s tax base, the report said Placer County’s status as one of the fastest-growing in the state  over the past decade compensates for the fact that it is mostly residential or undeveloped, with “average” socioeconomic indicators and a median household income at 126 percent of the national average and 108 percent of the state’s.

Fitch found the district’s overall debt levels were low, at $1,107 per capita and 0.9 percent of assessed value.

Karen Ribble, senior director of Fitch Ratings’ western region, said Fitch performs these analyses every two years for agencies with AA ratings, and Placer Union’s has held steady.

“‘AA’ is average for general obligation bonds nationwide. California school districts obviously have been under a lot of pressure in recent years, so our average California school district rating is actually ‘AA-’, so (Placer Union) is slightly above the average,” she said. “In this case, that reflects their financial flexibility … The fact that they’re above California school district average suggests that they are somewhat less reliant on the state, and that would point to their strong reserve levels.”

Ribble said these reports are typically more useful for investors than for school administrators, but it’s also an important accountability measure when taxpayer dollars are on the line.

“The purpose of these reports is for investors, so whoever owns the GO bonds or the COPs would be interested in an updated opinion and credit analysis,” she said. “It’s also used by districts to provide some sort of third-party feedback in the union discussions with the board, but that’s secondary.”

District board president Lynn MacDonald had previously said the district had not yet needed to cut major programs or overbook classrooms, but she is unconvinced that good credit means no worries. While the positive report was encouraging, she said, it did not entirely assuage her concerns about funding shortfalls due to declining enrollment.

“I’m thrilled about the credit rating. I’m obviously really happy … A lot of schools are in deficit spending and they’re in trouble, and we’re not,” she said. “It’s very important to us, because as a board, we need to keep our eyes on what’s happening all the time. If there’s a problem, we’ll get a new business manager. We want to know if our business manager is doing his job. It’s crucial.”