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Fitch Downgrades San Francisco CCD 2002 GOs to A-Minus

Fitch Ratings said it has downgraded to A-minus from A San Francisco Community College District's $28.1 million 2002 general obligation bonds (election of 2001, series A).

The ratings are removed from negative watch and assigned a negative outlook.

The bonds are a general obligation of the district. The board of supervisors of the city and county of San Francisco (the city) is obligated to levy and collect ad valorem taxes upon all property within the district subject to taxation, without limitation to rate and amount, to pay debt service on the bonds.

The recent voter approval of two key ballot measures reduces the threat of mid-year cuts in fiscal 2013 and will boost district revenues over the next eight years.

The downgrade reflects the risk of continuing financial challenges despite improved revenues if the district is unable to make substantial expenditure reductions.

The district is actively engaged in efforts to retain its accreditation, which will require numerous reforms to address a lengthy history of operational dysfunction. The outcomes of a loss of accreditation are unclear, but the most likely scenario would involve a takeover of the district's functions by a neighboring community college district, with no impairment of debt service.

The threatened loss of accreditation results from the district's longstanding underfunding of administrative functions and a shared governance structure that has reduced management authority and hindered the district's ability to react to changing fiscal circumstances. In order to maintain current operations the district must demonstrate it is in compliance with accreditation standards by March 2013.

Audits of the district's recent financial statements note multiple and recurring material weaknesses in financial reporting, which raise concerns regarding the accuracy of reported financial data and financial management more generally.

The district is coterminous with the city and county of San Francisco (GO bonds rated AA-minus by Fitch) and is supported by a resilient local economy and strong tax base.

Direct and overlapping debt levels are moderate but the district faces substantial liabilities for employee pensions and other post-employment benefits.

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