NEW YORK - Standard & Poor's Ratings Services said it revised its rating outlook to negative from stable and affirmed its A-plus rating on Saddleback Valley Unified School District, Calif.'s general obligation (GO) bonds. The negative outlook reflects S&P’s view that the district could deplete its available general fund balance if it is not able to implement sufficient expenditure reductions to address a large deficit that the district projected for fiscal 2010.
The rating reflects Standard & Poor's assessment of the district's location within the large, diverse Orange county economy and strong tax base with very strong wealth indicators. Also supporting the rating is the district's historical financial performance, which Standard & Poor's deems adequate and an unreserved general fund balance equal to 6.2% of expenditures for 2009, as well as additional revenues from parent contributions and lease activity. Added credit strengths are the district's debt burden, which Standard & Poor's considers low to moderate, and manageable direct future capital needs.
Tempering the credit strengths in Standard & Poor's opinion are softening enrollments and a decrease in the unreserved fund balances as a percentage of expenditures in fiscal 2010.
"The negative outlook reflects our view that to address its projections for what we consider a large deficit in fiscal 2010, the district will need to take substantial budget-balancing actions," said Standard & Poor's credit analyst Jessica Schultz. "We believe realizing all of a portion of the proposed $36 million in expenditure reductions will require the district to come to an agreement with its bargaining units in the coming months," said Schultz.
Standard & Poor's may consider lowering its rating if the district's available general fund balance falls below what it considers an adequate level. Conversely, Standard & Poor's could maintain the rating if it believes that the district has repaired the budgetary imbalance and continues to maintain adequate reserves.
The district (estimated population: 208,000) is located about 50 miles south of downtown Los Angeles in southern Orange County and serves about 32,000 students.
Standard & Poor's views the overall debt burden per capita as moderate at approximately $3,200, but low at 2.2% of assessed value given the large tax base. The district has $20 million in remaining authorization, but has indicated it does not plan to issue debt in the next few years.
