SAN FRANCISCO –The City College of San Francisco is facing some tough math as its struggles to remain solvent and keep its accreditation.

But the community college district’s uncertain future is unlikely to impact bondholders because its outstanding debt is backed by San Francisco’s full faith tax pledge.

The San Francisco Community College District has about $370 million of outstanding general obligation bonds backed by the ad valorem property taxes levied by the city’s treasurer, who also holds onto the funds for debt service payments.

“The bondholders are always going to be made whole because of the security, the pledge of the property tax,” said Nadia Sesay, director of San Francisco’s Office of Public Finance, about the district’s debt. “They only have GO bonds, they haven’t been creative.”

Since the property tax collections are routed through the city to bondholders, the district has no access to the money, which is good news for bondholders because it is facing some severe financial problems.

The college, which serves 100,000 students at nine campuses, has hitched its short-term fiscal salvation on a parcel tax on the local ballot this November and also needs Gov. Jerry Brown’s statewide tax initiative to pass because a defeat would result in further funding cuts to schools.

A recent state review of the district finances found that it faces a deficit of $11.4 million in fiscal 2013 if neither of the taxes pass, which will rise to $27.8 million in fiscal 2015 if nothing is done to fix the problems.

Even if both measures pass, the city college will fall back into a deficit of $2.5 million in two years, according to the report by the Fiscal Crisis and Management Assistance Team.

“CCSF is in a perilous financial position,” the report said.

Part of the cause of the dire financials, according to the review, is that the college is incurring much higher employee costs than comparable districts, employing twice as many full-time and tenured faculty per 1,000 students. The report said employee costs typically make up 90% of its unrestricted budget.

“Because so much of its budget is committed to employee costs, resulting in insufficient reserves, CCSF has difficulty responding to unexpected fiscal obligations,” the state report said.

One possibly for fixing the issues would be for the district’s board of governors to appoint a state trustee to take over its finances.

On top of and partly due to its financial problems, City College has been hit with a “show cause” order by the Accrediting Commission for Community and Junior Colleges, which is the final warning in a long overview process before a college loses accreditation.

The community college must show cause by June 2013 why it shouldn’t lose its accreditation by correcting problems that have been outlined in previous reviews.

Citing these serious issues, ratings agencies have recently downgraded the district’s bonds.

Earlier this month, Moody’s Investors Service cut the City College’s GO bond credit rating to A1 from Aa2. In July, Fitch Ratings downgraded it to A from AA and in June, Standard & Poor’s dropped it to A-plus from AA.

All have an negative outlook.

However, as Moody’s notes in its report: “at no point does the district have access to, or gain operational benefit from, the proceeds pledged to bond repayment.”

And the market appears to agree since the district’s bonds have done nothing but increase in price since issuance.

The college district’s 2006 series A GO bonds maturing in 2028 that initially sold at a price of 97.8% of par and an interest rate of 4.5% sold in a block of $1 million for 106.2% of par with a yield of 2.8% in July, well after its financial problems were known.

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