Fitch Ratings assigns its 'AAA' unenhanced long-term rating to the
following Salt Lake City School District, Utah general obligation (GO)
bonds:
--$18 million, GO refunding bonds (Utah School Bond Guaranty Program),
series 2012.
In addition, Fitch also applies an 'AAA' enhanced long-term rating to
the bonds based on the guaranty provided by the Utah School Bond Default
Avoidance Program.
The bonds are scheduled to sell competitively on or about the week of
Jan. 18.
In addition, Fitch affirms the following unenhanced long-term ratings on
the district's outstanding debt:
--$107.6 million of GO bonds at 'AAA';
--$11 million of lease revenue bonds issued through the Salt Lake City
School District Municipal Building Authority (the authority) at 'AA '.
The Rating Outlook is Stable.
SECURITY
The GO bonds are secured by an unlimited ad valorem property tax.
The lease revenue bonds are secured by lease rental payments from the
district to the authority for the use of essential assets. Lease
payments are subject to annual appropriation.
KEY RATING DRIVERS
LARGE, RESILIENT LOCAL ECONOMY: The Salt Lake City School District
benefits from its position at the center of a large and diverse economy
that has proven more resilient than the nation as a whole during the
current deep economic downturn. The region's long-term growth prospects
appear strong despite near-term economic weakness.
STRONG FINANCIAL PERFORMANCE: Financial operations are healthy, with
fund balances continuing to climb despite declines in state funding. The
district's largest local revenue source, property taxes, has shown
stability during the economic downturn.
HEALTHY DEBT PROFILE: The district's debt profile is conservative with
low debt levels, reliance on fixed-rate, general obligation bonds and
rapid amortization. The district has limited future issuance plans.
LARGE, DIVERSE TAX BASE: The tax base is significant with a total
taxable assessed value of $18.4 billion and diverse with the top 10
taxpayer accounting for a moderate 8.2% of revenues. AV appears to have
stabilized after a period of declines.
STRONG MANAGEMENT PRACTICES: The district's conservative budgeting,
long-term capital planning and healthy reserve policies provide a strong
framework for continued healthy financial performance.
CREDIT PROFILE
The Salt Lake City School District serves Utah's largest municipality, a
110-square-mile of 186,440 people. The district educates 24,650 students
at 37 schools, including 28 elementary schools, five middle schools and
four high schools.
Salt Lake City is economic center of a large and relatively resilient
regional economy that supports 1.1 million people. The economy continues
to exhibit the lingering effects of the recent recession with sluggish
employment growth and continued weakness in housing, but the economy
appears to have solid long-term prospects. The economy is diverse and
largely service-based. The local job market has outperformed the nation
in terms of job growth and unemployment over the past two decades and
continues to enjoy a somewhat lower unemployment rate than the nation as
a whole. Salt Lake City's non-seasonally adjusted jobless rate of 7.3%
was below the nation's 8.5% rate in October 2011. The city's median
household income is just 85% of the national level, but the city has
been closing the gap over time.
The Salt Lake metropolitan area has been hurt by the national housing
downturn, but the decline has been milder than in other high-growth
western communities and has shown tentative signs of abating. Total
market value of the tax base rose 1.8
in 2009 and 3.1% in 2010. Housing starts rose sharply in both 2010 and
2011, retracing some of the sharp decline felt in the 2006-2009 period
but remaining well below long-term averages. Significant development
continues, including the Church of Jesus Christ of Latter-day Saints' $2
billion City Creek Center mixed-use redevelopment project near Temple
Square.
The Salt Lake City School District's finances are strong, with
conservative budgeting allowing the continued accumulation of unreserved
fund balances despite a sharp decline in state education funding during
the recent recession. With recessionary pressures easing and state
revenues rising again, the district's total revenues rose 3.4% in fiscal
2011 after a 4.9% drop in 2010. The district's property tax revenues
held steady through the recession, despite a drop in assessed values,
because Utah law allows the district to automatically adjust its
property tax levy to maintain property tax revenues. Fitch views the
stability of property tax revenues as a credit strength. Even with
recent increases in the district's tax rate, the local property tax
burden remains affordable.
The district avoided the painful spending cuts that have affected many
other school districts because it came into the recession with
significant operating surpluses. The district cut expenditures a
relatively modest 2.1% in fiscal 2010 and held spending growth to a
modest 1.7% in 2011. The district has not yet needed to tap its
significant unrestricted general fund balance, which equaled 24.4% of
expenditures at the end of fiscal 2011, up from 21.8% a year earlier.
District management expects a small drawdown in fund balance during the
current fiscal year, but Fitch expects the district to continue to
maintain robust fund balances going forward.
The district's direct debt burden is low at $118.6 million, or 0.5% of
the market value, and the overlapping debt burden is moderate at 3.1% of
market value. The district's debt portfolio is conservative with over
90% of its debt as unlimited-tax, fixed-rate GO bonds. Amortization is
very strong with the district paying off 85% of its debt in 10 years and
100% within 20 years. Future issuance plans are minimal. The district
has exhausted its current GO bond authorization and does not expect to
need to return to voters for further authorizations in the foreseeable
future. The district may issue as much as $10 million of lease revenue
bonds to finance construction of a new district administrative building
within the next five years. Beyond that, the district expects to be able
to pay for significant capital spending on a pay-as-you-go basis.
The district's financial management policies are also strong. The Salt
Lake City schools engage in long-term capital planning and regular
monitoring of budgets by elected policy makers. The district's formal
fund balance policy requires it to maintain an undesignated, unreserved
fund balance equal to 5% of expenditures, a target it regularly exceeds.
The district's debt management policies include a series of targets that
are likely to keep the district's debt profile strong, including goals
such as maintaining an average maturity of less than 10 years and
limiting total GO bonds to 1% of the fair market value of property in
the district.
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, S&P/Case-Shiller Home Price Index, IHS
Global Insight, Zillow.com, National Association of Realtors,
Underwriter, Bond Counsel, and Underwriter Counsel.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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