|[January 14, 2014]
Fitch Affirms Baldwin Park USD, CA's GO Bonds at 'A+'; Outlook Stable
SAN FRANCISCO --(Business Wire)--
Fitch Ratings affirms the following outstanding Baldwin Park Unified
School District (the district), CA's (News - Alert) general obligation (GO) bonds at
--$205,000 series 2003 GO bonds;
--$8.9 million series 2004 GO bonds;
--$11.2 million series 2005 GO refunding bonds;
--$6.3 million series 2005 GO bonds;
--$24 million series 2006 GO bonds;
--$22.6 million series 2007 GO bonds;
--$15.7 million series 2008 GO bonds.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax on all taxable
property within the district.
KEY RATING DRIVERS
RELATIVELY LIMITED RESERVES: The rating reflects the district's
structural imbalance which is projected to continue over the next few
years, keeping reserve balances close to the state required 3%.
INCREASED REVENUES AND EXPENDITURES: District revenues are projected to
increase significantly despite enrollment declines as the Local Control
Funding Formula (LCFF) is phased in. However, Fitch views expenditure
pressures, particularly from labor groups, as reducing the district's
financial flexibility and preventing a meaningful increase in the
district's reserves over the medium term.
ABOVE-AVERAGE DEBT BURDEN: Overall debt ratios remain above average and
direct debt amortizes at a slow rate. Carrying costs are moderate but
expected to increase due to ascending debt service and expected
increases in pension contributions.
WEAK LOCAL ECONOMY: The local economy exhibits high unemployment rates
and below-average income levels. However, the area benefits from its
proximity and access to the diverse Los Angeles labor market.
MODEST TAX BASE GROWTH: Taxable assessed value (AV) increased for the
third consecutive year in fiscal 2014 and additional modest increases
are expected as the real estate market recovers and limited additional
development takes place in the city.
REDUCED FINANCIAL CUSHION: Maintenance of adequate reserve levels is
fundamental to the rating given the weak economy and above-average debt
The district covers nine square miles encompassing the city of Baldwin
Park, and parts of Irwindale, Industry, and West Covina. District
enrollment has trended down over the past several years with fiscal 2013
average daily attendance of 14,256, approximately 7.1% lower than in
WEAKENED FINANCIAL POSITION
The district's financial profile weakened somewhat since fiscal 2011 as
two consecutive years of operating deficits modestly reduced reserve
balances. At the end of fiscal 2013 (draft audit), the district's
unrestricted reserve balance was $6.3 million or 4.8% of spending
compared to $7.7 million or 5.2% of spending at the end of fiscal 2011.
The district made significant expenditure cuts in both fiscal 2012 and
2013 but they were insufficient to fully offset revenue declines that
largely stemmed from volatile state funding and declining enrollment.
The district recorded operating deficits of $1 million (0.7% of
spending) and $948,000 (0.7%) in fiscals 2012 and 2013 (unaudited),
Reserve levelsare expected to remain low and may decrease modestly over
the next couple of years due to projected budgetary imbalances.
Management expects to record an operating deficit in fiscal 2014 as
expenditure increases due to the restoration of seven furlough days and
other expenditure increases exceed the additional revenue that the
district expects to receive from improved state funding and the
implementation of the LCFF.
District management expects to receive approximately $5 million-$6
million annually in additional revenue during the eight year
implementation of LCFF. While Fitch views the significant revenue growth
as a credit positive, expenditure pressures, particularly salary demands
from labor groups whose contracts are currently under negotiation, are
expected to largely keep pace with revenue gains over the near term.
ABOVE-AVERAGE DEBT BURDEN
The district's overall debt burden remains above average at $3,340 per
capita and 6.3% of AV. The district recently issued approximately $24
million in GO debt (not rated by Fitch) to take out a corresponding
amount of bond anticipation notes that were set to mature later in 2014.
While the district does not plan on issuing any additional debt, direct
debt levels are unlikely to decrease over the near term because of the
slow amortization rate for outstanding principal.
The district participates in CalPERS and CalSTRS to provide
defined-benefit pensions for employees. The district regularly makes its
full annual contribution. However, Fitch views contribution rates as
likely to rise, particularly for CalSTRS, given the pension plans'
relatively weak funding levels. The additional costs may put further
pressure on the district's financial performance.
WEAK LOCAL ECONOMY; MODEST TAX BASE GROWTH
The local economy benefits from its proximity to viable transportation
options and diverse employment opportunities in the greater Los Angeles
metropolitan area. However, the unemployment rate in the city of Baldwin
Park remains high at 12.7% (June 2013) compared to the regional average
of 9.2%. Income levels in the city are also relatively weak with per
capita income at 52.6% of the state's average.
The district recorded AV growth in fiscal 2014 of 3.2%, marking the
third consecutive year of increases. An improved real estate market and
limited redevelopment in the largely built-out area are expected to
support relatively stable AV performance over the near term. The tax
base is not concentrated, with the top 10 taxpayers comprising 6.6% of
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS (News - Alert) Global Insight, National
Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
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