APPROXIMATELY $8 MILLION IN DEBT AFFECTED
Primary & Secondary Education
General Obligation Refunding Bonds, 2010
Expected Sale Date
General Obligation, Unlimited Tax
NEW YORK, Nov 15, 2010 -- Moody's Investors Service has assigned an A1 rating to the Palo Verde Unified
School District's (CA) 2010 General Obligation (GO) Refunding bonds. The bonds
are secured by an unlimited property tax pledge of the district. At the same
time, Moody's affirms the A1 rating on the district's outstanding GO bonds and
removed the negative outlook. Proceeds from the current offering will refund a
portion of the district's outstanding Election of 1998, Series A and B GO bonds
for interest rate savings.
The A1 rating primarily reflects the district's small tax base size, residents'
well below-average socioeconomic profile, maintenance by the district of
above-average reserves, and average debt levels. The removal of the negative
outlook reflects Moody's expectation that the tax base has stabilized despite
significant headwinds in the regional real estate market, and maintenance of
prudent financial operations.
RESIDENTIAL TAX BASE EXPERIENCES MODEST CONTRACTION IN 2011 AFTER STRONG GROWTH
IN 2010; WELL BELOW-AVERAGE SOCIOECONOMIC PROFILE
Palo Verde Unified School District (USD) is primarily located in
eastern Riverside County (GO-rated Aa2 with negative outlook). The district
provides educational services to approximately 3,400 students in the communities
of Blythe, Ripley, and Palo Verde. The assessed valuation (AV) of the district's
tax base is quite small at $1.3 billion in 2011 compared to the median for
A1-rated California school districts, which was $2.7 billion in 2011. Despite
significant headwinds in the housing market county-wide, the tax base continued
to experience AV growth in 2010 and 2011 which is atypical of most Riverside
County school districts. The tax base experienced modest AV growth of 0.1%
year-over-year in 2011 after slightly higher growth of 1.2% year-over-year in
2010. While home prices within the district's service area experienced a
moderate contraction in market values as other parts of the county did from 2004
through 2007, the tax base's relatively low concentration of residential parcels
at 38% of secured AV protected district-wide AV from the impact of sizable
downward AV reassessments that occurred in 2010 and 2011. The district's
relatively stable growth pattern is a primary factor in the removal of the
negative outlook. However, Moody's notes that the district has moderately high
taxpayer concentration; the district's top property taxpayer is a natural gas
power plant called Blythe Energy which is owned by NextEra Energy (NYSE:
NEE). The plant represents approximately 20.4% of total AV. The closure of the
plant would result in a significantly large reduction in district-wide AV.
Moody's believes the closure of the plant is unlikely, however, given that
NextEra Energy is expanding in the area with the opening of a large Photovoltaic
Solar Project facility in December 2009 and seeking approval to construct
another solar power facility on 5,950 acres. There have been no indications
from NextEra Energy that the natural gas plant will be closed and remains
profitable as of the third quarter of fiscal 2010.
The district's socioeconomic profile is well below the state average with median
and per capita incomes of 70.0% and 49.3% of the state average, respectively.
These income levels are typical of rural school districts in Riverside County.
Moody's notes the county's economy continues to experience high
unemployment; Riverside County's unemployment rate was 15.3% in September, which
is well above the state unemployment rate of 12.2% in the same month.
ABOVE-AVERAGE RESERVES PROVIDE NEAR-TERM CUSHION AGAINST DECLINING STATE
The district's financial operations are well-positioned to manage the impact of
lower state education funding on its educational programs. The district's
balance sheet was at an above-average level leading up to the downturn in state
education funding; the fiscal 2009 ending general fund balance was $4.7 million
or 13.1% of 2009 revenues. Despite a sizable cut in state education funding in
fiscal 2010, the district was able to generate an operating surplus of $1
million through the receipt of approximately $2.7 million in federal stimulus
funds. For fiscal 2011, the district projects an operating deficit of $2.3
million. Despite the drawdown, reserve levels are projected to remain at an
above-average level of $3.3 million or 12.4% of projected 2011 revenues. Moody's
notes the district's budget is conservative as it does not assume an increase of
$250 in per pupil funding in the recently approved budget; the district based
its revenue projections on the State May revised budget. Also not incorporated
in the district's budget is the receipt of $590,000 in federal jobs bill
funds. The district has proactively implemented expenditure reductions
beginning in fiscal 2009, which include personnel reductions, the
implementation of furlough days, and programmatic savings. Moody's notes that
the state budget is susceptible to additional reductions in education funding
and the district will need to monitor and adjust its budget accordingly. Given
the above-average reserve levels maintained to date and proactive management
action to initiate expenditure cuts, Moody's expects that the district's reserve
levels over the long-term will remain comparatively strong.
LOW DEBT BURDENS; REFUNDING TO PROVIDE DEBT SERVICE SAVINGS
The current $5.7 million offering will refund a portion of the district's
outstanding Election of 1998, Series A and B GO bonds, and has a 13-year
maturity period in line with the refunded issue. Post-issuance, the district's
payout rate remains at an above-average level for California school districts at
48% of the district's outstanding debt repaid within 10 years. The district's
current direct debt burden is average at 1.4% of district-wide AV, while overall
debt burden is moderately higher at 3.3% of district-wide AV.
What could move the rating-UP
- Significant improvement in the district's financial position
- Trend of significant growth in assessed valuation
- Substantial improvement in socioeconomic measures
What could move the rating-DOWN
- Significant deterioration in the district's financial position
- Protracted decline in the district's assessed valuation
Assessed Value, FY 2011: $1.3 billion
Median family income, 2000 census: $37,096 (70.0% of state)
Per capita income, 2000 census: $11,194 (49.3% of state)
General Fund balance, FY 2009: $4.7 million (13.1% of General Fund revenues)
Unreserved General Fund balance, FY 2009: $2.7 million (7.6% of General Fund
Average daily attendance, FY 2009: 3,381 students
Direct debt burden: 1.4%
Overall debt burden: 3.3%
Payout of principal (10 years): 47.6%
The principal methodology used in this rating was General Obligation
Bonds issued by U.S. Local Governments published in October 2009.
Information sources used to prepare the credit rating are the following: parties
involved in the ratings, public information and confidential and proprietary
Moody's Investors Service information.
Moody's Investors Service considers the quality of information available on the
credit satisfactory for the purposes of assigning a credit rating.
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MOODYS ASSIGNS A1 RATING ON PALO VERDE UNIFIED SCHOOL DISTRICT'S (CA) GO BONDS; REMOVES NEGATIVE OUTLOOK
Moody's Investors Service
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