Primary & Secondary Education
General Obligation Refunding Bonds, Series 2011
Expected Sale Date
General Obligation Bonds
NEW YORK, Sep 1, 2011 -- Moody's Investors Service has assigned an initial A1 rating to the
Sebastopol Union School District, California, 2011 General Obligation Refunding
Bonds expected to be issued in the approximate amount of $2.2 million. The bonds
are secured by an unlimited tax pledge of the district. Proceeds from its
current offering will refund callable portions of the district's outstanding
2001 General Obligation Refunding Bonds of which $2.1 in principal is currently
The rating primarily reflects the district's maintenance of adequate
reserves despite a recent history of operating losses, slightly
above-average wealth levels, and below-average debt burden. The rating also
incorporates the district's history of declining enrollment and its
modestly-sized tax base.
- Adequate, though declining, reserves
- Slightly above-average wealth levels
- History of declining enrollment
- Recent trend of operating losses
DETAILED CREDIT DISCUSSION
SMALL AND MOSTLY RESIDENTIAL TAX BASE; SLIGHTLY ABOVE-AVERAGE WEALTH LEVELS
The district's tax base is primarily composed of residential properties in the
City of Sebastopol and some surrounding unincorporated areas of Sonoma County
(Aa1 GO rating), approximately 45 miles north of San Francisco. In 2012 the
district's assessed value (AV) grew by 0.1% to $1.6 million. While AV growth is
small, it is notable given the 1.6% and 0.2% declines in 2010 and 2011,
respectively. The top ten tax payers are diverse and are not concentrated
(comprising only 4.4% of total AV). The district's economy is largely supported
by employment in the San Francisco Bay Area, tourism, small high-tech firms, and
agriculture including vineyards and an expanding boutique organic farming
industry. The district's AV is modestly-sized compared to similarly-rated
California districts, but above-average relative to A1 districts nationwide.
This district's socioeconomic profile is slightly above the state and national
average. Median family income in the district (2000 census) is $59,851, 112.9%
of the state and 119.6% of the national averages. Similarly, per capita income
was $25,669, 113% of the state and 118.9% of the national averages.
CONTINUED FISCAL STRESS OFFSET BY CONSERVATIVE MANAGEMENT AND ADEQUATE RESERVES
Since fiscal 2008, the district has experienced several operating deficits and
has slowly drawn down General Fund reserves. Though General Fund reserves are
still at adequate levels, they nonetheless are below average for A1-rated school
districts. The Fiscal 2010 General Fund balance fell to $632,000, or 9.5% of
revenues. However, the district established a special reserve fund of $302,000
that same year. The special reserve fund is unrestricted and available to the
General Fund. Combined, both funds provide an available fund balance of
$934,000, or 12.3% of revenues. Based on unaudited estimated actuals for fiscal
year 2011, the district experienced a $158,000 operating deficit, and drew the
available fund balance down to $778,000, or 13.4% of revenues.
The district has experienced fiscal stress for several years due to
enrollment declines and state funding cuts. Enrollment has declined
steadily, with a five year average annual decline of 3.2%. The district
attributes its enrollment decline to students transferring to charter and
private schools in the area, and an aging population and declining birthrates.
Enrollment declines decrease the district's annual revenue limit funding from
the state. In Fiscal 2011, revenue limit funding represented 66.8% of the
district's General Fund revenues. State funding cuts, which affect
all California school districts funded by the revenue limit formula, have also
contributed to the district's declining revenues.
Declining enrollment and revenues are credit negatives for the district which
are offset by timely management efforts. District management has proactively
sought measures to reduce expenditures and serve the changing needs of the
district. In fiscal 2011, the district closed an elementary school and created a
combined school serving K-8, saving approximately $355,000 annually. The
unique school has actually attracted more students back to the district and
is expected to outperform its enrollment projections, although
significant long-term growth remains unlikely. Most recently the district has
negotiated increased staff contributions to health benefits, staffing
reductions, and five furlough days. These measures result in approximately
$702,000 in annual saving.
As per state AB 114, districts are required to budget fiscal 2012 state revenue
limit funds equal to fiscal 2011. However, school districts are exposed to
mid-year trigger cuts to revenue limit funds that are set to occur if state tax
revenues do not meet projected levels by December 2011. If the full trigger cuts
occur, it would reduce revenues by approximately $215,000, or $250 per average
daily attendance (ADA) as calculated by the revenue limit funding formula. The
trigger cuts would likely affect receipts received near the end of the fiscal
year. From a cash-flow perspective, the district has sufficient cash and
alternate liquidity to manage any possible cuts. In fiscal 2010, the
district ended the year with $604,000 in unrestricted cash and
investments, representing a net cash level at 9.1% of revenues. Additionally the
district could pursue short-term borrowing options made available by the Sonoma
County Treasurer. Moody's expects that the district will successfully manage any
cash-flow challenges associated with the possible trigger cuts.
Any losses from the trigger cuts could be offset by unbudgeted revenues, which
would stabilize the district's financial profile. The district has few options
to reduce expenditures mid-year if the cuts occur. Instead, they would likely
result in the use of reserves, already designated for this purpose. Without the
trigger cuts, the district is already budgeted for a $363,000 operating deficit
in fiscal 2012, resulting in a year end budgeted available fund balance of
$416,000, or 8.6% of revenues. Based on the current budget and maximum projected
loss due to trigger cuts, total available fund balance could be drawn down to
$200,000, or 4.1% of revenues. However, the district expects to realize an
additional revenue of $150,000 per year from a lease with a charter school
beginning in fiscal year 2011. The lease revenue, in addition to any unbudgeted
revenue from new enrollment, will likely offset the possible losses from the
trigger cuts. Moody's expects that the district will maintain fund balances
comparable to its current levels in the near-term. Any significant fund balance
declines will be a credit negative for the district and make them more
comparable to lower Moody's rated California school districts.
DEBT LEVELS REMAIN RELATIVELY LOW
The district's direct debt burden is low at 0.5%, while overall debt is 1.3%,
which is low relative to similarly-rated school districts. The district has
no lease debt. Proceeds from the current offering will refund the callable
portion of the outstanding amount of the District's 2001 General Obligation
Refunding Bonds of which $2,070,000 principal amount is currently outstanding.
The refunding will generate an estimated $92,730.76 in interest savings for the
district's tax base.
WHAT COULD CHANGE THE RATING - UP
- Significant growth of assessed value
- Material improvement of socioeconomic indicators
WHAT COULD CHANGE THE RATING - DOWN
- Sizable declines of assessed value
- Further erosion of General Fund reserves
Assessed Value, FY 2012: $1.6 billion
Average annual growth, assessed value, 2007-2012: 0.1%
Median family income, 2000 census: $59,851 (119.6% of US)
Per capita income, 2000 census: $25,669 (118.9% of US)
General Fund balance, FY 2010: $632,701 (9.5% of General Fund revenues)
Total available fund balance, FY 2010: $933,643 (12.3% of General Fund revenues)
General Fund balance, FY 2011, unaudited actual: $476,084 (8.2% of General Fund
Total available fund balance, FY 2011, unaudited actual: $778,217 (13.4% of
General Fund revenues)
Average daily attendance, FY 2011: 727 students
Direct debt burden: 0.5%
Overall debt burden: 1.3%
Payout of principal (10 years): 91.1%
The principal methodology used in this rating was General Obligation
Bonds Issued by U.S. Local Governments published in October 2009. Please see the
Credit Policy page on www.moodys.com for a copy of this methodology.
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MOODY'S ASSIGNS A1 RATING TO SEBASTOPOL UNION SCHOOL DISTRICT, CA G.O BONDS; $2.2 MILLION OF DEBT AFFECTED
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