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TEXT-Fitch affirms Burbank USD, Calif. 'AA' GOs
July 25, 2012 / 8:04 PM / 5 years ago

TEXT-Fitch affirms Burbank USD, Calif. 'AA' GOs

(The following statement was released by the rating agency)

July 25 - Fitch Ratings has taken the following action on Burbank Unified School District, California (the district) unlimited tax general obligation (ULTGO) bonds: --$87.56 million ULTGO series 1997A, 1997B, and 1997C, affirmed at ‘AA’. The Rating Outlook is Negative. SECURITY The district’s general obligation bonds are payable from unlimited ad valorem taxes to be levied annually upon all property subject to taxation by the district. KEY RATING DRIVERS NEGATIVE OUTLOOK: The Negative Outlook is based on the district’s continuing budgetary pressures which are due to changes in state funding. The district has completed a fiscal solvency plan which addresses possible general fund deficits; however, the plan relies heavily on one-time revenues and will significantly reduce general fund reserves. POSSIBLE DECLINES IN STATE FUNDING: The district is highly dependent on state funding which has been declining over the past three years and is likely to continue in the immediate future although the magnitude of the declines is largely unknown. STABLE LOCAL ECONOMY: The district’s tax base is large and stable albeit somewhat concentrated in the entertainment industry. MANAGEABLE DEBT BURDEN: The debt profile is characterized by a low overall debt burden and an above-average amortization rate. WHAT COULD TRIGGER A RATING ACTION MATERIAL REDUCTION OF RESERVE LEVELS: The district’s inability to achieve operational balance resulting in deterioration of reserve levels below projections would put downward pressure on the rating. CREDIT PROFILE MIXED FINANCIAL RESULTS The district ended fiscal 2011 with a small surplus of $437,000 in the general fund after two years of consecutive deficits. Audited results for fiscal 2012 are not available; however, the district has projected a general fund deficit of approximately $2 million to $3 million (equal to 1.7%_to 2.6% of spending). While the district had originally budgeted a deficit of approximately $6 million, projected results appear markedly better due in part to state budget reductions that did not occur as well as a readjustment to special education expenditures. Unrestricted general fund balance (the sum of committed, assigned, and unassigned under GASB 54) grew to approximately $22 million or a strong 19.6% of total expenditures in fiscal 2011 and is expected to be reduced to a still strong 18% of total expenditures in fiscal 2012. FISCAL 2013 UNCERTAINTY The district has already implemented approximately $1.5 million in cost savings for the fiscal 2013 budget; however, a deficit of approximately $4.5 million is projected. The Negative Outlook reflects the fiscal 2013 budget which calls for the use of one-time revenues including an increase in the transfer from the adult education fund as well as use of $1.5 million of funds from the deferred maintenance fund that were transferred to the general fund in fiscal 2010. Unrestricted fund balance would decline to just approximately 13% of total expenditures. If the state’s proposed tax initiative does not pass in November, the district has a comprehensive fiscal solvency plan that addresses two different scenarios for operations through fiscal 2014. The plan includes possible implementation of furlough days, increases in flex funds, management salary reductions, and class size increases within allowable limits. Total general fund balance will be reduced under both scenarios; however, it would remain well above the 3% of total expenditures as required by the state and slightly above the board’s policy of 6%, leaving the district with significantly reduced financial flexibility. STABLE LOCAL ECONOMY AND TAX BASE The district’s boundaries are coterminous with the city of Burbank. The city’s economy has long been tied to the media and entertainment industry with Warner Bros. Entertainment, Walt Disney Productions, NBC/Universal, ABC, and Nickelodeon among the largest taxpayers and employers. The city also has a healthy technology and healthcare presence, and its proximity to the broader economic base of the Los Angeles metro area has contributed to consistently below-average levels of unemployment. The city recorded an unemployment rate of 9.6% in March 2012 which was below the county and the state levels but higher than the national level of 8.4%. Wealth levels in the city are average to above average and the individual poverty rate has historically been well below the national average. The district’s tax base has been relatively flat for the past three years at $18 billion or a very high market value per capita of $176,000. The desirability of the district’s service area combined with its solid educational reputation contributes to the average daily attendance of 14,889 students for fiscal 2012. LOW DEBT BURDEN The overall debt burden of the district is low at $2,267 per capita and 1.3% of full market value; amortization is slightly above average with 60% of total principal retired within 10 years. The district may approach voters for an additional debt authorization in the next few years although it would not significantly change the debt profile. Annual carrying costs for debt, pensions, and post-employment benefits are a manageable 13% of general fund expenditures. (Caryn Trokie, New York Ratings Unit)

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