Fitch Downgrades Aromas-San Juan USD, California's GOs to 'BB+'; Outlook Stable

2008-09-11 21:14:02 -

- Fitch Ratings downgrades Aromas-San Juan Unified School District (USD), CA's (the district) $11 million outstanding general obligation (GO) bonds to 'BB+' from 'BBB-' and removes the bonds from Rating Watch Negative. The Rating Outlook is Stable.

The downgrade reflects the district's extremely weak financial position, including negative general fund total and unreserved fund balances, deficit spending, projected operating deficits unless further action is taken, a difficult state funding environment, and the need for external borrowing to support cash flows. Future rating actions will consider the district's ability and willingness to close its remaining operating deficit, and rebuild an adequate reserve. The rating also considers the district's measures enacted to reduce its operating gap.

Management has prudently cut $1.2 million of ongoing expenditures by reducing employee wages and capping benefits, eliminating 30 positions, and increasing fees for services. Management is also attempting to rein in special education costs, which are currently provided by other districts and charged back to the district. Future projected operating deficits range from about $108,000 in fiscal 2009 to $254,000 in fiscal 2011, without further spending cuts. The district's estimated actual results for fiscal 2008 indicate total and unreserved general fund balances of approximately negative $332,000 and negative $334,500, respectively.

San Benito County is reportedly close to authorizing a $3 million loan, which will be needed to balance a projected $2 million cash shortfall in October, leaving a $1 million loan cushion. The district also plans to assemble a financial advisory committee that will consider options for balancing ongoing operations. In June voters turned down a bond authorization, which would have refunded the district's certificates of participation (COPs) and saved the general fund from making debt service payments. As a result, management is considering restructuring the COPs to recognize savings from ongoing debt payments.

The district's financial strain results in part from declining enrollment and recently very limited new development. Fitch does not expect new construction and developer fees to rise in the near term. However, recently announced plans for increased staffing levels at the area's largest employer has the potential to positively affect enrollment in the future.

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Fitch Ratings, San Francisco
Scott Monroe, +1-415-732-5618
Amy Doppelt, +1-415-732-5612
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)