Fitch Affirms Jordan School District, UT's GOs at 'AAA'; Outlook Stable

SAN FRANCISCO--()--Fitch Ratings affirms the following Jordan School District, Utah bond ratings:

--$202.8 million general obligation (GO) bonds at 'AAA'.

This 'AAA' underlying rating reflects the district's credit quality without consideration of the 'AAA'-rated guaranty on the GO bonds provided by the Utah School Bond Default Avoidance Program.

The Rating Outlook is Stable.

SECURITY

The bonds are general obligations of the district under a full faith and credit pledge, payable from an unlimited ad valorem tax levied on all eligible taxable property within the boundaries of the former Jordan School District. The taxable area is now comprised of the remaining Jordan School District (responsible for repayment of 42% of the debt) and the new Canyons School District (responsible for repayment of 58% of the debt).

KEY RATING DRIVERS

CONTINUED FINANCIAL STRENGTH: Despite a significant reduction in its jurisdictional boundaries in 2009, Jordan School District retains strong credit characteristics, including high reserve levels, ample liquidity, prudent financial management, and tightly controlled salary and benefit costs.

RESILIENT TAX BASE: Outstanding debt is repaid from levies on the original district's board and somewhat diverse tax base which, despite downward pressure during the recession, continues to experience residential and commercial development.

MANAGEABLE DEBT BURDEN: Fitch anticipates that an expected increase to the district's currently very manageable, rapidly amortized debt burden, to address future student enrollment growth pressures, will remain consistent with the district's high rating level.

WELL LOCATED: The district benefits from its location within the Salt Lake County economic hub.

CREDIT PROFILE

Jordan School District is the fourth largest in Utah, with more than 52,000 students spread across 52 schools. It is located approximately 12 miles south of Salt Lake City, encompassing a mixture of urban, suburban, and rural areas within Salt Lake County.

On Nov. 6, 2007, voters in the eastern portion of the previous Jordan School District approved a ballot measure to secede and form a separate district. Consequently, a new Canyons School District (the eastern portion) and the remaining Jordan School District (the western portion) began operations on July 1, 2009 (fiscal year 2010) under separate school boards. (Fitch has an unenhanced long-term rating of 'AA+' with a Stable Outlook on Canyons School District's GO bonds.)

Existing bondholders benefit from an unlimited property tax levy on the aggregate taxable assessed valuation (TAV) of the previous Jordan School District. Both the debt and the TAV were divided proportionately between the two districts based on fiscal 2009 TAV (42% for the remaining Jordan School District and 58% for the new Canyons School District). Each district is legally obliged to tax the residents within its boundaries for its share of the outstanding debt. Salt Lake County collects the property tax revenues from within each school district's boundaries and distributes those revenues to the two school districts. Jordan School District then invoices Canyons School District for its share of the full debt service payment.

DOWNWARD PRESSURE ON FUNDAMENTALLY STRONG ECONOMY

Jordan School District is primarily residential and continues to benefit from being an integral part of the Salt Lake County economic hub. The county's unemployment rate declined to 5.4% in August 2012 from 6.8% a year prior, thereby keeping it well below the national unemployment rate of 8.2%. The district's socio-economic characteristics are somewhat mixed, with above-average median household income and below-average individual poverty rate offset by below-average per capita money income which likely reflects larger family sizes.

There has been some downward TAV pressure on the entire tax base responsible for debt repayment. This is largely due to state revaluations of centrally assessed properties (particularly Kennecott Utah Copper, by far the district's largest taxpayer) and county assessor revaluations of local properties. In fiscal 2012, Jordan School District TAV declined 7.4% while Canyons School District TAV declined by 3.3%. In fiscal 2013, both districts' TAVs declined a further 4.2% and 3% respectively. Nevertheless, both districts continue to experience ongoing residential and commercial development which will likely support a positive countertrend in the future.

STRONG FINANCIAL OPERATIONS

The district ended fiscal 2012 with a very strong unrestricted general fund balance of $116.3 million or 43.6% of spending, slightly down from its fiscal 2011 unrestricted general fund balance of $118.9 million or 45.2% of spending. The small net operating deficit after transfers of $185,366 was largely attributable to the cessation of federal stimulus funding in fiscal 2012, tempered by the ongoing expenditure savings generated by layoffs in fiscal years 2010 and 2011 and the district's ongoing success in negotiating labor cost containment. General fund liquidity remains very strong.

While the district is budgeting a much larger net deficit in fiscal 2013 ($9.5 million), typically it outperforms its conservative budgets and its general fund balances are expected to remain very strong. Under the two-year labor contracts currently in place, the district has budgeted for employee step and lane increases in fiscal 2013 but very carefully made further upward adjustments in fiscal 2014 contingent on the state providing new funding specifically for compensation increases.

DEBT BURDEN EXPECTED TO REMAIN MANAGEABLE

The district has a very low debt burden. In fiscal 2012, overall debt was $940 per capita and a low 0.9% of market value. The district's outstanding debt is amortized fully in nine years. However, the district is considering issuing a moderate amount of debt in the next few years, if approved by voters, to meet the capital needs arising from the ongoing student enrollment growth projected for several more years. Fitch does not expect the new debt to affect credit quality.

The district meets fully its annual pension obligations to the Utah Retirement Systems and estimates that its $63 million other post-employment benefit (OPEB) reserve fully funds its obligations under its closed OPEB plan. The district's total debt service, pension, and OPEB carrying costs were a manageable 18.5% of fiscal 2012 general fund and debt service fund expenditures.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

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 Global Insight, Zillow.com, and 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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

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