Fitch revises CCUSD's Rating Outlook to Negative

By Linda Bentley | June 18, 2008
CCUSD – Last week the Business Wire reported, “In the course of surveillance, Fitch affirms the approximately $44.6 million in outstanding general obligation bonds of Cave Creek Unified School District No. 93 at ‘AA-.’ The Rating Outlook is revised to Negative from Positive.”

When Fitch placed the district on Positive Outlook on Aug. 24, 2006, it was based on the expectation the district would maintain or improve its favorable financial position.
However, according to Fitch, subsequent to that review, the district’s financial position “deteriorated during a period of leadership transition” and the Negative Outlook is tied to Fitch’s assessment that “the district faces pressure from flattening enrollment, declining fund balances and a tax averse electorate.”

While its ‘AA-’ rating is reflective of the district’s large tax base, which has grown from increased property values and the merger with Christopher Verde Unified School District in July 2007, taxpayers, despite high area wealth levels, denied the district’s capital spending plan for a new high school and failed to pass its capital override and bond initiatives in November.

 Fitch also mentioned the district has historically had high fund balances, pointing out its unreserved general fund balance equaled $3.1 million in 2004, or 12.8 percent of total expenditures.

In 2006, after two years of spending deficits, the unreserved general fund balance became a negative $125,000.

Even though the district has partially replenished the general fund balance since that time, according to Fitch, it remains significantly below previous levels and the district has no intention of increasing the fund balances to previous highs.

Fitch also does not anticipate taxable assessed valuation will continue to grow at the same high levels it did earlier in the decade and, due to flattening enrollment, state aid payments are expected to remain stable.

In conclusion, Fitch stated, “Going forward, the district will need to manage expenditures in line with enrollment and obtain support from its citizens for its capital funding needs in order to pass important overrides and bond initiatives.”

Meanwhile, Applied Economics, the consulting firm that prepares the district’s demographic and enrollment studies, has predicted small-area enrollment projections through 2017/18.

Because CCUSD has always included the portion of CVUSD north of Jomax in its projected enrollment, the impact of the merger was minimal, with overall district growth increasing by 12 students, 148 students short of Applied Economics previous projection of 6,088 students.

The housing market also proved to be irrelevant to student enrollment predictions as Applied Economics noted, “The lack of enrollment growth despite about 580 new homes being built is attributed to the overall increase in housing vacancy rates,” whereas 520 housing units were being vacated while 580 new homes were being added.

Although the study anticipated a reduction in housing construction last year, it did not foresee the relatively large increase in vacancy rates.

The study shows a declining trend in enrollment, which Applied Economics believes “will likely continue in the future as the size of incoming classes has begun to plateau.”
Demographic changes within the existing housing stock will also affect enrollment, with some areas of the district experiencing declines in the long term due to the aging of the housing stock and the associated occupants.

The study indicates the highest concentration of new students will continue to be from the southwest quadrant of the district.

Applied Economics’ revised long-term projections anticipate CCUSD’s enrollment to grow from its current 5,940 to about 8,145 students by 2020.