Luther Burbank School District, CA GO Bond Rating Raised To 'AA-' From 'A+' On Maintenance Of Very Strong Reserves

SAN FRANCISCO (S&P Global Ratings) May 17, 2019--S&P Global Ratings raised its rating on Luther Burbank School District, Calif.'s general obligation (GO) bonds outstanding to 'AA-' from 'A+'. At the same time, S&P Global Ratings assigned its 'AA-' rating to the district's series 2019A (election of 2018) bonds. The outlook on all ratings is stable.
"The upgrade reflects our view of management's demonstrated ability to institute budgetary adjustments and cost-saving measures to maintain a strong bottom line and what we consider very strong reserves," said S&P Global Ratings credit analyst Erich Schmitz. "It also reflects our view of management's recently instituted policies and procedures that we believe will be instrumental to support credit quality. Improving our view is the district's location within the rapidly growing San Jose area, which has demonstrated consistent tax-base growth since the recession."
The district expects this growth to continue due to a large mixed residential and commercial land use development. District enrollment has declined due to the reduction of out-of-district enrollment caused by facility capacity constraints. New facilities stemming from use of the bond proceeds should provide additional capacity and improve enrollment, although it raises the district's debt metrics. We anticipate operating performance to remain stable as we expect the district to continue to adjust the budget where needed to maintain very strong reserves.
Unlimited ad valorem taxes levied on taxable property within the district secure the GO bonds. Management expects to use the series 2019A bonds to develop and modernize school district facilities.
The approximately one-square-mile district serves an estimated population of 4,715 in the San Jose metropolitan area in northern California.
The stable outlook reflects our view that management will continue to make adjustments to sustain its very strong reserves. It also reflects our view of its growing local economy, which continues to benefit from its proximity within San Jose. Therefore, we do not anticipate changing the rating within our two-year outlook period.
Should economic metrics dramatically improve to levels commensurate with those of higher-rated peers, while all other credit factors remaining stable, we could raise the rating.
We could lower the ratings if the district experiences a sustained operating imbalance, resulting in a deterioration in reserves to a level that we no longer consider very strong.
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