Rating Action: Moody's upgrades Folsom-Cordova USD, CA's SFID No. 1 and No. 4 to Aa2; confirms Aa2 on SFID No. 2 and 5; upgrades SFID 3 to Aa3 and assigns Aa3 issuer ratingGlobal Credit Research - 19 Apr 2021New York, April 19, 2021 -- Moody's Investors Service has assigned a Aa3 issuer rating to Folsom-Cordova Unified School District, CA. The issuer rating reflects the district's ability to repay debt and debt-likeobligations without consideration of any pledge, security, or structural features. Concurrently, Moody's has upgraded to Aa2 from Aa3 the general obligation unlimited tax (GOULT) ratings on the district's School Facilities Improvement District 1 (SFID 1) and School Facilities Improvement District 4 (SFID 4); confirmed the Aa2 GOULT ratings on the district's School Facilities Improvement District 2 (SFID 2) and School Facilities Improvement District 5 (SFID 5) and upgraded to Aa3 from A2 the GOULT rating on the district's School Facilities Improvement District 3 (SFID 3). This action concludes a review for direction uncertain initiated on January 26, 2021 in conjunction with the release of the US K-12 Public School Districts Methodology. The ratings apply to approximately $466.7 million in combined Moody's rated debt.RATINGS RATIONALEThe Aa3 issuer rating reflects the school district's heathy financial profile, which is supported by growing enrollment as well as conservative management policies and practices. The rating incorporates the school district's growing economy in eastern Sacramento County (A1 stable) with continued housing and enrollment growth as well as above average wealth levels. The school district's somewhat elevated leverage and fixed costs are also factored into the rating. Like other California school districts, Folsom-Cordova USD's pension liabilities are somewhat elevated, and rising pension costs represent a budget pressure. The school district is undertaking a large and complex capital program, which includes upgrades to existing schools as well as new schools to accommodate anticipated enrollment growth resulting from largescale planned housing developments.The Aa2 rating on SFID 1's GOULT bonds is one notch higher than the district's issuer rating. The one notch distinction reflects California school district GO bond security features that include the physical separation through a "lockbox" for pledged property tax collections and a security interest created by statute. The rating also reflects SFID 1's growing assessed valuation (AV) approaching $8.3 billion, which represents approximately 34.2% of the school district's overall AV with no significant taxpayer concentration.SFID 1 mostly overlaps with SFID 4, and both benefit from development around Rancho Cordova and proximity to the city of Sacramento (Aa2 stable (m)).The Aa2 rating on SFID 4's GOULT reflects security features and a $6.5 billion AV (26.9% of school district total) with no taxpayer concentration.The Aa2 rating on SFID 2's GOULT debt reflects the same security features and the district's growing AV of over $15 billion (62.3% of school district total AV) with no significant taxpayer concentration. SFID 2 largely overlaps with SFID 5, and both benefit from the strong residential real estate market around Folsom (Aa2).The Aa2 rating on SFID 5's GOULT reflects security features and a growing AV of close to $14.7 billion (60.6% of school district total) with no taxpayer concentration.The Aa3 rating on SFID 3's GOULT reflects security features and a much smaller AV of just under $2.5 billion (10.2% of school district total) as well as a more concentrated tax base, with the top ten taxpayers representing over 25% of the SFID's total AV.RATING OUTLOOKOutlooks are typically not assigned to local governments with similar amounts of debt.FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS- Material improvement of the school district's fiscal position including increased reserves- Significant reductions in leverage- Improved resident incomeFACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS- Increased leverage and fixed costs- Sustained deterioration of the school district's financial position- Enrollment declines- Economic weakening or declines in resident income levelsLEGAL SECURITYAll SFID GOULT bonds are secured by the voter-approved unlimited property tax pledge of their respective SFID. Sacramento county rather than the school district will levy, collect, and disburse each SFID's property taxes, including the portion constitutionally restricted to pay debt service on GOULT bonds.PROFILEFolsom Cordova Unified School District encompasses about 96 square miles in eastern Sacramento County, including most of the cities of Folsom and Rancho Cordova and neighboring unincorporated areas. The district serves students in grades K-12, operating 20 elementary schools, four middle schools, three comprehensive high schools, five alternative schools and one dependent charter school. The district also operates 14 preschool programs at eight sites, transitional kindergarten programs at six sites, a Montessori program at one site, 14 childcare centers and an adult education program. The school district has estimated fiscal 2021 enrollment of 20,556 students.School Facilities Improvement District No. 1 encompasses the western half of the school district, including Rancho Cordova and adjacent areas. The district established SFID No. 1 in 1997 with voter approval to fund school renovation and modernization within the SFID.School Facilities Improvement District No. 2 encompasses the eastern half of the school district, including the Folsom and adjacent areas. The district established SFID No. 2 in 2002 with voter approval to fund school construction and modernization in the SFID.School Facilities Improvement District No. 3 encompasses 52.6 square miles in the southeastern portion of the district, including most of Rancho Cordova and a small portion of Folsom, but primarily unincorporated areas south of Highway 50. The district established SFID No. 3 in 2006 with voter approval to fund school construction to support anticipated residential development of vacant land, as well as redevelopment of industrial land.School Facilities Improvement District No. 4 encompasses 18.3 square miles in the southwestern portion of the district, including part of Rancho Cordova and adjacent areas. The district established SFID No. 4 in 2006 with voter approval to fund facilities and improvements for schools in the Rancho Cordova area.School Facilities Improvement District No. 5 encompasses 25 square miles in the northeastern portion of the district, including part of Folsom and adjacent areas. The district established SFID No. 5 in 2013 with voter approval to fund facilities and improvements for school in the Folsom area.METHODOLOGYThe principal methodology used in these ratings was US K-12 Public School Districts Methodology published in January 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1202421. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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