Fitch Affirms Livingston Union School District, CA ULTGOs at 'AA-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance effort, Fitch Ratings takes the following rating action on Livingston Union School District, CA's (the district) unlimited tax general obligation (ULTGO) bonds:

--$4.45 million series 2005 affirmed at 'AA-'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The district benefits from a strong financial management team that practices conservative budgeting and has demonstrated a commendable record of proactive fiscal operations.

--Ample general fund reserves, although beginning to erode, still provide flexibility given the expected continued declines in state funding.

--The limited, low-wealth tax base is stable due in part to a large agricultural component which provides some insulation from declines in residential property values typical in Merced County (the county).

--The district has a below-average debt burden and no immediate plans for additional debt.

KEY RATING DRIVER:

--Maintenance of reserve levels in line with the district's target of at least 25% of spending.

SECURITY:

The bonds are a general obligation of the district. The county has the power and is obligated to levy ad valorem taxes for the payment of the principal and interest upon all property within the district without limitation of rate or amount.

CREDIT SUMMARY:

Livingston Union School District is located in Merced County, which reported March unemployment of 21.4%, more than double the national rate of 9.2%. According to the city of Livingston, there is an indication that the housing market is stabilizing; approximately 50 new homes were built and sold in fiscal 2011 and though foreclosures are still a concern they are declining. Per capita personal income levels in the county are well below average at 64.6% of the state and 70.9% of the national norms. The district's tax and employment base is concentrated heavily in one winemaker (E.J. Gallo, representing approximately 16% of assessed value) and one poultry producer (Foster Poultry Farms, representing approximately 12%); the district indicated that there have been no major staffing changes at either facility. Assessed values have dropped to fiscal 2007 levels and are expected to remain flat for fiscal 2012 according to information from the county assessor, after which management projects a slow recovery of 1%-2% through fiscal 2013. Enrollment in district schools has increased in fiscal 2011 and management expects continued growth as families take advantage of the distinctive educational opportunities offered by the district (it is one of only three districts within the county to offer a dual language program) as well as the lower housing prices in the area.

The district's financial position is still strong, although the general fund balance dropped substantially in fiscal 2010. The ending unreserved balance was a high 44% of expenditures, down from 57% at the end of fiscal 2009. The district is projecting another drawdown in fiscal 2011 and a total fund balance of 43% of total expenditures. The drawdowns were due to reductions in the state's funding formula, which the district assumes will continue in fiscal 2012 and subsequent fiscal years. The district plans to reduce the magnitude of fund balance draws in the next three years by identifying spending cuts of approximately $1 million per year for fiscal years 2012 through 2014. With these reductions the district estimates that general fund reserves will not drop below 24% of spending, well above the state required 3% and in line with its own goal of 25%. Without the spending reductions, fund balance would be projected to drop as low as 18% in fiscal 2013. In addition to the general fund reserves the district also has approximately $10.3 million in other reserves which could be borrowed for general fund operations, providing an additional layer of flexibility.

The district's overall debt levels are below average at $1,437 per capita and 1.8% of assessed value; there are no immediate plans to issue the $5 million in remaining bond authorization from the 2005 election. Principal amortization is rapid with 62% of the outstanding retired in 10 years. The district provides pension and other post employment benefits through the state-run CalPERS and CalSTRS programs and regularly pays 100% of the annual required payments.

Additional information is available at 'www.fitchratings.com'

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., IHS and Global Insight

Applicable Criteria and Related Research:

'Tax-Supported Rating Criteria', dated Aug. 16, 2010.

'U.S. Local Government Tax-Supported Rating Criteria', dated Oct. 8, 2010.

For information on Build America Bonds, visit www.fitchratings.com/BABs.

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566

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