Fitch Affirms Jefferson Davis Parish School District No. 1, LA's GO Bonds at 'A'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--As part of its continuous surveillance efforts, Fitch Ratings affirms Jefferson Davis Parish School District No. 1, LA's (the district) general obligation Bonds as follows:

--$2.4 million general obligation school bonds, series 2005 and 2005A at 'A';

The Rating Outlook is Stable.

KEY RATING DRIVERS
--Weak Economy: The parish is rural in nature and economically dependent upon agriculture and oil and gas production. Wealth indices are low; however, unemployment rates have trended below the state and national averages.
--Growing Taxable Valuations: The district's concentrated tax base expanded significantly between fiscals 2007 and 2011, despite a 7% decline in fiscal 2010.
--Modest Debt Load: Direct debt levels are below average, consisting of only two outstanding issues, and rapidly amortized.
--Strong Financial Position Under Pressure: School Board finances have weakened somewhat in recent years due to falling state and sales tax revenues, although financial reserves remain relatively healthy.
--Recent Growth in Enrollment: Parish-wide school enrollment has increased modestly in recent years after a long period of decline.

SECURITY
The bonds are general obligations of the district payable from the levy of unlimited ad valorem taxes on all taxable property within the boundaries of the district.

CREDIT PROFILE
School District No. 1 (the district) encompasses 75 square miles in the southeast corner of Jefferson Davis Parish. The incorporated municipality of Lake Arthur is the district's main commercial center with a 2010 population 2,738. District taxable values grew at a robust average annual rate of 4.5% over the past four years including a dip in fiscal 2011 (ending 6/30), as new pipelines and oil and gas equipment were added to the tax rolls. The decline in assessed valuations in fiscal 2007 of over 7% was due in part to the falloff in drilling activity in the Gulf of Mexico.

The district's tax base is concentrated as the top ten taxpayers are primarily composed of pipelines or other oil and gas -related properties, accounting for nearly 45% of total valuations. The top taxpayer, Hilcorp Energy Company, is a natural gas exploration and production firm and represents approximately 22% of district assessments. Assessed values are expected to increase slightly in 2012. The district levies its own property taxes for the maintenance and operation of its schools and debt service. In 2009, district voters approved the renewal of one of the district's maintenance levies for an additional ten years by a wide margin.

The Jefferson Davis Parish School Board (the board) is the governing authority of the district and six other school districts within the parish. Long-term declines in parish-wide school enrollment were reversed in fiscal 2008 as student population modestly increased in three of the past four years. The board is expecting additional enrollment growth for fiscal 2012.

Board financial operations are characterized by robust reserves and ample liquidity. Recently, finances have been pressured by both reductions in state aid only partially offset with federal stimulus monies and lower than expected sales tax receipts. In response, officials budgeted general fund operating deficits in fiscals 2010 and 2011 resulting in a combined two year drawdown of $500,000 of general fund balance. The board's fiscal 2012 budget proposes a $2.4 million general fund operating deficit due to the expiration of the stimulus and sizable increases in required pension contributions. As the board budgets conservatively, reported results often compare favorably to budget.

General fund reserves remain solid even after accounting for $3 million of actual and planned reductions. Estimated fiscal 2012 general fund balance of $19.5 million represents a healthy 38% of expenditures. Fund balances are largely unreserved with about half typically designated for capital items and contingencies. Although the board has no formal fund balance policy, officials indicate that a balance of approximately $10 million or about 20% of expenditures would constitute their minimum acceptable level of reserves.

Jefferson Davis Parish is located in the south-western Louisiana approximately 20 miles from the Gulf of Mexico. The area is rural as the economy is primarily based upon agriculture and oil and gas production. The parish's population has barely changed over the past decade, increasing by 1.1% during that period. The recession and the moratorium on oil drilling in the Gulf of Mexico have hurt the area economy as evidenced by employment losses in 2009 and 2010 and a 13% year over year drop in 2010 sales tax collections. Unemployment rates increased over the past two years but remain well below the state and national averages, due perhaps to the transitory nature of the local workforce. Wealth indices are below average although the income differences between the parish and both the state and nation have narrowed in recent years.

District debt consists of two outstanding bond issues from 2005. Consequently, direct debt levels are very low with debt to full value at 1.2%. Principal amortization is rapid as 70% of principal is retired within 10 years. Both bond issues are scheduled to fully mature by 2025. Officials have no plans to issue additional bonds in the foreseeable future.

The board participates in two state-run defined benefit pension plans; Teachers' Retirement System of Louisiana (TRSL) and the Louisiana School Employees Retirement System (LSERS). Board contributions to both plans in fiscal 2010 totaled $5.2 million or a manageable 11% of general fund expenditures. Due to low funding levels for both plans, employer contribution rates increased on average by nearly 58% between fiscals 2010 and 2012. Board officials expect their fiscal 2012 pension contributions to TRSL and LSERS to increase by $2 million or 40% over actual fiscal 2010 contributions, raising pension costs to an above average 14% of general fund spending.

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, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors.

Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

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