SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has affirmed the following Mesa Union School District (the district) general obligation (GO) bonds:
--$7.5 million GO bonds, series 2008 and 2011 refunding at 'AA'.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax levied on all taxable property within the district.
KEY RATING DRIVERS
SOUND FINANCIAL PROFILE: Despite a recent structural imbalance, which will likely be addressed by improved state education funding, the district has maintained a satisfactory unreserved general fund balance and some degree of financial flexibility.
UNUSUAL DEGREE OF ENROLLMENT FLEXIBILITY: The district was able to generate additional general fund revenue during the recession by accepting a greater number of students from outside district boundaries and increasing its class sizes to accommodate them. While demand from non-district students remains high, with a lengthy waitlist of applicants, there are no plans to increase student enrollment further at this time.
MODERATE DEBT PROFILE: The district's moderate debt burden is characterized by average amortization, no further debt issuance plans, full actuarially required pension contributions made annually, a minimal other post-employment benefit (OPEB) liability, and affordable carrying costs.
TAX-BASE STRENGTH: The district's tax base is diverse in terms of ownership but remains somewhat concentrated in agriculture, a sector which is performing well in Ventura County. The district's taxable assessed value (TAV) has rebounded since a modest decline in fiscal 2011.
STRONG LOCAL ECONOMY: The district's economy features a small but stable population, above-average wealth levels, and a below-average unemployment rate.
The rating is sensitive to shifts in fundamental credit characteristics including the district's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
The district covers nearly 29 square miles of Ventura County, approximately seven miles northeast of Oxnard. The majority of the district, approximately 60% of its TAV, is unincorporated with portions of Camarillo and San Buenaventura comprising the rest of the service area. The district operates one K-8 school.
SOUND FINANCIAL PROFILE
The district retains a sound financial profile with satisfactory reserves, easily exceeding its 5% unreserved general fund policy. Management also reports a cooperative working relationship between elected officials, administrators, and labor. The district ended fiscal 2012 with an unreserved general fund balance of $1.2 million. While this is a small dollar amount, in line with the district's size, it represented a substantial 25.6% of spending. The district estimates ending fiscal 2013 with a similarly sized unrestricted general fund balance, at 21.6% of spending, and is budgeting an unrestricted general fund balance of 22.8% of spending in fiscal 2014.
The district has experienced a structural imbalance in its general fund since fiscal 2011, as it drew down small amounts of its reserves each year as part of its response to declining state education funding. It adopted this strategy in tandem with enhancing student enrollment-related revenues and reducing some expenditures. The district anticipates that improved state education funding going forward will help solve this structural imbalance, but recognizes the need to constrain expenditure growth below the level of any future revenue growth. Nevertheless, significant labor contract issues will be up for negotiation in fiscal 2014 regarding class sizes, salaries and wages, and health and welfare benefit caps, which could pressure the district's intent to constrain expenditure growth going forward.
UNUSUAL DEGREE OF ENROLLMENT FLEXIBILITY
As with many California school districts, the district is highly dependent on state funding. As part of its strategy to mitigate declining per pupil state revenue, the district increased its student enrollment by accepting more students living outside its boundaries. By increasing the number of attending students and maintaining the same number of classes, the district was able to generate additional revenue without incurring significant additional expenses. Consequently, the district's average daily attendance (ADA), a critical input in determining the district's amount of state-provided funding, has increased over the past few years. In fiscal 2013, the district had an ADA of 636, compared with a 2009 ADA of 560 (13.6% increase). The district plans to maintain its ADA at that higher level in fiscal 2014.
According to district officials, demand from students located outside district boundaries is high and 80 applicants are currently on the district's waitlist. For the fiscal 2014 school year, district officials estimate that approximately 55% of the student body resides outside district boundaries.
MODERATE DEBT PROFILE
The district's estimated overall debt levels are moderate at $4,837 per capita, reflecting the district's low population density, and are also manageable at 1.9% of fiscal 2013 TAV. The district's outstanding debt is composed entirely of GO bonds; despite gradually ascending debt service, the principal amortization rate is average at slightly more than 45% in 10 years. The district has no future debt issuance plans.
The district's obligations to retirees are manageable but likely to pose an increasing burden due to participation in the poorly funded California State Teachers' Retirement System (CalSTRS). The district also participates in the California Public Employees' Retirement System (CalPERS). Contribution rates for CalPERS are actuarially based, but those for CalSTRS are set by statute and have been below the level required to amortize the system's unfunded liability for some time. The system reported an inadequate funded ratio of 69.3% for fiscal 2012. Fitch estimates that funded ratio to be 65.7% based on a more conservative 7% rate of return assumption. Fitch expects school districts' CalSTRS contribution rates to rise over the coming years, perhaps significantly, if the state legislature addresses the system's growing unfunded liabilities.
The district's OPEB liability is limited to employees hired before 1999 and according to the most recent audit is immaterial to the district's financial position. The district's debt service, pension and OPEB carrying costs were a very affordable 9.4% of fiscal 2012 total governmental spending, less capital.
STRENGTHENING TAX BASE AND STRONG LOCAL ECONOMY
The district's tax base is performing well. Several years of moderate growth were interrupted by a modest 1.4% TAV decline in fiscal 2011 and essentially flat results in fiscal 2012 (0.1% gain). Since then, the district saw 3.4% TAV growth in fiscal 2013 and preliminary figures suggest even stronger growth in fiscal 2014. The tax base is diverse in terms of ownership with no single taxpayer making up more than 3% of fiscal 2013 TAV. However, the top 10 taxpayers show some industry concentration with six in agriculture. Of the remaining four, three are golf courses and one is and oil and gas producer. However, employment opportunities in wider Ventura County have become more diversified with an increasing presence in the high technology, defense, education, and health services sectors.
Wealth levels in the district are well above average with per capita income and median household income at 169.4% and 235.5% of the national averages, respectively. The local unemployment rate was only 4.9% in April 2013, compared to 7.1% nationally. Although approximately 38% of the district's students are English language learners or economically disadvantaged, this is likely due to 55% of the district's students residing outside the district.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's 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, and National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria