SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings affirms the following rating for Pierce Joint Unified School District (USD), California (the district):
--$1.7 million general obligation (GO) bonds series 2002A at 'AA-'.
The Rating Outlook is Stable.
The bonds are secured by an unlimited pledge of ad valorem tax on property within the district, without limitation as to rate or amount.
KEY RATING DRIVERS
LIMITED AGRICULTURAL ECONOMY: The district operates within an agriculture-based economy, with correspondingly low wealth and income levels and chronically high unemployment.
STRONG OPERATING PERFORMANCE: Conservative budgeting and rapid expenditure reductions have helped the district to maintain operating balance despite recent revenue strains. Fund balances remain healthy and liquidity is strong.
IMPROVED FUNDING PROSPECTS: The district's funding prospects have improved with the state's adoption of the Local Control Funding Formula (LCFF) and voters' November 2012 approval of Proposition 30 (increasing income and sales taxes temporarily to fund education).
LOW DEBT LEVELS: Overall debt levels are low relative to taxable assessed value (TAV) and on a per capita basis. Amortization of outstanding principal is above average and carrying costs for debt service and retiree benefits are manageable.
STRONG OPERATIONS; LIMITED ECONOMY: The rating is sensitive to shifts in fundamental credit characteristics, including the district's track record of positive operating performance. Upward rating movement is constrained by the district's limited economy and dependence upon state revenues.
Pierce Joint Unified School District encompasses portions of rural Colusa and Yolo Counties in California's Sacramento Valley with a total area of 435 square miles. The district operates five schools with a combined enrollment of approximately 1,300 students.
LIMITED AGRICULTURAL ECONOMY
Consistent with the largely agriculture-based economy, wealth and income levels for district residents remain well below state and national averages, while unemployment is much higher, averaging 20% for Colusa County for 2010 through 2013. Employment levels are highly seasonal and the county's labor force has expanded at an above-average rate during the past decade, contributing to rising unemployment.
The district's agricultural concentration is also reflected in its tax base, which is dominated by agricultural properties. The top 10 taxpayers in the district account for a somewhat high 18% of TAV, and are dominated by agriculture and food processing enterprises. TAV levels have been relatively stable and experienced annual increases between 2007 and 2010 before flattening in 2011 and falling 0.6% in 2012. Non-residential properties account for approximately three-quarters of TAV, limiting impacts from recent housing volatility.
STRONG FINANCIAL POSITION
The district's financial operations are sound, marked by the maintenance of strong general fund reserves despite revenue declines in recent years. Unrestricted general fund balance for fiscal 2012 rose to $3.3 million (33% of general fund spending). The district added to fund balances in four of the past five years despite a cumulative 12% reduction in revenues during this period. Expenditure reductions were achieved largely through attrition and increased class sizes.
STATE FUNDING GROWTH
Recent improvements in state funding prospects should further strengthen the district's financial position over the next several years. The passage of Proposition 30 by California voters in November 2012 removes the threat of renewed state budget cuts and increased funding levels under Proposition 98 appear likely with the ongoing recovery of state general fund revenues. In addition, the implementation of the LCFF, which targets additional revenues to districts with high concentrations of economically disadvantaged students and English language learners, will raise per pupil funding for the district over the next several years if state growth estimates prove accurate. Fitch remains concerned that proposed accountability requirements associated with LCFF funding could limit spending flexibility for school districts, but increased revenues should help reduce recent budgetary strains.
LOW DEBT LEVELS
Overall debt levels are low at 1.2% of TAV and $1,691 per capita, with no new issuance expected due to the district's limited capital needs. Amortization of outstanding debt is above average with 67% of principal repaid within 10 years. The district participates in two state-sponsored pension plans and will likely face higher pension contribution rates over the next several years to raise funding levels. Other post-employment benefit liabilities are minimal due to the absence of retiree health benefits.
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.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012)
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria