SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings has affirmed its 'AA' rating on the following Norris School District (the district), CA general obligation (GO) bonds:
--$16.5 million GO bonds, series 2012A.
SECURITY
The bonds are secured by an unlimited ad valorem tax on all taxable property within the district.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The district's strong financial profile includes healthy fund balances, historically balanced operations, satisfactory liquidity, and conservative budgeting and financial planning practices. The district also has access to additional sources of funding, which is less common for school districts and viewed as enhancing overall financial flexibility.
GROWING DEBT BURDEN: Overall debt levels are projected to remain at moderate levels following the issuance of $9.3 million in GO bonds in early fiscal 2015. Significant future needs due to the quick growth of the district will likely be financed through debt issuances by special districts. Direct debt amortizes at a slow rate with 26% of principal retired within 10 years.
MIXED ECONOMY: The local economy centers on agribusiness, government, and petroleum-related industry. The city of Bakersfield features below-average income levels and an elevated unemployment rate, although these weaknesses are somewhat mitigated by relatively higher wealth levels and ongoing development within the district.
TAX BASE GROWTH: Assessed valuation (AV) gains in each of the past two years reflect an improved real estate market and the return of development. The district's largely residential tax base is expected to continue expanding over the next few years as additional planned development projects are realized.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics including the district's strong financial profile. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The district is located in Kern County and serves an area of approximately 18 square miles, including a portion of the city of Bakersfield along with a small portion of the city of Shafter and unincorporated areas of the county. The district provides elementary education and operates four elementary schools and one middle school.
District enrollment continues to rise. Average daily attendance was 3,766 in 2014, approximately 0.6% higher than the year before and 10.5% higher than in 2009. Management expects gains to continue as development projects lead to additional families entering the district.
STRONG FINANCIAL PROFILE WITH GOOD DEGREE OF FLEXIBILITY
The district maintains a strong financial profile with healthy fund balances, balanced financial operations, satisfactory liquidity, prudent financial practices, and a good degree of financial flexibility. The district benefits from a trend of increasing enrollment and the uncommon revenue flexibility provided by a local community facilities district that provides funding for capital investment (RNR School Financing Authority CFD No. 92-1, Fitch rated 'AA-'). In addition, the district runs a daycare program that provides approximately $400,000 (1.6% of revenues in fiscal 2013) annually that can be used to meet any district need.
The district's unrestricted fund balance increased in each of the past five audited years and is projected to grow in fiscal 2014. The estimated balance at the end of fiscal 2014 is approximately $9 million (34.2% of spending), an increase of $420,000 over fiscal 2013.
District management stated that approximately $1.8 million in reserves from the district's day care program could be transferred to the general fund as unrestricted funds at the discretion of the school board. Including those funds, the district's total available unrestricted fund balance was a healthy 41.8% of spending ($10.4 million) at the end of fiscal 2013.
The district managed well through a period of volatile state funding and recorded positive operating margins in each of the last six audited fiscal years (2008-2013). The district projects another surplus in fiscal 2014 of approximately $648,000 (2.5% of spending). Projected increases in pension contributions are expected to pressure the district's budget to some degree over the medium term. However, Fitch expects that the district's financial operations will remain balanced based on management's plans, expected enrollment gains, and the district's good degree of financial flexibility.
MIXED ECONOMY
The regional economy is somewhat limited and centers on agribusiness, government, and petroleum-related industries, although local employment sectors show increasing diversification with representation in healthcare, transportation, insurance and financial services, and manufacturing. Unemployment rates in the area remain elevated with Bakersfield's at 7.9% (April 2014) and the county's at 11.4%.
Wealth levels for the district are significantly higher than surrounding areas with per capita and median household income 12% and 60%, respectively, above the state average. Only 20% of the district's students qualify for supplemental funding (unduplicated count), which is relatively low for school districts statewide and reflects the local area's above-average wealth levels.
AV GROWTH
The district's tax base is largely residential with approximately 86% of AV comprised of single-family homes. Historically, AV performance was characterized by significant annual growth before several years of modest to significant contraction beginning in fiscal 2009. The contraction lasted until fiscal 2012 and resulted in a cumulative decline of 13.7%.
Most recently, AV has returned to growth with gains of 3.5% and 8.3% in fiscals 2013 and 2014, respectively. Significant on-going development within the district is expected to support additional AV increases over the near term.
ABOVE-AVERAGE DEBT BURDEN; SIGNIFICANT FUTURE CAPITAL NEEDS
In June 2012, the district received voter approval for the issuance of up to $149 million in GO bonds. The district issued approximately $16.5 million in 2012 and expects to issue an additional $9.3 million in early fiscal 2015. No additional GO debt issuances are expected over the next five years.
Following the 2014 issuance, the district's overall debt burden is currently in the moderate range at $4,342 per capita and 4.6% of fiscal 2014 AV. Future capital needs, including the possible construction of an additional elementary school within the next five years, are expected to be met with financing from the RNR School Financing Authority CFD No. 92-1 (Fitch rated 'AA-').
The district participates in CalSTRS and CalPERS to provide defined pension benefits for teachers and classified employees, respectively. The district is expected to pay increasing contribution amounts to both systems, particularly CalSTRS as recent reforms to the system's funding are phased in through fiscal 2021. While these increases will likely limit the district's financial flexibility to some degree over the medium term, total contributions were an affordable 5.1% of spending in fiscal 2013 and Fitch views expected future contributions as manageable for the district.
The district does not offer OPEB and has no unfunded OPEB liability.
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, National Association of Realtors, Zillow.com.
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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=840936
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