SAN FRANCISCO--(BUSINESS WIRE)--Fitch Ratings affirms and withdraws its rating on the following Owens Valley Unified School District, (CA) bonds:
--$99,000 unlimited tax general obligation bonds series 2005 at 'A'.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from an unlimited pledge of ad valorem property tax revenues within the district.
KEY RATING DRIVERS
REMOTE AND LIMITED ECONOMY: The district's economy is limited by its remote location, small population, and scarce employment opportunities. Economic growth is constrained by a shortage of developable land and distance from population centers.
CONCENTRATED TAX BASE: Water facilities owned by the Los Angeles Department of Water & Power account for 88% of the district's property tax base, but have proven stable over time.
STRONG REVENUES: The district's total revenues, primarily from property taxes, are approximately three times higher than per-pupil funding levels for most California school districts. These local revenues also help insulate the district from state revenue reductions and deferrals experienced during downturns.
ENROLLMENT GAINS CONTINUE: Management efforts to attract out-of-district students have continued to raise enrollment levels, further reducing the likelihood that the district could be required to consolidate operations with a neighboring district.
MANAGEABLE LONG-TERM OBLIGATIONS: Overall debt levels are low relative to taxable assessed value (TAV) and moderate on a per capita basis. Carrying costs for debt service and retiree benefits are affordable and the district has limited capital needs.
RATING SENSITIVITIES
RATING CONSTRAINED BY TAX BASE: Concerns related to the district's concentrated tax base and economy are mitigated by its strong revenue performance but limit the rating to its current level. Downward rating pressure would likely result from material reductions in revenues or reserves; the Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
The Owens Valley Unified School District is located in a remote and sparsely populated valley in eastern California with a highly limited economy. The district serves the town of Independence and the Fort Independence Indian Reservation, encompassing an area of more than 960 square miles with a population of approximately 700.
REMOTE AND LIMITED ECONOMY
The district's economy is limited by its remote location, approximately 225 miles from Los Angeles in California's sparsely populated Inyo County. Most of the land in the district is owned by the Los Angeles Department of Water & Power, and utilized for water facilities serving southern California population centers. Developable land and employment opportunities are scarce, presenting long-term obstacles to growth of the district's economy and population.
Wealth and income indicators for district residents are slightly below state levels and close to the national average. Employment data for the district are not available, but the county unemployment rate of 6.3% as of March 2015 was just below the state rate of 6.5%.
CONCENTRATED TAX BASE
The district's bonds are secured by a strong tax base, dominated by the property holdings of the Los Angeles Department of Water & Power (water revenue bonds rated 'AA' by Fitch with a Stable Outlook), which relies on Owens Valley as an essential source of water. Approximately 88% of the district's TAV is based on this single taxpayer.
Residential properties account for a low 10.4% of the district's tax base, providing insulation from housing-related declines. TAV decreased by a cumulative 9.1% in 2011 and 2012, but recovered most of this loss in the three subsequent years. Between 2002 and 2015 TAV increased at a compound annual growth rate of 5.3%.
STRONG REVENUES
The district's concentrated yet substantial tax base generates per-pupil revenues approximately three times higher than most California school districts, and helped to insulate it from state cuts and funding deferrals during the last downturn. Strong property tax receipts have also allowed the district to build up a substantial reserve. Unrestricted fund balance of $1.1 million at the end of fiscal 2014 was equal to 64% of general fund spending. Liquidity is similarly robust.
The district recorded small deficits in fiscal years 2012 through 2014 as management pursued enrollment increases through expanded academic offerings. Management projects another small deficit in fiscal 2015 before returning to surplus operation in 2016. The district's continued strong reserves limit the impact of recent deficits on its rating. In addition, Fitch expects that continued growth in TAV will offset expenditure increases over the longer term.
ENROLLMENT GAINS CONTINUE
New educational programs have continued to attract out-of-district students, increasing enrollment levels and reducing the likelihood that the district could be required to consolidate operations with a neighboring district. A return to lower enrollment levels could again place the district at risk of consolidation but is unlikely to impact credit quality. The district's GO bond debt service would continue to be paid by existing taxpayers post-consolidation, although an opinion by the California Attorney General makes a case for extending such obligations to all taxpayers within the newly consolidated district. Under either scenario, the security for the bonds appears unlikely to be impaired, and could potentially be strengthened if extended to a broader tax base.
MANAGEABLE LONG-TERM OBLIGATIONS
Direct and overlapping debt levels for the district are low at 0.9% of AV, although given its small population, total debt per capita is moderate at about $4,850. Debt repayment is below average, with 39% of principal retired in 10 years and capital needs are limited.
The district participates in two state-sponsored pension plans and faces ongoing increases in contribution rates to address substantial unfunded liabilities. Carrying costs for debt service and retirement benefits were moderate at 16.5% of governmental expenditures in fiscal 2014 but face upwards pressure from pending pension rate increases.
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
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=987396
Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=987396
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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