Fitch Affirms Pierce Joint USD, CA's GOs at 'AA-'; Outlook Stable

SAN FRANCISCO--()--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.

SECURITY

The bonds are payable from an unlimited pledge of ad valorem tax on property within the district, without limitation as to rate or amount.

KEY RATING DRIVERS

SOUND FINANCIAL POSITION: The district maintained stable operations and good financial flexibility through the last recession and reserve levels remain healthy. Fitch expects that revenue growth and continued prudent budgeting practices will support ongoing stable operations.

GOOD REVENUE PROSPECTS: State funding accounts for most of the district's revenues and is on a positive trajectory due to ongoing enrollment gains and enhancements under the state's Local Control Funding Formula (LCFF).

CONCENTRATED ECONOMY: The local economy relies on agriculture and food processing; major taxpayers are concentrated within these industries. Wealth and income indicators are close to state and national averages despite this concentration, while unemployment levels are elevated.

LOW DEBT LEVELS: Overall debt levels are low relative to taxable assessed value (TAV) and on a per capita basis. Capital needs are limited, amortization of outstanding principal is above average and carrying costs for debt service and retiree benefits are manageable.

RATING SENSITIVITIES

SUSTAINED FINANCIAL FLEXIBILITY: The rating reflects the district's history of stable operations and considerable financial cushion, which offset its tax base concentration and limited ability to raise revenues. An inability to maintain financial flexibility while increasing spending of LCFF revenues would create downward rating pressure.

CREDIT PROFILE

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 1,450 students.

SOUND FINANCIAL POSITION

The district maintained a sound financial position through the last recession and reserve levels are healthy. Unrestricted fund balance was 41.7% of general fund spending ($4.5 million) at the end of fiscal 2014, well above the state's 3% reserve requirement for similarly-sized districts.

Management anticipates a deficit of $1.3 million (9.1% of spending) in fiscal 2015 as the district accelerates its implementation of LCFF-funded service enhancements. Small surpluses are projected for fiscals 2016 and 2017 based on conservative revenue assumptions. The district has typically out-performed its projections and unrestricted fund balances appear likely to remain above 25% of general fund spending.

GOOD REVENUE PROSPECTS

Most of the district's revenues are provided on a per-pupil basis by the state, and growth prospects are solid due to rising enrollment and improved state revenue collections. In addition, approximately 72% of the district's students are English language learners, foster youth, or meet eligibility requirements for school lunch subsidies, qualifying the district for enhanced funding under the LCFF.

The district's agricultural economy faces some uncertainty due to California's extended drought. Employment levels and taxable assessed values (TAV) could be impacted, but Fitch expects LCFF implementation to boost total revenues over the next several years despite potential economic challenges.

CONCENTRATED ECONOMY

The district's economy is concentrated in the agricultural sector but wealth and income levels are somewhat higher than typical for such regions. Median household incomes in 2013 were 88% and 107% of state and national levels, respectively, and poverty rates were only marginally above the state average.

District-level employment statistics are not available. Employment in Colusa County is highly seasonal and monthly unemployment rates have averaged 18.1% over the past three years, well above state and national rates.

The district's agricultural concentration is also reflected in its tax base. The top 10 taxpayers in the district account for a somewhat high 17.4% of TAV, and are dominated by agriculture and food processing enterprises. TAV levels saw only modest declines during the last recession and increased at a compound annual growth rate of 3% between 2009 and 2016. Non-residential properties account for approximately three-quarters of TAV, which helped to insulate the district from housing-related losses.

LOW DEBT LEVELS

Overall debt levels are low at 1.1% of TAV and $1,665 per capita, with no new issuance expected due to the district's limited capital needs. Amortization of outstanding debt is rapid with 76% of principal repaid within 10 years.

Carrying costs for debt service and retiree benefits were a low 11.4% of general fund expenditures in fiscal 2014. The district participates in two state-sponsored pension plans and faces steady increases in contribution rates over the next several years to address unfunded liabilities and changes in actuarial assumptions. 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

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

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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990338

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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst
Stephen Walsh
Director
+1-415-732-7573
Fitch Ratings, Inc.
650 California Street, 4th floor
San Francisco, CA 94108
or
Secondary Analyst
Yueping Liu
Analyst
+1-415-732-5629
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Stephen Walsh
Director
+1-415-732-7573
Fitch Ratings, Inc.
650 California Street, 4th floor
San Francisco, CA 94108
or
Secondary Analyst
Yueping Liu
Analyst
+1-415-732-5629
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations:
Sandro Scenga, +1-212-908-0278
sandro.scenga@fitchratings.com