News Column

Fitch Affirms Bass Lake JUESD, CA's GO Bonds at 'A+'; Outlook is Stable

May 6, 2014

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings has affirmed Bass Lake Joint Union Elementary School District, California's (the district) bonds as follows:

--Approximately $15.2 million outstanding general obligation (GO) bonds, series 2006 and 2010 at 'A+'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an unlimited ad valorem tax on all taxable property within the district.

KEY RATING DRIVERS

FINANCIAL PRESSURE DECREASED: Expectations for the district's near-term financial position are greatly improved with the stabilized state funding environment. While general fund balance reductions are not anticipated to nearly the same magnitude as they had been previously, declining and variable average daily attendance (ADA) continues to create budgeting obstacles for the district.

IMPROVED REVENUE PROSPECTS: Prospects for state funding, which Fitch views as volatile and difficult to predict, are better with the general improvement of the state's finances and economy, as well as the 2012 voter approval of temporary tax increases under Proposition 30. Based on the district's student demographics, a new local control funding formula (LCFF) will bolster general fund revenues for the district.

LIMITED ECONOMY: The local economy is largely based on tourism and characterized by average wealth. The district's tax base posted a mild decline for fiscal 2014 following two years of stability. The district's tax base for fiscal 2014 remains about 12% below peak pre-recession levels.

MODERATE DEBT PROFILE: Overall debt levels are low-to-moderate. However, debt amortization is very slow, reflecting the need to stay under the $30 per $100,000 of TAV requirement of Proposition 39 issuances. Carrying costs, including debt service and retirement benefits, are affordable. Pension costs will likely rise over the next several years to address substantial unfunded liabilities.

RATING SENSITIVITIES

ENROLLMENT AND RESERVES DETERMINE POSITIVE CHANGE: Upward rating movement will be dependent on a stabilized enrollment trend and the district's ability to retain or build its high reserve position.

CREDIT PROFILE

The district is located about 46 miles north of Fresno. The district encompasses over 289 square miles and serves the city of Oakhurst and unincorporated areas of Madera and Mariposa Counties. The district's enrollment for fiscal year 2014 is 854.

FINANCIAL PRESSURES DECREASED

Previously expected financial pressures have begun to diminish with the passage of proposition 30, the ongoing implementation of a new LCFF, and the overall improved state revenue environment. The district originally expected to finish fiscal 2012 with a $650,000 general fund deficit and post a negative fund balance position by fiscal 2014 based on the district's fiscal 2012 second interim report. This did not materialize, but instead the district finished fiscal 2012 with a more manageable $119,000 general fund deficit and added $191,000 to fund balance in fiscal 2013.

State funding declines and declining enrollment have had a significant negative impact on district revenues. The district experienced a cumulative 19.3% loss in revenue from fiscals 2009 to 2013. However, management was able to reduce expenses 16.5% during this period through increased class sizes, closed school sites, reduced school days, and workforce reductions. The district has slowly started to restore cuts given the improved revenue environment, although expenditure flexibility remains tight.

Management expects to utilize general fund balance in fiscals 2014 and 2015 for one-time items related to common core expenses before adding to fund balance once again in fiscal 2016. The district projects that it will utilize about $100,000 in fund balance for fiscal 2014, lowering its total fund balance to $2.0 million or 27.3% of spending.

Other financial pressures persist, including the district's declining and variable enrollment environment. District enrollment declined a cumulative 15.3% from fiscals 2006 to 2011, from 954 to 808. Enrollment has fluctuated since as well, including an unexpected loss of 59 ADA in fiscal 2013 and an unexpected gain of 50 ADA in fiscal 2014. Fitch believes that a stabilized enrollment trend is critical to any potential upward rating momentum.

IMPROVED REVENUE PROSPECTS

State funding is expected to provide a moderate portion of district revenues upon implementation of LCFF despite the district's recent basic aid status. Due to rising revenue and the relatively high portion of the student body targeted by LCFF funding, the district is expected to be removed from basic aid status in fiscal 2015 and stands to benefit if the governor's fiscal 2015 budget is adopted as proposed, which would boost district revenues in fiscals 2015 and 2016.

LIMITED ECONOMY

The district's location in northeast Madera County (the county) is home to the southern entrance to Yosemite National Park. As such, much of the district's local economy is anchored in tourism and park-service related activity. District wealth levels are above average for the surrounding county, but are average when compared to the state and nation. TAV posted a 2.5% decline from fiscal 2013 to fiscal 2014, following two years of tax base stability. Fiscal 2014 TAV remains about 12% below the peak level recorded in 2009. While county and state unemployment rates are high (10.7% and 7.9%, respectively, for December 2013), district area rates are much lower. According to state data, Oakhurst's February, 2014 unemployment rate was 4.7%.

MODERATE DEBT PROFILE

District debt levels are low-to-moderate at 1.5% of TAV and $2,192 per capita. The district amortizes debt at an extremely slow pace, with only 23% of debt retired within the next 10 years, reflecting the need to stay under the $30 per $100,000 of TAV requirement of Proposition 39 issuances. Capital needs are manageable and the district does not anticipate further issuance over the near-term. The district participates in two state-sponsored employee pension plans and is likely to face ongoing increases in contribution rates to address substantial unfunded liabilities.

Funding for the California State Teachers Retirement System is a particular concern, as statutory contribution rates remain well below the level required to amortize existing obligations. The district offers other post-employment benefits (OPEB) but its unfunded OPEB liability is very low at approximately $1.2 million (0.1% of fiscal year 2014 TAV) as of the most recent valuation on June 1, 2011. Carrying costs for debt service and retirement benefits are manageable (13.5% of governmental expenditures in fiscal 2013) but are likely to rise over the next several years given pension funding pressures.

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.

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Brendan Scher, +1 212-908-0686

Analyst

Fitch Ratings, Inc.

One State Street Plaza

New York, NY 10004

or

Secondary Analyst

Scott Monroe, +1 415-732-5618

Director

or

Committee Chairperson

Doug Scott, +1 512-215-3725

Managing Director

or

Media Relations:

Elizabeth Fogerty, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


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