In addition, Fitch affirms its 'A+' rating on the following district bonds:
The Rating Outlook is Stable.
Purpose: Bond proceeds will be used to refund various outstanding GO obligations of the district and pay the costs of issuance. The bonds will be sold via negotiation during the week of
The bonds are secured by an unlimited ad valorem tax on all taxable property within the district.
KEY RATING DRIVERS
HIGH DEBT BURDEN: The district's overall debt burden is projected to remain high given future debt issuance plans and the slow amortization rate of outstanding debt.
SOUND FINANCIAL PROFILE: The district's financial profile is expected to remain sound following modest operating deficits in fiscal 2013 and 2014 (estimated) with satisfactory reserves and solid liquidity.
MODEST DEFICITS PROJECTED: Modest operating deficits are projected over the next couple of years as the district continues to increase spending to implement Local Control Funding Formula (LCFF) requirements before receiving full funding for the changes. Reserve levels are projected to remain satisfactory for the rating despite the projected draw down.
RISING PENSION CONTRIBUTIONS: Rising pension contributions, particularly from CalSTRS, along with already elevated costs for other post-employment benefits (OPEB) are likely to reduce the district's financial flexibility to some degree over the medium term.
MIXED ECONOMY: The local economy benefits from its proximity and access to the diversified
CONCENTRATED, RECOVERING TAX BASE: The district's tax base is concentrated in its largest taxpayer, Chevron. A recent rebuilding of a fire-destroyed portion of the
SIGNIFICANT REDUCTION IN RESERVES: A larger than anticipated reduction in the district's unrestricted reserves would likely exert negative pressure on the rating.
The district is located approximately 15 miles northeast of
The district's average daily attendance (ADA) was 28,148 in fiscal 2014, approximately 2% higher than 2011 levels. Management projects additional modest increases over the next few years.
SOUND FINANCIAL PROFILE
The district recorded its first operating deficit in the past three audited fiscal years in fiscal 2013 and projects an additional deficit in fiscal 2014. The negative financial margins --
Operating deficits are expected to continue in fiscal 2015 before narrowing significantly to nearly break-even performance in fiscal 2016. These deficits reflect the district's continued implementation of the class size reduction targets as well as additional self-imposed goals and spending requirements as directed through the district-adopted Local Control Accountability Plan (LCAP).
The district's reserves are projected to remain at satisfactory levels following the expected operating deficits in fiscals 2014 and 2015. At the end of fiscal 2013, the district's unrestricted reserve was
Fitch views the district's projected financial position as satisfactory and in-line with the rating. However, the district's financial commitments from its somewhat aggressive implementation of LCFF/LCAP requirements and increasing pension contributions will reduce financial flexibility over the near term and expose the district to potential future volatility in state funding. The expenditure plan will maintain pressure on the district to keep labor costs constrained, which may present a challenge after several years of limited wage increases and the promise of additional funding for the district.
HIGH DEBT BURDEN
Overall debt ratios are well above average at
PENSION CONTRIBUTION INCREASES
Future budgetary pressure is expected to come from increasing pension contribution amounts that will be phased in over the next several years. 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, but particularly CalSTRS where contribution amounts are projected to increase from
SIGNIFICANT OPEB LIABILITY
The district successfully renegotiated its OPEB in fiscal 2010. Under the agreement, the district offers health insurance benefits that are capped according to several criteria, including employment start date and years of service.
The revised agreement reduced the district's unfunded actuarial accrued liability to approximately
ECONOMY AND TAX BASE
The local economy is mixed with some areas outperforming others. While western
CONCENTRATED TAX BASE
The district's tax base is concentrated in the largest taxpayer, Chevron, which owns a refinery in the city of
Fiscal 2015 AV figures are not yet available but Fitch expects a moderate increase. This expectation is based on the refinery's reported return to operations, a recovering housing market across most western areas of the county, and significant AV increases reported for cities within the district.
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,
--'Tax-Supported Rating Criteria' (
--'U.S. Local Government Tax-Supported Rating Criteria' (
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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