25.12.2015, 07:37
Fitch Affirms Fowler USD, CA's GOs at 'AA'; Outlook Stable
OREANDA-NEWS. Fitch Ratings affirms the following Fowler Unified School District (the district), California ratings:
--$15 million general obligation (GO) bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from an unlimited general obligation pledge of ad valorem tax on all property within the district.
KEY RATING DRIVERS
STRONG FINANCIAL POSITION: Financial performance is strong, with structurally balanced budgets and a solid reserve position.
PRUDENT FINANCIAL MANAGEMENT: The district has a strong record of proactively managing expenses to maintain structural budget balance despite a volatile state funding environment. The district is now benefiting from growth in state funding.
GROWING TAX BASE: Taxable assessed value (TAV) is growing at a healthy pace and exhibited stability even in the recent housing downturn. The tax base is largely industrial and commercial with moderate concentration in the top 10 taxpayers.
WEAK ECONOMIC PROFILE: The district is located in Fresno County; the area economic profile is weak with high unemployment and below average income levels.
MODERATE DEBT BURDEN: The district's net direct and overlapping debt burden is moderate. Post-employment liabilities are manageable, and total carrying costs for debt, pensions and other post-employment (OPEB) liabilities are low.
RATING SENSITIVITIES
MAINTENANCE OF STRONG RESERVES: Strong reserve levels are necessary to maintain the current rating, given the weak economy and limited revenue base. A deterioration in reserve levels or decline in financial performance would likely result in negative rating action.
CREDIT PROFILE
The district is a kindergarten to grade 12 school district, serving about 10,000 residents and 2,300 students in and around the town of Fowler, California. It is located 11 miles southeast of the city of Fresno. It operates three elementary schools, one middle school and one high school, in addition to alternative education programs.
STRONG FINANCIAL PERFORMANCE
The district's financial position is strong, as demonstrated by healthy general fund balance levels and a history of prudent management practices. The district posted slight deficits over the past three fiscal years, but has generally achieved surplus operations. Unrestricted general fund balance remained solid at $5.2 million, or 25.7% of spending at the end of fiscal 2014. The district plans to transfer much of its operating reserves to its deferred maintenance, retiree benefit and capital facilities funds in fiscal 2015, reducing general fund reserves, but total reserves are projected to remain very robust after a net draw on fund balance of about $220,000.
Reasonably conservative multiyear projections show reserves climbing over the next three years amid solid revenue growth. The increased revenue is expected from the implementation of California's Local Control Funding Formula, which targets additional funds for second language learners, students in poverty, and foster youth.
MODERATE DEBT
Debt and other long-term liabilities are quite manageable. Direct and overlapping debt was moderate at $3,955 per capita, or 3% of TAV, at the end of fiscal 2014. Meanwhile, total debt, pension and OPEB carrying costs were relatively low at 9.5% of governmental fund spending for the year. Debt amortization is very slow due to use of capital appreciation bonds, with just 36% of principal retired in 10 years.
Retirement-related liabilities are manageable. The district's unfunded actuarially accrued OPEB liability is small at $1.2 million (less than 0.1% of TAV). The district has begun to make contributions to an irrevocable OPEB trust to prefund the liability.
The district participates in California Public Employees' Retirement System (CalPERS) as well as in the poorly funded California State Teachers' Retirement System (CalSTRS) pension systems. Contribution rates are increasing steadily for both plans. However, currently low carrying costs and generally healthy finances suggest the district will be able to manage any further pension contribution increases without deterioration in credit quality.
WEAK CENTRAL VALLEY ECONOMY
Fresno County's economy is large and reasonably diverse, but remains weak compared to the nation. However, recent data show strong growth in the local labor market with Fresno County job growth accelerating and the unemployment rate falling three percentage points over the past two years; the latest monthly rate for the county (October 2015) is still-elevated at 9.3%. Income levels are weak with median household income at about 80% of the national level.
The tax base is growing at a moderate pace. TAV grew by a cumulative 14.9% over the last five years, and the district did not experience a single year of TAV declines during the Great Recession. Non-residential properties represent three-quarters of the district's tax base and include numerous enterprises supporting the region's substantial agricultural economy. Warehouses and agricultural processing facilities comprise a majority of the district's moderately concentrated tax base, with the top ten taxpayers accounting for 21.4% of fiscal total AV.
--$15 million general obligation (GO) bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from an unlimited general obligation pledge of ad valorem tax on all property within the district.
KEY RATING DRIVERS
STRONG FINANCIAL POSITION: Financial performance is strong, with structurally balanced budgets and a solid reserve position.
PRUDENT FINANCIAL MANAGEMENT: The district has a strong record of proactively managing expenses to maintain structural budget balance despite a volatile state funding environment. The district is now benefiting from growth in state funding.
GROWING TAX BASE: Taxable assessed value (TAV) is growing at a healthy pace and exhibited stability even in the recent housing downturn. The tax base is largely industrial and commercial with moderate concentration in the top 10 taxpayers.
WEAK ECONOMIC PROFILE: The district is located in Fresno County; the area economic profile is weak with high unemployment and below average income levels.
MODERATE DEBT BURDEN: The district's net direct and overlapping debt burden is moderate. Post-employment liabilities are manageable, and total carrying costs for debt, pensions and other post-employment (OPEB) liabilities are low.
RATING SENSITIVITIES
MAINTENANCE OF STRONG RESERVES: Strong reserve levels are necessary to maintain the current rating, given the weak economy and limited revenue base. A deterioration in reserve levels or decline in financial performance would likely result in negative rating action.
CREDIT PROFILE
The district is a kindergarten to grade 12 school district, serving about 10,000 residents and 2,300 students in and around the town of Fowler, California. It is located 11 miles southeast of the city of Fresno. It operates three elementary schools, one middle school and one high school, in addition to alternative education programs.
STRONG FINANCIAL PERFORMANCE
The district's financial position is strong, as demonstrated by healthy general fund balance levels and a history of prudent management practices. The district posted slight deficits over the past three fiscal years, but has generally achieved surplus operations. Unrestricted general fund balance remained solid at $5.2 million, or 25.7% of spending at the end of fiscal 2014. The district plans to transfer much of its operating reserves to its deferred maintenance, retiree benefit and capital facilities funds in fiscal 2015, reducing general fund reserves, but total reserves are projected to remain very robust after a net draw on fund balance of about $220,000.
Reasonably conservative multiyear projections show reserves climbing over the next three years amid solid revenue growth. The increased revenue is expected from the implementation of California's Local Control Funding Formula, which targets additional funds for second language learners, students in poverty, and foster youth.
MODERATE DEBT
Debt and other long-term liabilities are quite manageable. Direct and overlapping debt was moderate at $3,955 per capita, or 3% of TAV, at the end of fiscal 2014. Meanwhile, total debt, pension and OPEB carrying costs were relatively low at 9.5% of governmental fund spending for the year. Debt amortization is very slow due to use of capital appreciation bonds, with just 36% of principal retired in 10 years.
Retirement-related liabilities are manageable. The district's unfunded actuarially accrued OPEB liability is small at $1.2 million (less than 0.1% of TAV). The district has begun to make contributions to an irrevocable OPEB trust to prefund the liability.
The district participates in California Public Employees' Retirement System (CalPERS) as well as in the poorly funded California State Teachers' Retirement System (CalSTRS) pension systems. Contribution rates are increasing steadily for both plans. However, currently low carrying costs and generally healthy finances suggest the district will be able to manage any further pension contribution increases without deterioration in credit quality.
WEAK CENTRAL VALLEY ECONOMY
Fresno County's economy is large and reasonably diverse, but remains weak compared to the nation. However, recent data show strong growth in the local labor market with Fresno County job growth accelerating and the unemployment rate falling three percentage points over the past two years; the latest monthly rate for the county (October 2015) is still-elevated at 9.3%. Income levels are weak with median household income at about 80% of the national level.
The tax base is growing at a moderate pace. TAV grew by a cumulative 14.9% over the last five years, and the district did not experience a single year of TAV declines during the Great Recession. Non-residential properties represent three-quarters of the district's tax base and include numerous enterprises supporting the region's substantial agricultural economy. Warehouses and agricultural processing facilities comprise a majority of the district's moderately concentrated tax base, with the top ten taxpayers accounting for 21.4% of fiscal total AV.
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