TEXT - Fitch affirms California's Oroville City Elementary SD GOs
Jan 31 - Fitch Ratings has affirmed the following rating for Oroville Elementary School District, CA (the district): --$4.2 million general obligation (GO) bonds at 'AA-' The Rating Outlook is Stable. SECURITY The GO bonds are secured by an unlimited ad valorem levy. SENSITIVITY/RATING DRIVERS RESILIENT FINANCIAL PROFILE: The district's long-term financial position remains healthy despite the recent volatility in revenues. While reserves remain adequate, the district must continue to prudently managed cash shortfalls due to large state funding deferrals. RISKS OF STATE DEPENDENCE REDUCED: The district is highly dependent on the state of California for funding, requiring it to manage through significant revenue volatility and uncertainty. The recent approval of temporary tax increases by California voters removed the threat of mid-year funding cuts for the district. This may result in more stable revenues over the medium term. LIMITED ECONOMY: The rural and somewhat isolated service-based economy has below average socioeconomic metrics. MANAGEABLE LONG-TERM LIABILITIES: The district has a very low debt burden and rapid amortization. Pension and other post-employment benefit (OPEB) costs are not expected to pressure the credit due to low carrying costs. CREDIT PROFILE The district serves about 2,500 students in the city of Oroville (the county seat of Butte County) and is located 70 miles north of Sacramento. RESILIENT FINANCIAL PROFILE The district demonstrated prudent financial management during a time of reduced state funding, declining enrollment, and large state funding deferrals. Unrestricted fund balance at the end of fiscal 2012 remained solid at $2.9 million (13% of total spending) due to aggressive expenditure cuts over the last several years. Despite cuts made to date, Fitch believes the district retains further flexibility to make expenditures cuts if necessary, but may be limited at the current reserve level. The passage of state Proposition 30 temporarily increases income and sales taxes to fund education. As a result, the district will avoid mid-year funding cuts in fiscal 2013. The district's fiscal 2013 budget had prudently assumed that Proposition 30 would fail and thus projected an operating deficit of $2 million. The first interim report adjusts fiscal 2013 revenue projections upward and now a deficit of only $863,000 is projected, which represents 4.0% of total spending. While reserve levels have remained ample, the district has faced cash shortfalls due to state deferrals. In fiscal 2012, the district issued tax revenue anticipation notes to mitigate $2.9 million in state deferrals. This represented 38% of the district's state apportionment. Another cash shortfall is expected for the end of fiscal 2013, which the district intends to mitigate by borrowing internally. Funds available include $368,000 from the building fund and $375,000 from the cafeteria fund. Fitch expects the district's cash flow to improve if the state begins to pay down the deferrals as proposed by the Governor. LIMITED ECONOMY WITH BELOW-AVERAGE SOCIOECONOMIC INDICATORS The district's service-based economy is small and fairly isolated geographically. There is low taxpayer concentration, with the district's top ten taxpayers representing 7.2% of total taxable assessed valuation. Due to the limited economy, wealth levels are below-average. Median household income equals 79% and 92% of state and national averages, respectively. The city's 11%unemployment rate of in October 2012 is higher than both state and national levels (9.8% and 7.5%, respectively). District population growth is slower than the national average. Assessed value (AV) has declined recently. However, Fitch expects AV to begin recovering in the near future based off housing data and projections aggregated from Global Insight. VERY MANAGEABLE LONG TERM LIABILITIES Overall debt burden is very low at $189 per capita and 0.2% of assessed value. Amortization is rapid at 71.9% of principal retired within ten years. The district has no future debt plans. The district participates in two state pension plans, the California State Teacher's Retirement System (CalSTRS) and the California Public Employees' Retirement System (CalPERS). In fiscal 2012, the district contributed 100% of the required contribution equal to a manageable 5.5% of total general fund spending. However, funded ratios for both plans are low suggesting increasing costs for participants in the future. The district's OPEB costs are very manageable. In fiscal 2012, the district modestly over-funded its OPEB annual required contribution of $372,000, which represented 1.7% of total general fund spending. Total carrying costs, calculated by dividing debt service, pension, and OPEB costs by governmental spending less capital spending, equals a low 9%.