TEXT - Fitch affirms California's Oroville City Elementary SD GOs

Thu Jan 31, 2013 4:09pm EST

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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%.
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