TEXT - Fitch affirms California's Pleasant Hill Recreation & Park District
Feb 8 - Fitch Ratings takes the following action on Pleasant Hill Recreation & Park District, California (the district) bonds: --$20 million general obligation (GO) bonds, election of 2009, series A (2010) affirmed at 'A'. The Rating Outlook is Negative. SECURITY The bonds are general obligations of the district, secured by the levy of ad valorem taxes on all taxable property within the district, without limitation as to rate or amount. KEY RATING DRIVERS WEAK FINANCIAL POSITION: The district's finances remain vulnerable despite a small operating surplus in fiscal 2012. Unrestricted fund balances improved but were still negative, while liquidity continued to be strained. ONGOING FISCAL CHALLENGES: The Negative Outlook reflects Fitch's concern regarding the potential for a return to deficit operations, due to cost pressures and constraints on raising revenue. Fitch also notes the potential for increased credit pressure related to the completion of a major capital program and operation of new facilities. STABLE TAX BASE: The district benefits from a resilient economy and substantial tax base that have outperformed the state and nation during the recent downturn. Property taxes provide approximately half of district operating revenues and a relatively stable local housing market has helped insulate these revenues from decline. MANAGEABLE DEBT LEVELS: The district's recent GO issuances increased outstanding debt substantially but direct and overlapping debt levels remain moderate due to limited borrowing in prior years. RATING SENSITIVITIES RENEWED OPERATING DEFICITS: Failure to maintain general fund operating balance and improve unrestricted fund balances, as the district moves towards completion of a major capital improvement campaign, would increase downward pressure on the rating. CREDIT PROFILE The district is located 45 miles east of San Francisco in suburban Contra Costa County and was formed in 1951. District boundaries include the city of Pleasant Hill (the city) as well as portions of two adjacent cities and unincorporated areas. CONTINUED FINANCIAL WEAKNESS WITH SIGNS OF IMPROVEMENT Fitch believes the prospects for fiscal stability have marginally improved, as reflected in the district's small operating surplus for fiscal 2012 (approximately 1% of general fund spending). Unrestricted fund balance remained negative despite this gain due to losses incurred in each of the four prior years. Management expects to add to fund balance in fiscal 2013, which Fitch considers reasonable given the district's recent focus on improving financial results. Several one-time factors contributed to the district's weak financial performance in prior years, but additional risks remain as it approaches completion of a major capital program. Two of four planned new facilities have recently opened and completion of the remaining facilities is expected within the next 18 months. Positive operating margins for recreational programs housed in these new facilities would benefit the district's finances, but a lack of reserves leaves little margin for error. In the past the district's financial flexibility has been enhanced by non-general fund reserves and cash balances, but these have also declined over the past several years. Cash balances across all governmental funds fell to $631,000 at the end of fiscal 2012, as compared to $1.7 million three years earlier. RESILIENT ECONOMY AND TAX BASE The district benefits from a resilient economy and substantial tax base that have outperformed the state and nation during the recent downturn. Taxable assessed values (TAVs) declined by approximately 2.4% between 2009 and 2012 but appear poised to rebound in future years; Zillow reports an impressive 18.6% year-over-year gain in home values as of December 2012. The December 2012 unemployment rate of 6.9% was below the national average and well below the state average. Wealth and income levels for this largely residential community are 130% to 150% of state and national figures and assessed value per capita is notably high at $170,000. MANAGEABLE LONG-TERM OBLIGATIONS Overall debt levels are moderate at approximately 2.7% of TAV. Debt service costs are somewhat high (17% of 2012 governmental spending) but are mitigated by the fact that the district's overall operating profile is generally low risk, given the district's limited purpose. Amortization is slow with 24% of outstanding principal repaid in 10 years. The district participates in a state-sponsored pension plan and is likely to experience higher contribution rates over the next several years to address sizable unfunded liabilities. The district provides no other post-employment benefits.