Dec 7 Fitch Ratings affirms the 'AA-' rating on the
following Kingsburg Joint Union High School District (the district), California
general obligation (GO) bonds:
--$3.7 million series 1998 (Election of 1998);
--$5.4 million series 2006 (Election of 2006);
--$3.8 million series 2008 (Election of 2006).
The Rating Outlook is Stable.
The bonds are secured by unlimited ad valorem property taxes on property within
KEY RATING DRIVERS
STABLE FINANCIAL OPERATIONS: The district has maintained a strong unrestricted
general fund balance of over 20% of spending through the worst of the economic
downturn while retaining some expenditure flexibility, and can be reasonably
expected to continue balanced operations.
REMAINS VULNERABLE TO STATE FUNDING DECISIONS: While the passage of Proposition
30 enhances the financial outlook for the district, uncertainties still persist.
Future state funding deferrals may also weaken the district's currently strong
AFFORDABLE DEBT: Overall debt burden is modest; debt, pension and other
post-employment benefit (OPEB) costs are moderate; and the use of capital
appreciation bonds will not cause annual debt service hikes.
LIMITED ECONOMY; ONGOING ASSESSED VALUE (AV) GROWTH: While the area remains
heavily agricultural with below-average wealth levels, AV has continued to grow
through fiscal 2013. However, the potential loss of a large taxpayer and
employer could reverse the gain.
The 32-square mile district is located 20 miles south of Fresno, incorporating
the city of Kingsburg and adjacent unincorporated areas of central Fresno
county, western Tulare County, and northeastern Kings County. The district
operates two high schools.
SOLID FINANCIAL OPERATIONS
After adding $141,238 to the reserves in 2011, fiscal 2012 missed its budget and
ended with an operating deficit of $538,034, a result of reduced state funding
as well as higher than expected costs. Despite deficit spending in fiscal 2012,
the district ended the fiscal year with an unrestricted general fund of $2.1
million, or 22% of spending, a still strong level. This is the fourth year that
the district has preserved a reserve level above 20%, notwithstanding adverse
economic conditions. Similarly, the district has maintained a strong liquidity
level to withstand state funding deferrals.
The district has avoided layoffs, furloughs and wage decreases. It has instead
relied on natural attrition and leaving positions vacant for cost savings. The
district has also recently imposed a cap on employee healthcare benefits, which
will protect the district from future rising healthcare expenses. However, this
was made possible only in return for a one-time 3% salary increase granted to
the labor group. Total personnel costs may go up further once the district fills
another two to three full time positions desired by management. The school year
is currently 180-days with no planned reduction.
The passage of Proposition 30 will remove some funding pressure on the district
and improve its financial outlook. Unrestricted general fund balances in the
out-years are likely to stay around or above 20% as a result. The district also
expects a significant increase in its Title I funding. However, the net result
of these funding increases will depend on the outcome of labor negotiations and
the district's ability to continue achieve cost savings in light of persistent
economic and state funding uncertainties. Ongoing prudent financial management
practice and maintenance of a solid reserve level are necessary for the current
LOCAL ECONOMY SOMEWHAT PRESSURED
The district is located in the heavily agricultural San Joaquin Valley. Major
taxpayers engage in agriculture related businesses, and the top ten account for
16% of the total tax base, indicating some degree of concentration. The third
largest taxpayer (1.7% of AV) will shut down its operations in the area soon.
Until a new owner is found, loss of tax revenue is possible.
AV growth had been rapid until fiscal 2008, but has since slowed and became
stagnant in more recent years. Growth came back again in fiscal 2013 with AV
gaining 3.9%. However, continued strong growth is not expected, as new
construction activities are very limited.
The district's income and wealth levels are below average, and the unemployment
rate is still elevated. Enrollment previously suffered modest declines due to
job losses, but is expected to bounce back as more students graduate from the
MANAGEABLE DEBT BURDEN
The district has a modest overall debt burden, with all its direct debt in the
form of fixed rate general obligation bonds. Despite the use of capital
appreciation bonds, debt service will remain steady and affordable, with a
modest annual growth of around 3% in the next 10 years. Total fiscal 2012 debt
service, pension and other post-employment benefit carrying costs was equivalent
to an affordable 17.2% of total operating expenditure.