|[February 21, 2013]
Fitch Affirms Atwater Elementary School District, CA's $1.8MM GO Bonds at 'AA-'; Outlook Stable
SAN FRANCISCO --(Business Wire)--
Fitch Ratings has affirmed its 'AA-' rating on the following outstanding
general obligation (GO) bonds issued by Atwater Elementary School
District, CA (News - Alert).
--$1.8 million GO bonds, election 2004, series A.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax pledge on all
taxable property within the district.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The district's strong financial profile
reflects annual operating surpluses, healthy reserves, a good degree of
remaining financial flexibility, and management's conservative financial
policies and practices.
VERY WEAK ECONOMY: The local economy is weak with a concentration in
agriculture, a high unemployment rate, limited job growth, and below
average wealth levels.
VULNERABLE, CONCENTRATED TAX BASE: Assessed value (AV) contracted by
30.4% from fiscal 2008 through 2013 with additional declines likely
given the weak state of the local economy. The district's tax base
reflects the area's concentration in agriculture.
MIXED DEBT PROFILE: Debt ratios are expected to remain low to moderate
with no debt issuance plans. However, outstanding debt amortizes at a
very slow rate.
INCREASED DEBT LEVELS: Increased debt levels from moderate to above
average through either continued AV declines or unanticipated debt
issuances would likely lead to a downgrade.
FINANCIAL WEAKENING: Maintaining a strong financial profile is necessary
to retain the current rating given other credit weaknesses, including
the weak local economy.
The district provides public education for grades kindergarten through
eight to approximately 4,400 students in Merced County. Located in
California's San Joaquin Valley, approximately nine miles northwest of
downtown Merced, the district covers approximately 50 square miles and
includes nearly all of the city of Atwater and some surrounding
STRONG FINANCIAL PROFILE
The district's financial performance remained solid in fiscal years 2011
and 2012 with operating surpluses (after transfers) of approximately
$493,153 (1.4% of spending) and $1.1 million (3.2%), respectively.
Financial results were buoyed by a recent trend of increasing enrollment
and by the continuing impact of the district's proactive expenditure
reductions in fiscals 2009 and 2010, which reduced staffing levels and
The unrestricted general fund reserve (combined committed, assigned, and
unassigned balances combined) increased in fiscals 2011 and 2012 with an
ending balance of $9.8 million or a healthy 28.2% of spending. Reserve
levels are projected to remain at healthy levels despite a projected
draw on reserves of up to $720,000 in fiscal 2013, as the district cash
funds deferred capital needs.
CONSERVATIVE FINANCIAL PRACTICES
Fitch views management's financial policies and practices as a credit
strength. Budgeting practice are conservative, as demonstrated in the
district's annual outperformance of budgetary projections. In addition,
the district's 15% unrestricted fund balance policy is viewed positively
as financial reserves provide an important cushion given the state's
history of volatile and uncertain funding levels.
The district's financial profile is expected to remain strong based on
the district's good degree of remaining expenditure flexibility and the
prospect of increased state funding. The district retains the
flexibility to increase class sizes, reduce school days, and make other
In addition, revenue pressures may ease somewhat in fiscal 2014 if
revenue increases are realized. The governor's proposed fiscal 2014
budget increases K-12 education funding and reduces the amount of
funding deferrals. Actual funding will not be determined until the state
passes its budget this summer.
WEAK ECONOMY; CONTRACTING TAX BASE
The local economy is very weak. Historically reliant on agribusiness,
Atwater's economy has diversified to some extent due to its good access
and proximity to the city of Merced and the University of California,
Merced. However, Atwater's November 2012 unemployment rate was notably
higher at 16% than comparable state (9.6%) and national (7.4%) averages.
Wealth levels also appear to be well below average with per capital
income at 64% of the state's average and approximately 85% of the
student body eligible for the free/reduced school lunch program.
The district's tax base reflects the area's agricultural concentration
with seven of the top 10 property tax payers from agricultural and food
processing industrial sectors. The district's top 10 taxpayers comprise
approximately 17.4% of total AV.
The district's AV declined by 7.5% in fiscal 2013 bringing the
cumulative AV loss since fiscal 2008 to a sharp 30.4%. Fitch views
additional AV losses as likely given the weak economic conditions in the
area, although fewer foreclosures may mitigate future declines to some
MODERATE DEBT BURDEN
The overall debt burden remains moderate at 2.9% of AV despite the
significant AV contraction. Outstanding direct debt amortizes at a very
slow rate with approximately 17.8% of principal retired within 10 years.
The district has no plans for additional debt issuance and has budgeted
to use general fund reserves and accumulated restricted funds towards
deferred capital needs, including roof repairs and the renovations of
two existing school sites. The district does not expect to have
significant capital needs following completion of the improvements
scheduled for fiscal 2013.
The district's fiscal 2012 contribution amount for other post-employment
benefits and pensions were manageable at 7.5% of general fund spending.
Future increases in contribution rates, however, appear likely with the
relatively weak funding levels of the OPEB plan and the statewide
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS (News - Alert) Global Insight, National
Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF
[ Back To Technology News's Homepage ]