|[August 22, 2013]
Fitch Affirms Lamont School District's (CA) GO Bonds at 'AA-'; Outlook Stable
SAN FRANCISCO --(Business Wire)--
Fitch Ratings has affirmed the 'AA-' rating on the following Lamont
School District, CA (News - Alert) (the district) general obligation (GO) bonds:
--$2.1 million GO bonds, election of 1999, series A.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem pledge on all taxable
property within the district.
KEY RATING DRIVERS
LIMITED ECONOMY: The district's local economy is concentrated in
agriculture, with low wealth and income levels, high poverty rates, and
SOUND FINANCIAL POSITION: The district has maintained healthy reserves
despite recent revenue pressures stemming from cuts in state per-pupil
funding, and has retained adequate liquidity during several years of
state revenue deferrals.
IMPROVED REVENUE PROSPECTS: The November 2012 approval of Proposition 30
by California voters (increasing income and sales taxes temporarily to
fund education) removes the threat of mid-year funding cuts for the
district. In addition, improved state finances appear likely to boost
school funding in fiscal 2014 and help restore revenues that were
deferred during the recent downturn.
MANAGEABLE LONG-TERM OBLIGATIONS: Carrying costs for debt service and
employee retirement benefits are affordable and capital needs are
Fitch expects the district to retain its sound financial position,
offsetting its limited economy and dependence upon state revenues,
credit factors that Fitch believes limit the rating to its current level.
Located in Kern County, 13 miles south of Bakersfield, the Lamont School
District is comprised of three elementary and one middle school with a
combined enrollment of approximately 2,900 students.
The district's economy is concentrated in the agricultural sector and
wealth and income levels are correspondingly low. Median household
incomes are 58% and 68% of state and national levels, respectively, and
poverty rates are double the state average. County employment has risen
steadily since mid-2010 but unemployment rates remain well above state
and national levels.
Taxable assessed values (TAV) for the district declined by a cumulative
14% in 2010 and 2011 but returned to modest growth in 2012. Taxpayer
concentration remains significant with the top 10 taxpayers accounting
for 23% of TAV and the largest taxpayer, an oil and gas producer, for
SOUND FINANCIAL POSITION
The district has maintained a sound financial position despite recent
revenue pressures. Unrestricted fund balance was equal to a strong 32.1%
of general fund spending at the end of fiscal 2012, well above the
state's 3% reserve requirement for similarly sized districts. Management
plans to draw down a portion of this balancein fiscal 2013 for one-time
investments, but Fitch expects reserves to remain sound based on the
district's history of positive operating margins.
Cash balances continue to be healthy despite recent state revenue
deferrals and the district has not required cashflow loans or internal
borrowing. Fitch expects cash balances to strengthen further with the
state's plans to repay deferrals over the next several years.
The district has increased class sizes in recent years to lower
expenditures but has not reduced the school year or utilized furloughs.
Additional expenditure reductions could be challenging given existing
high classroom sizes, but increasing enrollment and improved revenue
prospects make further cost cutting less likely to be needed in the near
REDUCED RISKS FROM STATE DISTRESS
The district's financial position will be aided by recent improvements
in state funding prospects. The passage of Proposition 30 by California
voters in November 2012 removes the threat of additional cuts and
increased funding levels under Proposition 98 appear likely for fiscal
2014 and beyond. In addition, the district is likely to benefit from
implementation of the state's Local Control Funding Formula, which
targets additional revenues to districts with high concentrations of
economically disadvantaged students and English language learners.
MANAGEABLE LONG-TERM OBLIGATIONS
Overall debt levels for the district are moderate at 2.7% of TAV and per
capita debt levels are a low $648, while amortization is above average
despite a significant amount of capital appreciation bonds. Capital
needs are currently limited but rising enrollment levels could strain
the capacity of existing school facilities within the next several years.
The district participates in two state-sponsored employee pension plans
and is likely to face ongoing increases in contribution rates to address
substantial unfunded liabilities. Funding for CalSTRS, the district's
largest plan, is a particular concern as statutory contribution rates
remain well below the level required to amortize existing obligations.
In addition, the district offers other post-employment benefits (OPEBs)
and had an unfunded OPEB liability of approximately $8.1 million (2.1%
of TAV) at the end of fiscal 2012. Carrying costs for debt service and
retirement benefits are low at 8% of non-capital governmental
expenditures in 2012.
Additional information is available at 'www.fitchratings.com'.
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, and the National
Association of Realtors.
Applicable Criteria and Related Research:
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14,
Applicable Criteria and Related Research:
U.S. Local Government Tax-Supported Rating Criteria
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