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Fitch Affirms Fairfax Elementary School District, CA's GOs at 'AA-'; Outlook Stable
[December 16, 2014]

Fitch Affirms Fairfax Elementary School District, CA's GOs at 'AA-'; Outlook Stable


Fitch Ratings affirms the following ratings for Fairfax Elementary School District, CA's (News - Alert) (the district) bonds:

--$8.1 million unlimited tax general obligation (GO) bonds, series 2000A, series 2002A, and series 2011 at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The GO bonds are payable from an unlimited ad valorem tax pledge.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: The 'AA-' rating reflects the district's strong financial position, with a solid financial cushion, prudent management practices and several years of mostly surplus audited operations.

WEAK ECONOMY: The district's economy is limited reflected in a largely agricultural base, significant taxpayer concentration, and below-average wealth levels. County unemployment levels remain elevated compared to state and national averages.

ADEQUATE DEBT PROFILE: The district's debt burden is weighed down by slow principal amortization and participation in the poorly funded CalSTRS pension system, as is the case for all school districts in the state. These weaknesses are mitigated by a moderate debt burden and manageable capital needs, with no near-term planned debt issuances.

RATING SENSITIVITIES

MAINTENANCE OF STRONG FINANCIAL PROFILE: The rating is sensitive to shifts in fundamental credit characteristics including the district's strong financial profile and high reserves, factors that offset concerns over it weaker economic and debt profile.

CREDIT PROFILE

The district, located in the southeastern area of Bakersfield within Kern County, serves a population of about 2,400 students. Enrollment continued its steady trend of growth in fiscal 2013, increasing 3.2% over the prior year. Management expects this will continue which seems reasonable based on population trends.

STRONG FINANCIAL POSITION

The district's financial position is a positive credit factor, a key credit characteristic supporting the rating, and an important mitigant to the limited, below-average economy. The district has operated with five surpluses over the past six fiscal years, with a fund balance maintained in excess of 20% of spending over the past three fiscal years.

Fiscal 2013 concluded the year with a general fund operating surplus of $118,000 (0.64% of spending), increasing the unrestricted fund balance to $5 million, equivalent to a strong 27% of spending. Unaudited fiscal 2014 results suggest a manageable $469,453 decrease in total fund balance, primarily due to expenditures associated with the opening of a new school.

The fiscal 2015 budget projects another manageable deficit of approximately $461,200, however, based on where revenues and expenditures are tracking against budget, management expects results to out-perform budget. After fiscal 2015, multi-year projections point towards surpluses through fiscal 2017. If actual operations perform as forecast, the district would still enjoy sound general fund reserve levels at the end of the forecast period.

The district's financial cushion is supplemented by roughly $521,000 of capital reserves that are located outside the audited general fund balance.

CONCENTRATED ECONOMY WITH WEAK SOCIOECONOMIC INDICATORS

The district's limited agricultural economy is somewhat offsetby its location within diversified Bakersfield, which is the ninth largest city in California and has a presence in the oil, manufacturing, and food processing industries.



The district's economy has very high taxpayer concentration. The district's top ten taxpayers account for 46% of taxable assessed value (TAV), with its largest taxpayer, Bolthouse Farms, at 39%. In 2012, Bolthouse Farms was purchased by Campbell's Soup Company, and management indicates operations at the plant are stable. Fitch's concerns regarding the high concentration of Bolthouse Farms is somewhat offset by recent investments, as well as the uniqueness of the facility with leading market positions in fresh carrots, premium beverages, and other notable product lines.

Inherent volatility in the agricultural industry drives the district's below-average income and wealth levels. Median household income equals 61% and 71% of the state and national averages, respectively. The county's unemployment rate remains elevated compared to state and national averages, although the city of Bakersfield's 6.1% September 2014 unemployment rate is slightly below the state average of 6.9% but remains higher than the national average of 5.7%.


Educational attainment is well below national averages, with only 53.5% graduating high school and 3.4% earning a bachelor's degree.

After declining by 1.3% in fiscal 2013, TAV returned to growth, increasing 5.1% and 5.4% in fiscal 2014 and fiscal 2015, respectively.

ADEQUATE DEBT PROFILE

The district's debt burden is moderate, with overall debt equal to $1,634 per capita and 3% of TAV, although this is understated due to the use of capital appreciate bonds (CABs), which also results in a slow 28% principal amortization rate over 10 years. The district has no planned debt issuances, and capital needs are manageable.

The district participates in two cost-sharing, multiple-employer pension plans, the California Public Employees' Retirement System (CalPERS) and the California State Teachers' Retirement System (CalSTRS). Estimated funding levels for the plans are a low 63.7% for CalSTRS and 78.8% for CalPERS, based on Fitch's 7% rate of return.

Carrying costs (debt, OPEB and pension costs as a percentage of total governmental spending) are affordable at 6.2%. Carrying costs are expected to rise sharply as the state addresses substantial unfunded liabilities in the CalSTRS. As part of its fiscal 2015 budget, the state initiated a seven-year program of pension-contribution rate hikes that is structured to fully fund the system's unfunded liability over a 32-year period.

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:

--'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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=953235

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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE 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 THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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