Fitch Ratings assigns an 'AAA' rating to the following Dixie Elementary School District, CA (the district) general obligation (GO) bonds:
--$6 million 2011 GO refunding bonds.
The bond proceeds will be used to refund a portion of the district's outstanding GO bonds. The bonds will be sold through negotiated sale during the week of Sept. 5.
In addition, Fitch affirms the following ratings:
--$1 million GO bonds at 'AAA';
--$2.4 million lease revenue bonds (clean renewable energy bonds), series A at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by an unlimited ad valorem tax on all taxable property within the district.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The district's finances reflect sound unreserved general fund balances, a history of conservative budgeting practices, considerable financial flexibility through further expenditure cuts and additional reserves maintained outside of the general fund.
DIVERSE REVENUE SOURCES: The district's basic aid status and diverse local revenue sources that include a parcel tax and lease revenue provide atypical revenue stability for a California school district; however, the district remains exposed to some degree of revenue volatility as the state reduces categorical funding to basic aid districts.
STABLE TAX BASE: The district's tax base remains diverse and has resumed limited growth after contracting by 1.5% for the first time in recent history.
RESILIENT ECONOMY: The economy features above-average wealth levels, an unemployment rate well below the state average, and close proximity to the diverse labor market of the San Francisco Bay Area.
SOLID DEBT PROFILE: The district's total debt burden is low to moderate and outstanding principal amortizes at a rapid rate. The district makes its annual required contribution to two statewide pension plans and has an affordable but unfunded other post-employment benefit liability.
CREDIT PROFILE
Dixie Elementary School District is located in Marin County and covers approximately 50 square miles including the northern portion of the city of San Rafael and the unincorporated communities of Marinwood and Lucas Valley. The district operates three schools for grades kindergarten through fifth and one middle school for grades six through eight.
FINANCES
The district maintains a strong financial profile with sound reserves. The unreserved general fund balance was $3.7 million or a sound 20.9% of spending in fiscal 2010. Estimated results for fiscal 2011 show a reduction in the unreserved balance to $3.4 million or a still sound 18.9% of estimated spending. In addition, the district has transferable reserves held outside of the general fund that raise the total available reserves to approximately $4.1 million or 22.6% of spending (unaudited) in fiscal 2011.
Financial operations have been strong historically but weakened in fiscal 2011. Estimated financial results show the district running a modest deficit after generating surpluses in each of the past five audited fiscal years. District officials stated that the actual deficit in fiscal 2011 is likely somewhat less than the currently estimated $464,000 or 2.6% of spending (unaudited). Among the factors contributing to the deficit is the state's reduction in categorical funding for basic aid school districts, commonly called the basic aid fair share. This reduction decreased the amount of revenue that the district would have received by $672,000 in fiscal 2011. District officials anticipate the reduction in categorical funding will amount to approximately $1 million in fiscal 2012. District officials stated that deficit spending is also likely in fiscal 2012, as management plans on taking the year to determine what cost reductions are necessary to resume balanced financial performance. The district retains a considerable amount of expenditure flexibility with options that include increasing class sizes, reducing school days, modifying staff salaries and benefits, and eliminating underfunded programs.
The district's revenue base is uncharacteristically diverse for a California school district. As a basic aid district, the revenue limit funding amount is met by local property taxes, which reduces the district's reliance on volatile state-provided funding. In addition, the district received an above-average 21% of total revenue from local sources in fiscal 2011. This includes a parcel tax, which was recently renewed and increased with strong voter support in Spring 2011. Effective in fiscal 2012, the parcel tax is expected to generate approximately $1.9 million, which is approximately $572,000 more than the parcel tax generated in fiscal 2011. Additional support is provided by a good degree of charitable donations generated by the district's parent foundation. In fiscal 2011, donations are estimated to exceed $700,000 or 4% of the district's general fund spending (unaudited). Finally, the district also receives lease revenue by leasing four surplus school sites. In fiscal 2010, the district received over $1.2 million in lease revenue.
DEBT BURDEN
The district's debt profile is solid. Direct and total overall debt levels are low at 0.2% and 1.8%, respectively, of fiscal 2012 assessed value (AV). On a per capita basis, direct and total overall debt levels are more moderate at $444 and $3,318, respectively. The district's outstanding debt, which includes GO bonds and lease revenue bonds, features a rapid principal amortization rate with 80% of total debt retiring in ten years. District officials stated that no additional debt issuance was planned over the next couple of years as the district's capital needs have largely been addressed through a recently completed modernization program. The district participates in two statewide pension plans and makes the full annual contribution. In addition, the district offers other post-employment benefits (OPEB) and has an unfunded OPEB liability of approximately $1.1 million or an affordable 0.03% of fiscal 2012 AV.
TAX BASE AND ECONOMY
The district's tax base is nearly 80% residential and has remained relatively stable over the past several years. From fiscal 2006 to fiscal 2010, the district's AV grew by a compound annual rate of 4.4% before contracting by a modest 1.5% in fiscal 2011. Growth, albeit modest, has resumed in fiscal 2012 with a total AV increase of 1.2%. The tax base is diverse with no single taxpayer accounting for more than 3.3% of total AV.
The local economy benefits from its participation in the broad and diverse economy of the San Francisco Bay Area. Wealth levels in the district are above average. Per capita income and median household income in San Rafael are below those of Marin County but remain high at 155% and 139%, respectively, of the national average. The unemployment rates for San Rafael and Marin County are relatively low at 9.4% and 7.9%, respectively, compared to the state's average of 12.1%.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated Aug. 15, 2011.
'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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