Fitch Rates West Contra Costa USD, CAs GO Bonds 'A-'

Business Wire, April 3, 2003

Business Editors

SAN FRANCISCO--(BUSINESS WIRE)--April 3, 2003

West Contra Costa Unified School District, CA's $95.0 million general obligation bonds, election of 2000, series C are rated 'A-' by Fitch Ratings. The Rating Outlook is Stable. Fitch also assigns an 'A-' rating to $121.5 million of outstanding general obligation debt. The bonds will sell competitively on April 8.

The 'A-' rating reflects West Contra Costa Unified School District's (the district) consecutive years of sound financial operations (following historical fiscal difficulties), manageable debt levels, good assessed value growth, as well as a positive settlement of the state's audit challenge. These strengths are somewhat offset by looming uncertainties surrounding future state appropriations and extensive capital needs that could potentially pressure district resources and increase debt levels. Management has prudently identified mid-year reductions for the current fiscal year and further reductions in fiscal 2004 to mitigate potential state education funding cuts. Sound operations depend on the district's relationship with the state-approved administrator, future state funding levels, and the district's ability to maintain competitive salary levels.

The district is located in western Contra Costa County and includes the cities of Richmond, El Cerrito, Hercules, Pinole, and San Pablo. The district also encompasses the unincorporated areas of El Sobrante and Kensington. Several petroleum and related companies are located in the area, including Chevron Corp., the district's top taxpayer at approximately 12.2% of its fiscal 2003 assessed valuation base. Overall property valuation has been improving, showing strong increases in recent years. In 2003, assessed value grew a sound 5.6%, following a strong 11.4% increase in 2002.

Financial operations are sound, marked by consistent operating surpluses and healthy general fund reserves. A spend down is, however, projected in fiscal 2003. The fiscal 2002 unaudited ending general fund balance totaled a good 10.5% of expenditures and transfers out, and averaged 9.8% from fiscal 1999-2001. The estimated unreserved general fund balance also is healthy, at 8.8% of spending. Board policy is to maintain the reserve above 5%. The fiscal 2003 second interim budget projects the ending general fund balance at $15 million, a substantial draw down from the prior year due partly from a retroactive salary increase and the assumption of fewer state dollars. Management has identified potential reductions to maintain the 5% reserve policy. Like most California school districts, the district depends largely on state funding, which accounted for 60.7% of general fund revenues in fiscal 2001.

The bonds are the final series of a $150 million voter-approved general obligation bond authorization in 2000. The district also has $270 million authorized but unissued debt from a proposition 39 election in 2002. Current proceeds will be used primarily for construction of elementary schools, which are part of a large capital plan of around $900 million through 2012 that includes additional modernization and construction projects. State matching funds, and additional voter-approved debt are expected to supplement bond proceeds for capital plan completion.

The district's direct and overall debt levels are manageable, although greatly increased with this sale; overall debt is $2,635 per capita, or 3.3% of market value. Amortization is slow and expected future debt issuance will increase debt levels to above-average in the near future.