Fitch Rates Edison Elementary School District, California's $3.2MM GOs 'A-'

Business Wire, July 13, 2004

SAN FRANCISCO -- Fitch Ratings assigns an 'A-' rating to $3.2 million Edison Elementary School District (Kern County, California), general obligation bonds, election of 2004, series 2004A (bank qualified). The Rating Outlook is Stable. The bonds are expected to sell via negotiation through George K. Baum & Company on or about July 22.

The 'A-' rating reflects the district's moderate debt levels and adequate financial operations. Other rating factors include the area's below-average wealth levels, above-average unemployment rates, and somewhat volatile assessed valuation history with moderate taxpayer concentration.

The district is located in the eastern portion of Kern County, about 10 miles southeast of downtown Bakersfield. The district's boundaries include an estimated 4,500 residents and encompass 47 square miles of primarily unincorporated Kern County, as well as the small, unincorporated community of Edison. While the district area and region remain dominated by agriculture, those portions of the district nearest Bakersfield are beginning to enjoy some residential and commercial growth as suburban Bakersfield development continues. Enrollment at the district's one elementary and one middle school totals 900 but is projected to grow at 7.6% and 4.3% for the coming fiscal years 2005 and 2006, respectively. Given ample space for new development and developments either under way or in the planning stages, enrollment growth seems likely to continue.

The district's underlying economy is highly dependent on agriculture, though many residents commute into Bakersfield proper for work. The county's overall economy is natural resource-based as it is the largest oil-producing and third-largest agricultural-producing county in the nation. Wealth levels are below average, with the district's median household income lagging behind state and national levels. Unemployment, labor force, and wealth indicator data specific to the district are unavailable, though county averages are indicative of an agriculture-based economy. County unemployment rates are roughly double the state and national averages at 12.3% in 2003 while income levels are well below state and county averages.

Recent assessed value performance is somewhat mixed, with a healthy 6.5% rise for fiscal 2004 offset by a minimal 1.2% gain in 2003 and a 1.0% decline in 2002. This trend is primarily due to volatility in mineral roll valuations, which declined substantially in fiscal years 2002 and 2003, then increased 49% in 2004; the mineral roll currently accounts for less than 4% of total district assessed values. Taxpayer concentration is moderate-to-high, with the largest 10 taxpayers accounting for 25.5% of total assessed values in 2004. Guimarra Vineyards Corp. is the largest taxpayer, with an 8.8% share of assessed valuation.

Financial operations are adequate with operating surpluses in fiscal year's 2001 through 2003. However, estimated final results from fiscal 2004 indicate a sizable deficit. While fiscal 2003 ended with a general fund balance totaling $701,000, or 12.6% of spending and transfers, an estimated $296,000 drawdown in fiscal 2004 results in a weaker general fund balance equal to 6.6% of total spending. However, while the drawdown of reserves in 2004 somewhat limits financial flexibility, a portion of the deficit resulted from a $100,000 transfer out of the general fund into a special reserve. The cash reserves available in this fund, along with cash in a capital reserve account, are estimated to total more than $600,000. The district has prudently maintained these extra reserves for emergency purposes and does not currently plan to draw down on these cash accounts.

This is the first issuance from a $6.0 million bond measure approved by a very high 83% of voters in May 2004 under California's Proposition 39 election procedure. Bond proceeds, along with state-matching funds, will help finance the purchase of land and designs for a new school, fund the design and construction of a gym at the middle school, and modernize, repair, and upgrade the two existing schools. The district expects to issue the remainder of the authorization over the next two to four years. Principal amortization is slow.