Fitch Rates $4.4MM Oroville Union High School Dist, CA, GO Bonds 'A+'

Business Wire, June 22, 2004

SAN FRANCISCO -- Fitch Ratings assigns an 'A+' rating to $4.4 million Oroville Union High School District (Butte County, California), general obligation bonds, election of 2002, series B. In addition, Fitch affirms its 'A+' rating to $6.0 million outstanding general obligation bonds. The Rating Outlook is Stable. The bonds are expected to sell via negotiation led by Stone & Youngberg, LLC on June 24.

The 'A+' rating reflects Oroville Union High School District's (the district) good financial operations, as evidenced by its sound reserves, low debt levels, and stable assessed valuation growth. These factors are offset somewhat by the local economy's low income levels and above-average unemployment rates, in addition to the district's reliance on state funding for operations and current pressure on general fund operations.

District boundaries encompass approximately 723 square miles of Butte County in the northern Sacramento Valley and include all of the City of Oroville (the city), the unincorporated communities of Palermo and Thermalito, and other unincorporated county areas. The district population is an estimated 69,469, with an enrollment of 2,964 students.

Similar to other rural areas, the county's unemployment is higher than average, and income levels are low. County unemployment was 7.3% as of May 2004, compared to the state's 5.8%. Wealth levels are low; the median household buying income in 2003 was 72% and 80% of state and national levels, respectively. The county's low wealth levels are balanced somewhat by its relatively low cost of living.

Despite recent pressure on the general fund, financial operations are sound, marked by healthy reserves. The fiscal 2003 fund balance decreased marginally to a still healthy 9.7% of expenditures and transfers out. The district's fund balance has averaged 9.3% over the past four audited fiscal years (2000-2003). However, a second operating deficit is projected for fiscal 2004 that would draw down the ending general fund balance to a still solid level of about 7.8% of spending. The deficit is largely attributed to the district restoring a sizable portion of positions that were eliminated in fiscal 2003. Fitch views the structural imbalance that resulted from this action as a concern. However, management has expressed to Fitch that it is prepared to make prudent spending reductions, if necessary, to maintain its reserve above 5.0% of spending. Labor relations are characterized as good.

The district's debt burden is low and projected to remain so. Capital needs appear manageable, focusing primarily on infrastructure repair and the addition of classrooms and new facilities on existing sites. The bonds are the second and final issuance from a $10.4 million bond initiative that passed under Proposition 39 in November 2002 with 59.8% voter approval. State matching funds and hardship grant receipts are expected to supplement bond proceeds for capital plan completion, which is tentatively estimated at $30 million. However, management has expressed to Fitch that it will scale back its capital plan in the event state revenues do not come in as originally planned.

This issuance is the second and final installment in a $10.4 million authorization, which passed with an affirmative vote of 59.8% in November 2002 under California's Proposition 39 election procedure. Bond proceeds will help fund the estimated $30 million capital plan, which consists primarily of constructing new classrooms and modernizing existing facilities. Bonds will be supplemented by state matching funds for capital plan completion. Direct and overall debt levels low $175 per capita, or 0.6% of market value. Overall debt is also low at $382 per capita, or 1.2% of market value.