Fitch Rates $4.0MM Kernville Union School District, CA, GO Bonds 'A-'

Business Wire, May 10, 2004

Business Editors/Education Writers

SAN FRANCISCO--(BUSINESS WIRE)--May 10, 2004

Fitch Ratings assigns an 'A-' rating to $4.0 million Kernville Union School District, California general obligation bonds election of 2004, series 2004A. The Rating Outlook is Stable. The bonds are expected to sell via negotiation through Bank of America Securities, LLC on or about May 19.

The 'A-' rating reflects the district's low to moderate debt levels, steady assessed valuation growth, prudent financial management, and adequate fund balances. These factors are somewhat offset by below average wealth levels, volatility associated with a resources and tourism-dependent economy, and fiscal uncertainties regarding statewide education funding.

The district is located in the northeastern portion of Kern County, almost 50 miles northeast of Bakersfield. The district encompasses a large 295 square miles in the Kern River Valley, where it is bordered to the north by the Sequoia National Forest. Enrollment, however, is small at 910 students, representing a 3.5% increase from the previous year. This gain reverses a downward trend in enrollment that began in fiscal year 2000 -- reflective of families leaving the Kern Valley area during that time. However, recent demographic and economic indicators suggest families are relocating to the Kern Valley area, where residents now are commuting to work in Bakersfield and the surrounding area. Home values have increased significantly although district assessed valuation growth has been slow to moderate, rising 11.4% since fiscal 2000.

The district's economy is highly dependent on tourism, as evident during the summer when the district's population more than doubles with visitors to Lake Isabella, one of the largest reservoirs in Southern California. Kern County's economy is natural resource-based and the largest oil-producing and third-largest agricultural-producing county in the nation. Also, the area is experiencing some diversification into warehousing and distribution. The district's median household income is slightly under the county's, but far lagging behind California's. Kern County suffers persistently high unemployment rates (12.3% in 2003) -- endemic of its agricultural roots and of the high percentage of residents on public assistance.

Financial operations are marked by healthy general fund reserves although a second year of operating deficits is projected for fiscal year 2004. The district expects to end the current fiscal year with a still healthy general fund balance at 11.3% of spending. This downward trend in the district's fund balances is attributed to recent cuts in state assistance and a 6% salary increase authorized by the district's outgoing management for fiscal 2002. Nonetheless, current district management, coupled with the cooperation of the district's board and its labor unions, undertook the necessary budget cuts to restore fiscal balance.

This is the first issuance of a $6.5 million bond measure approved by 68% of voters in March 2004 under California's Proposition 39 election procedure. Bond proceeds will fund construction, modernization, and repair of various district facilities. The bonds are part of a multi-year facilities master plan that will be supplemented by state matching funds. The district expects to issue the remainder of the authorization over the next two to four years. Principal amortization is very slow.