OREANDA-NEWS. Fitch Ratings has assigned a 'AAA' rating to the following bonds issued by New Haven Unified School District, California:

--Approximately $45 million general obligation refunding bonds, series 2016

The bonds will sell via negotiated sale the week of July 11th. Proceeds will be used to refund portions of series 2003- A, C, and D and series 2009 for interest savings.

Fitch also has assigned an Issuer Default Rating (IDR) of 'A+' to the district. The distinction between the 'AAA' rating on the bonds and the 'A+' issuer rating reflects Fitch's assessment that bondholders are legally insulated from any operating risk of the district.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited ad valorem property tax levied on all taxable property in the district.

KEY RATING DRIVERS

The 'AAA' bond rating is based on a dedicated tax analysis without regard to the district's financial operations. Fitch has been provided with legal opinions that provide a reasonable basis for concluding that the tax revenues levied to repay the bonds would be considered "pledged special revenues" in the event of a district bankruptcy. The 'A+' IDR reflects the district's solid economic base and recent increases in revenue despite previous declining enrollment trends and sound operating performance.

Economic Resource Base

The New Haven Unified School District is located in Alameda County and covers approximately 18 square miles in the San Francisco Bay Area. The district serves over 12,000 students in Union City and southern portions of the City of Hayward. The district consists of 11 schools - seven elementary schools, two middle schools, one comprehensive high school, and one continuation high school.

Revenue Framework: 'bbb' factor assessment

Revenues in recent years have fluctuated, due in part to annual declines in enrollment; however, revenues have improved the last couple of years with continued implementation of the state funding formula. The district has limited revenue discretion, as it depends on the state for the majority of its revenues. Its legal ability to increase revenues is constrained by Proposition 13, which requires voter approval for tax increases.

Expenditure Framework: 'aa' factor assessment

Spending is likely to increase at a rate equal to or faster than revenues. The district's carrying costs of 10% are relatively low, but are expected to climb through fiscal 2021 due to increased pension contributions.

Long-Term Liability Burden: 'aa' factor assessment

The district's overall debt and pension liabilities are moderate relative to its resource base but may trend higher given district borrowing plans and area economic activity.

Operating Performance: 'aa' factor assessment

The district retains exceptionally strong gap-closing capacity as reflected by healthy general fund reserves, conservative budgets and solid control over spending.

RATING SENSITIVITIES

SOLID TAX BASE AND ECONOMY: The 'AAA' general obligation bond rating could come under downward pressure in a significant and long-lasting decline in the district's tax base and economy, which Fitch believes is unlikely.

IDR SENSITIVE TO FINANCIAL PERFORMANCE: The 'A+' IDR could come under downward pressure if the district fails to maintain satisfactory financial flexibility, continued sound budget management and maintenance of solid reserves to withstand a moderate economic recession.

CREDIT PROFILE

The district's location affords residents access to the region's strong and diverse employment opportunities and has contributed to steady residential growth in recent years - over 7% since 2010. Economic expansion in both cities contributes to the rising median home sale prices (6% increase over last year) and low unemployment in the district, as well as an average household income surpassing that of the county and the state. The district's taxable assessed values have been somewhat volatile historically but have been trending positive, with a 5.3% average growth rate over the past 15 years and 6.1% over the past three years.

Revenue Framework

State aid and local property taxes provide the majority of district revenues, which are ultimately determined by a formula (LCFF - Local Control Funding Formula) based upon student average daily attendance (ADA) and overall state revenues.

Historical revenue growth has moderately exceeded inflation but fallen below U. S. economic performance. Future revenue growth will be driven by overall state revenue performance as well as the state funding formula. The formula considers each district's ADA, as well as the proportion of students that are English language learners, eligible for free or reduced priced lunch, or are foster students ('unduplicated count'). The district has benefited from the new funding formula and has seen an increase in revenue despite ADA declines in recent years, in part due to its unduplicated count of 54%. The district's ADA is expected to stabilize given ongoing residential development and population growth.

The district has no independent ability to increase revenues as a result of California's proposition 13, which requires voter approval to raise taxes.

Expenditure Framework

Personnel costs for teachers and staff comprise the vast majority of district expenditures. Labor costs and overall spending levels are likely to be in line with or moderately above expected revenue growth based upon increasing contributions to CalSTRs through fiscal 2021, offset to some extent by possible increasing revenues under the LCFF funding formula through the same year.

The district's mandate to provide educational services limits its ability to make expenditure reductions in the event of a revenue shortfall. In practice, however, management was able to reduce costs during the last recession through salary cuts, attrition, increased class sizes, and furloughs, and would return to such strategies if needed to address new revenue declines. Currently affordable carrying costs likely will trend upward over the next five years due to increased pension contributions.

Long-Term Liability Burden

The district's combined debt and pension liabilities relative to personal income is relatively moderate at 18.2%. Anticipated additional district borrowings from a 2014 GO authorization, along with likely continued economic expansion in the area, likely will drive the overall burden higher over the near - to medium-term.

The district participates in both CalPERS and CalSTRs. The Fitch adjusted ratio of assets to liabilities for its pension plans is adequate at 73.7%. The district's liability related to other post-employment benefits (OPEBs) is $10.7 million, or 0.2% of personal income.

Operating Performance

Fitch expects the district to maintain sufficient financial resiliency through a typical downturn, utilizing both currently sound reserves and budget flexibility to counter any revenue weakness.

District reserves have increased in the years following the last recession and there have been no material deferrals of required spending. Fiscal 2015 results were boosted by proceeds from the sale of district property, and the district board has designated the majority of those proceeds as a Fiscal Stabilization Fund. Board policy requires the district to maintain a total 10% operating reserves between Fiscal Stabilization Funds (7%) and the Minimum Fund Balance (3%). The second interim fiscal 2016 report shows the district's fund balance at nearly 25% of expenditure versus approximately 8% in both fiscal 2013 and 2014.