OREANDA-NEWS. Fitch Ratings affirms Wasco Union School District, California (the district) general obligation (GO) bonds as follows:

--\$2.3 million GO bonds series 2004, election of 2001 at 'AA-';
--\$500,000 GO bonds series 2001A, election of 2001 at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited ad valorem tax on all taxable properties within the district.

KEY RATING DRIVERS

RESOURCE-BASED ECONOMY: The district's local economy has traditionally relied on agriculture but has seen increasing oil and gas development in recent years. Taxpayer concentration is high and has increased with rising valuations for oil and gas enterprises. Wealth and income indicators remain well below state and national averages while unemployment levels continue to be elevated.

GOOD REVENUE PROSPECTS: The district relies on state funding for most of its support and will likely see steady revenue growth over the next several years due to ongoing enrollment gains and likely enhancements under the state's Local Control Funding Formula (LCFF). Recent oil price declines and continued drought pose risks to the local tax base and employment levels, but district revenues are insulated from such risks by state funding mechanisms that offset property tax declines.

SOUND FINANCIAL POSITION: The district maintained stable operations and good financial flexibility through the last recession and has added to reserves in subsequent years. Fitch expects that anticipated revenue growth and continued prudent budgeting practices will support ongoing stable operations.

MIXED LONG-TERM OBLIGATIONS: Carrying costs for debt and employee retirement benefits are affordable. Enrollment growth could pressure future capital needs if current demographic trends continue.

RATING SENSITIVITIES

SUSTAINED FINANCIAL FLEXIBILITY: The rating reflects the district's history of stable operations and considerable financial flexibility, which mitigate its tax base concentration. An inability to maintain financial flexibility while navigating enrollment-related capital needs would increase downward pressure on the rating.

CREDIT SUMMARY

Located in Kern County, 24 miles northwest of Bakersfield, the Wasco Union School District is comprised of four elementary schools and one middle school with a combined enrollment of more than 3,500 students.

RESOURCE-BASED ECONOMY
The district's economy is concentrated in the agricultural sector and wealth and income levels are correspondingly low. Median household incomes are two-thirds of statewide averages and poverty rates are about twice as high. Employment growth has been fairly strong for the last several years but unemployment remains elevated. The city of Wasco's unemployment rate of 18.1% for November 2014 was nearly two times Kern County's 9.6% rate, and well above the state and national rates of 7.1% and 5.5%.

Taxable assessed values (TAV) for the district have been relatively strong over the past several years due to oil and gas development as well as demand for agricultural properties. TAV increased by 25% between 2011 and 2014 following two years of shallow declines. Taxpayer concentration remains significant with the top 10 taxpayers accounting for 26.5% of TAV and the largest taxpayer, an oil and gas producer, accounting for 8.4%.

GOOD REVENUE PROSPECTS
Most of the district's revenues are provided on a per-pupil basis by the state, and growth prospects are solid due to rising enrollment and improved state revenue collections. In addition, approximately 92% of the district's students are English learners, foster youth, or meet eligibility requirements for school lunch subsidies, qualifying the district for enhanced funding under the LCFF.

The district's revenue prospects stand in contrast to its local economy, which faces increased risks from California's extended drought and recent declines in oil and gas prices. Employment levels and TAV will likely be impacted, but Fitch expects district revenues to increase over the next several years despite these challenges.

The district maintained a sound financial position through the last recession and has strengthened reserve levels in its aftermath. Unrestricted fund balance rose to a high 31% of general fund spending (\$8.8 million) at the end of fiscal 2014, well above the state's 3% reserve requirement for similarly-sized districts.

Management projects a deficit of \$800,000 in fiscal 2015 resulting from the use of \$1.7 million for one-time purposes, but anticipates further additions to reserves in 2016 and 2017. Fitch considers these estimates reasonable based on the district's history of conservative budgeting practices as well as likely revenue growth.

MIXED LONG-TERM OBLIGATIONS
Overall debt levels for the district are low at 1.8% of TAV and \$831 per capita, while amortization is above average. Capital needs are currently limited but could be strained by annual enrollment growth of approximately 2% per year. Management projects that a new elementary school could be needed in six years if enrollment growth continues at current rates, but the district's borrowing capacity is constrained. Tax rate caps under California's Proposition 39 would limit the district's borrowing capacity to less than half of projected requirements for a new elementary school.

The district participates in two state-sponsored employee pension plans and faces steady increases in contribution requirements over the next several years. Carrying costs for debt service and retirement benefits are affordable at approximately 11% of governmental expenditures but will likely face pressure from pending pension rate increases.