OREANDA-NEWS. Fitch Ratings affirms the 'AA-' rating on the following Lake Tahoe Unified School District, California (the district) general obligation (GO) bonds:

--\$7.9 million election of 1999 series A and B;
--\$1.4 million refunding bonds series 2002;
--\$5.8 million refunding bonds series 2005.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by unlimited ad valorem property taxes on all taxable property within the district.

KEY RATING DRIVERS

ADEQUATE FINANCIAL PROFILE: District finances are adequate, reflecting good financial management, and featuring satisfactory general fund reserves despite recent operating deficits.

LIMITED ECONOMY: The local economy features a concentration in leisure and tourism activities. Taxable assessed value (TAV) experienced recent consecutive annual declines but returned to growth in fiscal 2014, with stronger growth in fiscal 2015. District income indicators are below state and national averages.

AVERAGE DEBT BURDEN: District debt indicators are generally average, though bond maturities are long, with slow amortization. There are no plans for additional debt issuance in the near term. Overall carrying costs including debt service and retirement costs are manageable.

RATING SENSITIVITIES

MAINTENANCE OF ADEQUATE RESERVES: Reserves have declined in recent years but remain adequate, and projections indicate strengthening in the near term. Financial weakening leading to a decline in reserves from current levels would likely put downward pressure on the rating.

CREDIT PROFILE

The district, about 250 square miles in total, serves a population of about 30,000 in South Lake Tahoe and unincorporated areas in eastern El Dorado County. The district operates seven schools, including four elementary schools, one middle school and two highs schools. District enrollment (about 3,600 in 2015) had been declining but has returned to modest growth (about 1% in 2014 and 2015). Continued growth is expected, as the district is seeing increases in lower grade enrollment.

ADEQUATE FINANCIAL PROFILE

To address enrollment declines and a challenging state funding environment, the district relied on one-time federal funding, attrition, class size increases, transportation savings, and draws on reserves to balance budgets in recent years. Reserve levels, however, remain adequate and surplus operations are expected for fiscal 2015. In addition, continued growth in state revenues is projected, which should strengthen finances and improve reserve balances.

Following operating deficits in fiscal years 2012 and 2013, strong revenue growth led to fiscal 2014 ending with a modest surplus. This resulted in a total general fund ending balance of \$3.7 million (11% of spending), nearly equal to the fiscal 2013 balance, and an unrestricted balance of \$1.8 million (5.3%), a decrease from \$2.7 million in fiscal 2013 (8.2%). The decline in the unrestricted balance resulted from a spend down of unrestricted funds earmarked for fiscal 2014 salary increases and an increase in the restricted categorical funds balance.

Based on preliminary second interim budget projections, fiscal 2015 is projected to end with a general fund operating deficit of \$1.9 million. However, management expects a surplus due to better than budget performance, including over \$1 million in currently budgeted spending on books and supplies that is not expected to take place. The district's liquidity position is satisfactory, with a positive general fund fiscal 2015 ending balance projected, and general fund access to other internal funds for cash flow needs during the year.

Continued state revenue growth is projected over the near term, which should strengthen the district's financial position. The district also has flexibility to increase class sizes or cut spending, particularly related to textbooks and supplies, if cost savings are needed.

LIMITED ECONOMY

The local economy is limited, with a concentration in leisure and tourism, particularly ski-related activities. Major taxpayers include hotels, time shares, ski resorts, and retail establishments. Recent decreased snow levels have been a concern for local related businesses, but management does not expect a significant negative economic impact overall, as local tourism extends beyond skiing and winter activities. County employment trends have been positive in recent years and current figures indicate a continuation of this trend. Unemployment has been declining, but remains above the national average. The December 2014 unemployment rate (6.2%) decreased from a year prior (7.3%), still exceeded the comparable national rate (5.4%), but was lower than the state average (6.7%). District income levels are below average relative to state and national figures.

The district experienced annual taxable assessed value (TAV) declines in recent years, with fiscal 2013 TAV 10% below the peak value in fiscal 2010. TAV returned to growth in fiscal 2014 (1.4%) and growth continued in fiscal 2015 (4%). The district expects continued modest growth based on ongoing development projects. Recent development in the area includes a new Hard Rock Casino, which opened Jan. 1, 2015, and new retail establishments, with additional retail development underway.

MODERATE DEBT, SLOW AMORTIZATION

Debt indicators are generally midrange, with total debt per capita at \$4,387 in fiscal 2014, or 2.3% of market value. Debt service as a percentage of governmental spending is about 8.8%. Debt amortization is slow, and the district's series 2010 and 2012 GOs have a long final maturity date of 2045. The district has no plans to issue additional debt, apart from a potential refunding of outstanding debt.

The district does not provide other post-employment benefits (OPEB). The district participates in the California State Teachers' Retirement System (CalSTRS) and, to a lesser degree, the California Public Employee Retirement Fund (CalPERS). The funded ratio for the CalPERS plan covering schools was 83.5% as of June 2014 or 79.1% based on the Fitch-adjusted funded ratio, which assumes a more conservative 7% investment return. The CalSTRS funded ratio was 76.5% as of June 2014 or 72.5% based on the Fitch adjustment. Contribution rates for CalSTRS are set by statute.

The district's total carrying costs, including debt service and pension costs were moderate at about 13% of fiscal 2014 governmental spending. However, these are expected to grow due to increased contribution requirements geared towards improving pension plan funding. The full impact of these increases on district finances will depend on state funding decisions that could result in additional aid to cushion against the increases.