OREANDA-NEWS. Fitch Ratings has affirmed its 'AA-' rating on the following Placerville Union School District, CA (the district) general obligation (GO) bonds:

--$0.5 million GO bonds, election of 2002, series 2004.

The Rating Outlook is Stable.

SECURITY

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

KEY RATING DRIVERS

SOLID FINANCIAL PROFILE: The rating reflects the district's adequate reserves and moderate degree of expenditure flexibility. Four years of planned general fund balance drawdowns have eroded the district's reserves, but projections show them remaining acceptable for the rating category in fiscal 2016 and beyond.

LIMITED ECONOMY: The local economy is limited, and socioeconomic characteristics tend to be slightly below national averages. However, economic indicators point to an ongoing economic recovery with a much improved unemployment rate, job growth, and a stabilizing labor force.

REBOUNDING TAX BASE: The district's tax base has almost fully recovered recessionary valuation losses.

MANAGEABLE DEBT PROFILE: The district's overall debt burden is high, but amortization is rapid, future debt issuance plans are affordable, and annual carrying costs are low.

RATING SENSITIVITIES

STRUCTURAL DEFICIT: Continued general fund drawdowns in fiscal 2016 and beyond could result in negative rating action.

CREDIT PROFILE
Placerville Union School District is located in El Dorado County, 45 miles outside of the Sacramento metropolitan area. The district provides elementary education and serves an area of approximately 50 square miles, including Placerville and some unincorporated areas. The district currently operates two elementary schools and one middle school. District enrollment appears to be broadly stable with some exposure to a large transient population.

SOLID FINANCIAL PROFILE DESPITE PROJECTED OPERATING DEFICITS

The district maintains a solid financial profile with healthy reserves, a moderate degree of expenditure flexibility, and prudent financial management practices. At the end of fiscal 2014, the district's unrestricted general fund balance was $2.5 million. This represented a healthy 24.2% of general fund spending after three years of planned drawdowns. The school board consciously chose to reduce its unrestricted general fund balance in order to restore staffing and increase services.

Unaudited fiscal 2015 results show a further general fund drawdown of $1.2 million, reducing the unrestricted general fund balance to $1 million or a much lower 9.1% of general fund spending, although the fiscal 2016 budget anticipates some restoration of reserves. Part of the $1.2 million drawdown was a one-time transfer of $538,000 to the district's special reserve fund for capital outlay projects. There are no immediate plans to spend that transferred money. The unrestricted general fund balance plus that reserve jointly represent 13.6% of projected fiscal 2015 general fund spending.

The fiscal 2016 general fund budget projects surplus operations which, in combination with the $538,000 reserve, would result in an unrestricted general fund balance of $2.4 million or 21.3% of general fund spending. The district projects maintaining broadly balanced general fund operations in fiscals 2017 and 2018.

The district retains a moderate degree of financial flexibility with sufficient capacity to balance financial operations. During the recession, the district did not have to make many of the expenditure cuts seen by other districts in the state, including furloughs, reduced school days, increased class sizes, and layoffs. Management continues to expect that the district will return to structural balance in fiscal 2016 and has budgeted accordingly. Failure to restore structural balance could result in negative rating action.

LIMITED ECONOMY; REBOUNDING TAX BASE

The district is relatively small, and its tourism-based local economy is somewhat limited. In August 2015, the county's unemployment rate declined to 5.3%, down from 6.8% a year prior, and is now in line with the nation's unemployment rate (5.2%) and above the state's (6.1%). This was the result of job growth coupled with labor force declines which stabilized in 2014. Wealth and educational attainment levels in the district tend to be slightly below national averages.

The district's assessed valuation declined 10.3% during the recession, but has subsequently rebounded 9.8% through fiscal 2016, recapturing almost all of the lost value.

MANAGEABLE DEBT PROFILE

The district's overall debt burden is above average at a Fitch estimated 5.3% of AV. Direct debt, which accounts for a relatively small portion of the total debt load at 0.5% of AV, amortizes rapidly with 83% of principal retired within 10 years (taking into account the accreted value of the district's capital appreciation bonds).

The district is seeking voter authorization for $3.2 million in technology infrastructure bonds on the November 2015 ballot. If approved, such bonds would not appreciably increase the district's current debt burden. If not approved, the district will fund its technology infrastructure needs on an incremental pay-as-you-go approach through the general fund.

The district's annual debt service and actuarially required pension contributions represented a very low 5.9% of total fiscal 2014 governmental spending. As with all other California school districts, annual contributions to CalSTRS and CalPERS are rising as those pension systems seek to amortize their unfunded liabilities. However, the district has no other post-employment benefit (OPEB) liability which helps offset long-term liability funding pressures.