OREANDA-NEWS. February 23, 2016. Fitch Ratings has affirmed the 'AA-' rating on outstanding unlimited tax general obligations (ULTGO) bonds of the Brentwood Union School District as follows:

--\\$2.3 million series 1997C;
--\\$17.4 million series 2012.

The Rating Outlook is Stable.

SECURITY
The bonds are supported by an unlimited pledge of ad valorem tax on all taxable property within the district.

KEY RATING DRIVERS

SOLID FINANCIAL PROFILE: The district has maintained a solid financial position. Budgets are conservative and reserve levels remain healthy despite large reductions in recent years.

LONG-TERM OBLIGATIONS: Overall debt levels are manageable, as are carrying costs for debt service and employee retirement benefits. The district plans to address its growing OPEB liability and adopted a management plan to incrementally increase contributions.

ECONOMIC FACTORS: The local economy is characterized by above-average wealth levels, an unemployment rate below the state average and a stabilized housing market following severe declines in the recession. Construction of a few housing developments may lead to a slight increase in enrollment over the next couple of years.

IMPROVED REVENUE PROSPECTS: State funding, which Fitch views as volatile and highly responsive to economic conditions state-wide, provides the majority of district revenues. Revenue growth prospects have improved recently with the general improvement of the state's finances and economy.

RATING SENSITIVITIES
STABLE CREDIT PROFILE: The rating is sensitive to shifts in fundamental credit characteristics including the district's strong financial position. The Stable Outlook reflects Fitch's expectation that such shifts are highly unlikely.

CREDIT PROFILE

Brentwood Union School District is a K-8 school district in eastern Contra Costa county that serves a population of about 56,000 within the city of Brentwood and limited portions of the cities of Antioch and Oakley. The district is located approximately 41 miles east of San Francisco, an area best classified as a bedroom community of San Francisco.

SOLID FINANCIAL PROFILE

Healthy reserves sustained the district's sound financial position during the last recession. Despite drawing on fund balances to offset general fund revenue declines, management's prudent budgeting practices and proactive spending reductions helped maintain reserves above 12%, where Fitch expects them to be maintained. Though much reduced from prior levels, this is well above the district's general fund balance policy to maintain no less than 4.25%.

The district retains a moderate degree of spending flexibility; however, due to a stable revenue environment, Fitch does not anticipate the district to need to utilize this flexibility in the near term.

IMPROVED REVENUE PROSPECTS

State funding provides the majority of district revenues, and growth prospects have improved recently with the general improvement in state finances. The 2015-2016 First Interim Report illustrates that BUSD is projecting to operate in the positive with revenues of \\$2.6 million in excess of expenditures. The district's MYP projects general fund deficit spending in fiscal years 2016-2017 (-\\$2.1 million) and 2017-2018 (-\\$1.2 million), as a result of \\$5.1 million in one-time funds in this fiscal year that will be spent over the next several budgetary cycles. The income will only show in this year; however, expenditures of these funds made in subsequent years will be seen as deficit spending.

ABOVE-AVERAGE ECONOMIC INDICATORS

Brentwood largely serves as a bedroom community to the Contra Costa County and greater Bay Area labor markets. Unemployment rates in the city declined to 5.2% in 2014, well below the county (6.2%), state (7.5%), and US (6.2%) rates and on par with the unemployment rate of the San Francisco MSA (5.2%). Wealth levels in the city are above average with per capita and median household income at 111% and 148% of the state average, respectively.

SLOWLY RECOVERING HOUSING MARKET

The district experienced a very sharp contraction in AV, with a cumulative decline of 32% in AV from fiscal years 2008 to 2013. Fiscal year 2014-2016 mark years of AV growth since before the recession, due to increased housing development activity and improved home prices. AV has increased by 19% in that period is currently 13% below peak levels. The tax base remains non-concentrated with the top 10 taxpayers comprising 5.3% of AV.

MANAGEABLE DEBT BURDEN

The overall debt burden for the district is moderate at \\$5,845 per capita and 4.5% of AV. Amortization is considered favorable with 67% of principal repaid in 10 years. The district's direct debt largely consists of property tax-secured general obligation bonds and includes a very small portion of variable-rate capital lease obligations. The district's 2014 Master Facility Plan outlines capital needs that include building up to four elementary schools and an additional middle school, for which the district intends to make use of land it purchased two years ago. The amount of construction would depend on actual needs. While the district has current enrollment capacity for an additional 200 students, which is projected to be adequate for the next few years, it is anticipated that the district will have an election for a GO bond issue to finance future building needs.

The district operates eight elementary schools and three middle schools, most of which have been constructed within the past twenty years. The rate of population and enrollment growth was reduced significantly with the decline in the local housing market during the last recession. However, the district currently projects that enrollment will remain plateaued over the next couple of fiscal years.

The district participates in two state-sponsored employee pension plans with substantial unfunded liabilities. In addition, the district had an unfunded OPEB liability of \\$8.3 million (0.1% of TAV), a figure Fitch views as very low, as of the most recent valuation on July 1, 2013. Carrying costs for debt service are manageable at 70% of governmental expenditures. However, this is offset by the rapid amortization of debt.