OREANDA-NEWS. March 23, 2016. Fitch Ratings has affirmed the 'AA+' rating on the following Clovis Unified School District, California debt:

--\\$227.2 million unlimited tax general obligation bonds.

The Rating Outlook is Stable.

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

KEY RATING DRIVERS
STRONG FINANCIAL PERFORMANCE: The district has performed very well financially across business cycles, despite reliance on volatile state funding. The district benefits from rising enrollment, a history of prudent management practices including significant expense reductions, and solid expenditure flexibility.

HEALTHY ECONOMY: The district is located in the Fresno metropolitan area; however, the district's economy is stronger than the region as a whole with higher incomes and lower unemployment rates. The tax base is diverse and growing at a healthy pace.

MODERATE DEBT, HIGH RETIREE LIABILITIES: The district's debt burden is moderate. Carrying costs of debt and retiree obligations are moderate, but rising.

RATING SENSITIVITIES
FINANCIAL PERFORMANCE: The rating could come under downward pressure if the district's strong reserve position deteriorates significantly due to the opening of a structural budget imbalance. The Stable Outlook means that Fitch does not expect such deterioration.

CREDIT PROFILE
The suburban residential district serves 197,000 residents and 41,600 students within a nearly 200 square mile territory in California's San Joaquin Valley. The fast-growing district is the 16th largest in California and encompasses a majority of the city of Clovis, a portion of the city of Fresno and unincorporated areas of Fresno County.

SOLID SUBURBAN ECONOMY
The economic base is solid despite the weakness of the broader Fresno metropolitan economy. The district's unemployment rate trends below state and national averages, reflecting a transition from an agriculturally based economy to an affluent suburban area with increased service and retail-oriented activity. Median household income is solid at 124% of the national median and 110% of the state level. The poverty rate is below average at 13.4%.

The largely residential tax base is diverse and resilient. The tax base held up better than many other inland California communities during the recent downturn with relatively modest cumulative assessed value (AV) loss of 6.6% over the four years ended 2013. AV increased 7.1% in 2015 and 5.4% in 2016, surpassing its former peak as construction picked up pace and existing properties recovered in value.

STRONG FINANCIAL PERFORMANCE; RELIANCE ON STATE
Financial operations remain strong with generally positive operating results yielding a healthy reserve position, despite variability in state funding. The district is reliant on the state of California for almost 90% of revenues. State dependence exposes the district to some revenue volatility, but consistent increases in enrollment have muted revenue volatility compared to California school districts with stable or declining enrollment. The district has also exhibited strong spending discipline during periods of funding pressures, maintaining fiscal balance even as it received less funding per pupil. The district expects enrollment gains to continue for the foreseeable future because the service area includes significant amounts of developable land that continues to draw developer interest. An extended slowdown in growth could weigh on revenue performance.

The district has drawn down reserves in a controlled manner over the past three years to reduce balances from very high levels built up during the economic downturn as a precaution against funding uncertainty. Unrestricted general fund balance remains well above the state's 2% minimum requirement and the district's 6% internal target over the past five years and remained healthy at 13.6% in the fiscal year ended June 30, 2015.

MODERATE DEBT; RISING POST-RETIREMENT COSTS
The district's debt burden is moderate, with overall direct and overlapping debt at about \\$4,250 per capita and 4.3% of AV. Growth pressures are likely to keep debt near current levels or rising over time, but Fitch expects debt to remain moderate. The district's amortization is somewhat slow with 38.6% of direct debt repaid in 10 years.

Carrying cost of debt service, pension and other post-employment benefits are moderate and expected to remain moderate even as the state increases contributions to improve funded positions of large pension plans. The district participates in California Public Employees' Retirement System (CalPERS) as well as in the poorly funded California State Teachers' Retirement System (CalSTRS) pension systems. The state-sponsored teacher retirement system (CalSTRS) has particularly weak funding levels due to years of statutory contribution rates below actuarially required levels. Based on the state's current plan, district contribution rates will increase to 19% of payrolls in fiscal 2021 from 12.6% in fiscal 2016.