Fitch Affirms Bear Valley USD, CA's GO Bonds at 'AA-'; Outlook Revised to Negative

SAN FRANCISCO--(BUSINESS WIRE)--

Fitch Ratings has affirmed Bear Valley Unified School District, CA's outstanding general obligation bonds (GO) at 'AA-'.

--$21.1 million GO bonds (election of 2002 series A and B and series 2005 refunding) at 'AA-'.

The Rating Outlook is revised to Negative from Stable.

SECURITY

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

KEY RATING DRIVERS

PRESSURED FINANCES: The Outlook revision reflects Fitch's concern that ongoing fiscal pressure is likely to weaken the district's currently sound reserves to levels inconsistent with the rating over the next two years. Recent operating deficits are projected to worsen as the district retains relatively limited options for further spending cuts after several years of expenditure reductions.

UNCERTAIN STATE FUNDING ENVIRONMENT: The district's financial position will remain pressured by a volatile state funding environment that included midyear revenue cuts in fiscal 2012 with additional midyear 'trigger' cuts proposed for fiscal 2013. Continued enrollment losses and the potential elimination of transportation funding will further pressure general fund performance.

LIMITED ECONOMY: The local economy is tourism based and characterized by above average unemployment levels, somewhat below average wealth indicators, a pressured real estate market, and a contracting tax base.

MIXED DEBT PROFILE: Overall debt ratios are mixed reflecting the large number of seasonal properties within the district. The district does not plan on issuing any additional debt in the near future.

WHAT COULD TRIGGER A RATING ACTION

DECLINING FUND BALANCE: Projected operating deficits in fiscals 2012 and 2013, based on proposed revenue trigger cuts and the elimination of transportation funding, would decrease the unrestricted general fund balance to levels inconsistent with the current rating.

PARCEL TAX REFERENDUM: A parcel tax will be voted on in July that, if passed, will generate approximately $1.5 million in additional annual revenue that could eliminate the projected operating deficits.

CREDIT PROFILE

OPERATING DEFICTS AND CONTINUED FISCAL PRESSURE

The Outlook revision reflects Fitch's concern that continued fiscal imbalance may erode the district's reserves to levels inconsistent with the current rating.

The district reduced spending over the past few years, but expenditure reductions have not fully offset revenue declines caused by reduced state funding and declining enrollment (enrollment has declined nearly 12% from 2008 - 2012). The district recorded general fund operating deficits (net of transfers) in fiscals 2010 and 2011, respectively, of approximately $849,000 (3.7% of spending) and $425,000 (2%).

The general fund unrestricted balance (the combined committed, assigned, and unassigned balances under GASB 54) at the close of fiscal 2011 remained sound nonetheless, at $3.8 million or 17.9% of spending. Available reserves maintained outside of the general fund increase the total available balance to $5.1 million or a solid 23.7% of spending.

Rating concerns center on the district's expanding operating deficits. Management cites a likely use of $1.1 million in fund balance in fiscal 2012, and projects a relatively large operating deficit of $1.7 million for fiscal 2013 based on assumed revenue reductions from the proposed midyear 'trigger' cuts and elimination of transportation funding. The projected operating deficits for the current and subsequent fiscal year would lower the unrestricted general fund balance to approximately 5% of spending by the end of fiscal 2013.

The district also retains relatively limited options for additional reductions after several years of significant spending cuts. The projections do not include additional revenue from a proposed parcel tax that will be presented to voters in July. Fitch would view the restoration of transportation funding in the state budget or voter approval of the local parcel tax as credit positives for the district.

RELATIVELY LIMITED ECONOMY

The district, which serves a population of approximately 18,591, is located in the San Bernardino Mountains and covers the City of Big Bear Lake and unincorporated portions of San Bernardino County. The local economy is limited, servicing a mix of tourists, second home-owners, commuters to the valley, and retirees. Unemployment data is not available for the local area, but the county is characterized by an above average unemployment rate of 11.9% (December 2011) and somewhat below average wealth levels.

The district's tax base has contracted in each of the past three years with total assessed value (AV) down a cumulative 7.9% from fiscal 2009 to fiscal 2012. The AV contraction reflects a pressured real estate market, which Fitch views as likely to continue in the near future.

MIXED DEBT PROFILE

The district's debt ratios reflect the large number of seasonal homes within its boundaries, with estimated overall debt per capita high at $6,206 but low at 2.2% of AV. Debt carrying charges total $1.9 million or a manageable 8.3% of fiscal 2011 general fund and debt service fund spending.

District officials stated that they do not intend to issue any additional debt over the next several years and that no significant capital needs remain unfunded.

The district participates in two state-wide pension plans and makes the full annual required contribution. The combined contribution amounted to a manageable 5.5% of spending in fiscal 2011, although future contribution amounts are expected to increase. The district also has an affordable unfunded other post employment benefit liability actuarially valued at $2.6 million.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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