OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating to the following Washington County School District, Utah (the district) general obligation (GO) bonds:

--$60.3 million GO school building and refunding bonds (Utah School Bond Guaranty Program), series 2016.

The 'AAA' rating is based on the state's full faith and credit guarantee provided as credit enhancement to the district's GO bonds under the Utah School Bond Default Avoidance Program, which is rated 'AAA' with a Stable Outlook by Fitch.

Fitch also assigns an underlying rating of 'AA' to the bonds, reflecting the district's credit quality without consideration of the guarantee provided by the Utah School Bond Default Avoidance Program.

In addition, Fitch affirms the underlying rating on the district's $182.8 million in outstanding GO school building bonds at 'AA'. The Rating Outlook associated with the underlying rating is Stable.

The series 2016 bonds will sell competitively on Jan. 12, 2016. Proceeds will be used to construct and renovate school buildings, and to refund $27.4 million of outstanding GO building bonds, series 2006 for savings.

SECURITY

The bonds are payable by an unlimited property tax to be levied, without limitation as to rate or amount, on all taxable properties within the district.

KEY RATING DRIVERS

STRUCTURAL BALANCE REGAINED; SOLID FLEXIBILITY: The district achieved structural balance in its general fund in fiscal 2015 after raising its tax levy and projects further gradual strengthening of its unrestricted general fund balance from fiscal 2016 onwards. The district maintains strong liquidity and good financial flexibility on both the revenue and expenditure sides.

ECONOMY CONTINUING TO STRENGTHEN: The local economy is geographically isolated, remains somewhat dependent on economically volatile industries, and was very hard hit by the recent recession. Economic conditions are improving, however, as the employment base expands, the unemployment rate drops significantly, and the population continues to grow.

TAX BASE REBOUNDING: The district's tax base is well diversified with rebounding taxable assessed valuation (TAV) due to both new development and existing properties' rising prices.

SOUND DEBT PROFILE: The district's debt levels are low, principal amortization is extremely rapid, carrying costs are moderate, and further bond issuances will not greatly alter the current debt profile.

RATING SENSITIVITIES

{SOUND FINANCIAL FLEXIBILITY: The rating is sensitive to fundamental changes in financial management and performance. However, the Stable Outlook reflects Fitch's expectation that the district will be able to achieve and maintain structural balance going forward given revenue-raising ability and available cost containment measures.

CREDIT PROFILE

The district is coterminous with Washington County, an area of more than 2,400 square miles. The district operates 45 schools and alternative programs which serve a population of approximately 152,000 in southwestern Utah, approximately 315 miles southwest of Salt Lake City and 125 miles northeast of Las Vegas. About half of the county population is located in the city of St. George (sales tax revenue bonds rated 'AA', Stable Outlook) which serves as the county's economic and retail hub. A significant portion of the population consists of retirees and young families.

While the district is geographically isolated, it is also well situated along a major transportation route, the I-15 freeway, making it an attractive location for warehouse and distribution facilities. These facilities make up a key, but volatile, segment of the local economy. Other significant components of the local economy, tourism and retail, are also vulnerable to economic volatility.

LOWER BUT SOUND UNRESTRICTED GENERAL FUND BALANCE

For a variety of reasons, the district drew down its general fund balance each year during fiscals 2012-2014, consequently lowering its unrestricted general fund balance down to a somewhat constrained $13.2 million or 7.7% of spending.

The school board approved a significant 5% property tax levy increase for fiscal 2015 which, along with growing student enrollment, state per pupil revenue increases, and ongoing cost controls, have cumulatively resulted in structural balance. The district's unrestricted general fund balance in fiscal 2015 rose slightly to $13.9 million or 7.9% of spending after absorbing remuneration cost increases ($1.5 million) and 3% additional insurance costs.

Going forward, the district is expecting to increase its unrestricted general fund balance as it returns to the practice of annually adjusting its tax rates by inflation (as it has done in fiscals 2015 and 2016). This would allow the district to slowly rebuild its unrestricted general fund balance to around 10% of spending during fiscal years 2016-2019 as revenues continue to improve, taking into account offsetting cost pressures. The fiscal 2016 general fund budget is balanced even after taking into account $4.95 million of additional remuneration costs.

SOUND FINANCIAL FLEXIBILITY

In addition to general fund balance, the district retains a number of options with regard to financial flexibility. The district could borrow up to $9 million from its capital projects fund; raise its various tax levies by up to $52.5 million more per year, subject to the advisory truth-in-taxation public hearing process; or reduce its capital outlay levy and commensurately increase its operations and maintenance levy.

The district also has considerable expenditure flexibility, particularly due to the temporary contracts under which a third of its classified and certificated employees work. Further, its annual contracts with its full-time certificated employees are absent restrictive terms regarding binding arbitration, prohibitions against layoffs or furloughs, or mandatory assessment of regional compensation.

ECONOMY CONTINUING TO STRENGTHEN; TAX BASE REBOUNDING

The district experienced extremely rapid growth until the housing-led recession severely pressured the local economy. The outsized local construction industry was particularly hard-hit. The county is currently undergoing a strong employment recovery, growing approximately 14% since 2010. The local unemployment rate (3.8% in September 2015) is now only slightly above the state's very low 3.4% rate.

Tax base growth is also returning with significant residential, commercial, and medical sector construction underway or imminent. After experiencing a 30% TAV decline during the housing-led recession, the district's TAV has subsequently rebounded by 25% through fiscal 2016. The district expects TAV to return to peak TAV levels soon, as it is projecting 4% annual TAV growth going forward, reflecting both new development and existing properties' rising prices. Most land plots that had received construction permits but remained undeveloped during the recession are now being developed.

Wealth indicators are largely below average, though this partially reflects larger family sizes and the substantial retiree population.

Population continues to grow as a result of both the local birth rate and in-migration driven by industrial, commercial, and medical sector expansion. As a consequence, the district is projecting steady ongoing student enrollment growth (2,101 additional students over the next four years) despite a number of local charter schools.

SOUND DEBT PROFILE

The district's debt profile is good. Overall debt levels are low at $1,900 per capita and 1.8% of TAV. Direct debt amortization is extremely rapid, with 89% of principal maturing within 10 years. The $35 million new money portion of the series 2016 bonds is the second issuance against a November 2013 GO bond authorization for up to $185 million. Further new debt issuances will be staggered through fiscal years 2017-2019, not adding greatly to the overall debt burden as old debt rolls off. The new money portion of the series 2016 bonds will primarily fund new school construction designed to absorb the projected student enrollment growth. The district might seek a new GO bond authorization from voters in 2020 given expected continued population growth and rising construction costs.

In fiscal 2015, cumulative carrying costs for debt service and annually required pension contributions were a moderate 20.7% of total governmental spending. After five years of increases, pension contributions to the state-run retirement system will remain elevated but stable going forward, while the district's residual liability for its closed OPEB system was fully paid down in 2014.