OREANDA-NEWS. Fitch Ratings affirms the 'AA' rating on the following Fullerton School District, California (the district) general obligation (GO) bond ratings:

--\$11.7 million series 2002A and 2002B.

The Rating Outlook is Stable.

SECURITY
The bonds are a general obligation of the district backed by the levy of unlimited ad valorem property taxes on all taxable property within the district.

KEY RATING DRIVERS

HEALTHY FINANCIAL POSITION: Financial performance is strong with ongoing efforts to maintain structural budget balance and ample reserves.

REVENUE VOLATILITY: The district has little revenue raising flexibility and is dependent on the state of California for funding, requiring it to manage significant revenue volatility. State funding is currently rising rapidly with improved state revenues.

SOLID ECONOMY, TAX BASE: The district is well located in the large and diverse Orange County employment market. The tax base is diverse and growing again after a modest recessionary downturn. Income metrics are solid, and unemployment is low.

MODEST DEBT BURDEN: The combined carrying cost of debt service, pensions and other post-employment liabilities is low, as are overall debt ratios.

RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics, particularly the financial profile. The Stable Outlook reflects Fitch's view that such shifts are unlikely.

CREDIT PROFILE
Fullerton School District serves a 26 square mile area that primarily encompasses Fullerton City in northwest Orange County. The district operates 20 schools with a total enrollment of more than 13,700 students, educating children from kindergarten to eighth grade.

STRONG FINANCIAL PROFILE

Financial performance has been strong despite significant variability in state revenues due to good expenditure discipline. The district posted operating surpluses in five of the past six years through fiscal year 2014 with only a modest draw on reserves in fiscal year 2010. California's Proposition 13 property tax limitations significantly limits the district's ability to raise local taxes, leaving its revenues largely dependent on state per pupil funding, which rises and falls with highly cyclical state revenues. The district has managed this volatility well in the recent downturn by paring expenditures as needed to maintain budget balance.

With state funding rising at a solid pace again, the district has kept expenditure growth below rising revenues. The unrestricted general fund balance was strong at \$28.2 million, or 26.3% of general fund spending at the end of fiscal year 2014 (June 30). The district's multiyear projections show essentially balanced operations over the next three fiscal years. The forecast appears quite conservative, leaving room for the district to outperform.

SOUND ECONOMIC PROFILE

The local economy is fundamentally sound, and the district benefits from the large and diverse economies of Orange County and the greater Los Angeles area, providing the district with stable enrollment and a growing tax base. Median household income is solid at 130% of national level, albeit lower than the median for Orange County. The individual poverty rate is near the national rate at 15.1%. The non-seasonally adjusted unemployment was below the national average of 4.7% in April 2015, but tends to track the national rate closely.

The local real estate market has generally outperformed the state, reflecting the mature nature of the housing stock, above average wealth and a relatively strong job market. AV grew by a solid 6.8% to \$14.2 billion in fiscal 2015. The district only experienced one year of modest tax base decline during the housing downturn (a 1% drop in AV in 2010). The tax base is diverse and largely residential. The top 10 taxpayers account for just 4.6% of AV.

MANAGEABLE DEBT PROFILE

The district's debt burden is low with direct and overlapping debt at \$1,883 per capita and 1.7% of taxable assessed value (AV). The district does not have any critical capital needs and has no plans to issue additional bonded debt in the near term, suggesting debt ratios will decline gradually over the next few years. Amortization is solid with 63% of debt repaid within 10 years.

The district participates in the California Public Employees
Retirement System (CalPERS) as well as the more poorly funded California State Teachers Retirement System (CalSTRS). Both pension plans are currently increasing contribution rates, but the costs appear quite affordable for the district. The carrying costs of debt service, pension, and other post-employment benefits equaled a modest 10.1% of governmental funds spending in 2014. Fitch expects carrying costs to increase given future growth in pension costs, but to remain low.