OREANDA-NEWS. Fitch Ratings has affirmed the 'AA-' rating on the following Lamont School District, CA (the district) general obligation (GO) bonds:

--\\$1.5 million GO bonds, election of 1999, series A.

The Rating Outlook is Stable.

SECURITY

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

KEY RATING DRIVERS

SOUND FINANCIAL POSITION: The district maintained stable operations and good financial flexibility through the last recession and reserve levels are healthy. Fitch expects that anticipated revenue growth and continued prudent budgeting practices will support ongoing stable operations.

GOOD REVENUE PROSPECTS: State funding accounts for most of the district's revenues and is on a positive trajectory due to ongoing enrollment gains and enhancements under the state's Local Control Funding Formula (LCFF). Recent oil price declines and continued drought pose risks to the local tax base and employment levels, but district revenues are insulated from such risks by state funding mechanisms that offset property tax declines.

RESOURCE-BASED ECONOMY: The local economy relies on agriculture and oil and gas development; major taxpayers are concentrated within these industries. Wealth and income indicators remain well below state and national averages while unemployment levels continue to be elevated.

MANAGEABLE LONG-TERM OBLIGATIONS: Carrying costs for debt service and employee retirement benefits are affordable and capital needs are limited. The district's borrowing capacity is constrained by its small tax base.

RATING SENSITIVITIES

SUSTAINED FINANCIAL FLEXIBILITY: The rating reflects the district's history of stable operations and considerable financial cushion, which offset its tax base concentration and limited ability to raise revenues. An inability to maintain financial flexibility while increasing spending of LCFF revenues would create downward rating pressure.

CREDIT PROFILE
Located in Kern County, 13 miles south of Bakersfield, the Lamont School District is comprised of three elementary and one middle school with a combined enrollment of approximately 2,900 students. Total population for the district was estimated at about 17,000 in 2013.

SOUND FINANCIAL POSITION

The district maintained a sound financial position through the last recession and reserve levels are healthy. Unrestricted fund balance was 29.5% of general fund spending (\\$8 million) at the end of fiscal 2014, well above the state's 3% reserve requirement for similarly-sized districts.

Management has conservatively projected a deficit of \\$3 million in fiscal 2015 as the district accelerates its implementation of LCFF-funded service enhancements. Smaller deficits are projected for fiscals 2016 and 2017 based on conservative revenue assumptions. The district has typically out-performed its projections and unrestricted fund balances appear likely to remain above 15% of general fund spending.

GOOD REVENUE PROSPECTS

Most of the district's revenues are provided on a per-pupil basis by the state, and growth prospects are solid due to rising enrollment and improved state revenue collections. In addition, approximately 97% of the district's students are English language learners, foster youth, or meet eligibility requirements for school lunch subsidies, qualifying the district for enhanced funding under the LCFF.

The district's revenue prospects stand in contrast to its local economy, which faces increased risks from California's extended drought and recent declines in oil and gas prices. Employment levels and taxable assessed values (TAV) could be impacted, but Fitch expects district revenues to increase over the next several years despite these challenges.

RESOURCE-BASED ECONOMY

The district's economy is concentrated in the agricultural sector and wealth and income levels are correspondingly low. Median household incomes are 59% and 69% of state and national levels, respectively, and poverty rates are nearly twice the state average.

District-level employment statistics are not available. County employment has risen steadily since mid-2010 but the June 2015 unemployment rate of 9.9% was well above state and national levels.

TAV for the district declined by a cumulative 14% in 2010 and 2011 but increased steadily in subsequent years and now exceeds pre-recession peaks. Taxpayer concentration remains significant. As of 2007, the top 10 taxpayers accounted for 23% of TAV and the largest taxpayer, an oil and gas producer, for 8%.

MANAGEABLE LONG-TERM OBLIGATIONS

Overall debt levels for the district are moderate at 2.4% of TAV and per capita debt levels are a low \\$624, while amortization is above average despite a significant amount of capital appreciation bonds. Capital needs are currently limited but rising enrollment levels could strain the capacity of existing school facilities within the next several years.

The district's borrowing capacity is limited by the size of its tax base, and management expects that it would be difficult to generate sufficient tax revenues to fully fund the cost of a new school site. The district would likely require supplemental state capital funding to meet future capital needs, but the prospects for such funding are uncertain.

The district participates in two state-sponsored employee pension plans and faces steady increases in contribution requirements over the next several years. In addition, the district offers other post-employment benefits (OPEBs) and had an unfunded OPEB liability of approximately \\$8.1 million (1.8% of TAV) at the end of fiscal 2012. Carrying costs for debt service and retirement benefits were low at 11% of governmental expenditures in fiscal 2014. Actual pension contributions for teachers were approximately half of the amount that would be required to fully amortize unfunded liabilities.