OREANDA-NEWS. Fitch Ratings affirms the following outstanding Baldwin Park Unified School District (the district), CA's general obligation (GO) bonds at 'A+':

--$8.7 million series 2004 GO bonds;
--$10.1 million series 2005 GO refunding bonds;
--$6.6 million series 2005 GO bonds;
--$24.9 million series 2006 GO bonds;
--$22 million series 2007 GO bonds;
--$16.3 million series 2008 GO bonds.

The Rating Outlook is Stable.

SECURITY

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

KEY RATING DRIVERS

IMPROVED RESERVES: Two consecutive years of structurally balanced operations in fiscal 2014 and 2015 (unaudited) improved unrestricted general fund reserves to just under 12%, significantly better than the low of 4.4% recorded in fiscal 2012.

INCREASED REVENUES AND EXPENDITURES: Due to its demographics, district revenues are projected to continue to increase significantly despite enrollment declines as the Local Control Funding Formula (LCFF) is phased in. However, Fitch views expenditure pressures, particularly from labor groups, as placing some constraints on continued strong growth in fund balance.

ABOVE-AVERAGE DEBT BURDEN: Overall debt ratios remain above average and direct debt amortizes at a slow rate. Carrying costs are moderate but expected to increase due to ascending debt service and planned increases to pension contribution levels. The district has no near-term debt issuance plans, and capital needs are minimal.

WEAK LOCAL ECONOMY: The local economy exhibits high unemployment rates and below-average income levels. However, the area benefits from its proximity and access to the diverse Los Angeles economy and labor market.

MODEST TAX BASE GROWTH: Taxable assessed value (AV) increased for the fourth consecutive year in fiscal 2015 and additional modest increases are expected as the real estate market recovers and limited additional development takes place in the city.

RATING SENSITIVITIES

REDUCED FINANCIAL CUSHION: Maintenance of adequate reserve levels is fundamental to the rating given historically volatile state funding and the above-average debt burden.

CREDIT PROFILE

The district covers nine square miles encompassing the city of Baldwin Park, and parts of Irwindale, Industry, and West Covina. District enrollment has trended down over the past several years with fiscal 2015 average daily attendance of 13,826, approximately 12.1% lower than in fiscal 2010. However, decreases appear to be moderating, with the year-over-year decreases in fiscals 2014 and 2015 less than 2%, compared with historical annual declines of around 2.5% from fiscal 2010 through 2013.

IMPROVED FINANICAL POSITION

Several years of weak financial operations stemming from state revenue declines and decreasing enrollment dropped the district's unrestricted general fund reserve to a low of 4.4% in fiscal 2012 and 4.7% in fiscal 2013. Management expected to record an operating deficit in fiscal 2014; however, because of a better than budgeted number of targeted students under LCFF and per pupil LCFF revenue, the district posted a $4.4 million operating surplus after transfers (3.2% of spending), increasing the unrestricted fund balance to $9 million, or 6.6% of spending.

Unaudited results for fiscal 2015 continue this positive movement, with a healthy gain reported in the district's unrestricted fund balance levels, increasing to $16.4 million, or a solid 11.8% of spending.

The district's fiscal 2016 budget again adds to its unrestricted fund balance, increasing it to a total of $17.6 million, a level of spending consistent with the prior year. District management expects to receive an additional $7 million in LCFF revenue in fiscal 2016 and $6 million in fiscal 2017, which Fitch views as a credit positive. However, expenditure pressures, particularly salary increases from labor groups whose contracts were recently negotiated, are expected to largely keep pace with revenue gains over the near term. Employees are receiving an 8% salary increase in fiscal 2016, equivalent to about $8 million.

ABOVE-AVERAGE DEBT BURDEN / LIMITED CAPITAL NEEDS

The district's overall debt burden remains above average at $3,025 per capita and 5.7% of AV. The amortization rate is slow, with approximately 43% of outstanding principal retired in 10 years. Partially mitigating the district's above-average debt burden is the lack of near-term additional debt plans and minimal capital needs, as reported by management.

RISING CARRYING COSTS

The district participates in CalPERS and CalSTRS to provide defined-benefit pensions for employees. The district regularly makes its full annual contribution; however, carrying costs are likely to increase as the state pension systems tackle weak funding levels. Carrying costs for debt service, pension and OPEB have historically been low (around 11% in fiscals 2012 and 2013).

WEAK LOCAL ECONOMY; MODEST TAX BASE GROWTH

The local economy benefits from its proximity to viable transportation options and diverse employment opportunities in the greater Los Angeles metropolitan area. However, the unemployment rate in the city of Baldwin Park remains high at 8.2% (September 2015) compared to the regional average of 5.6%. Income levels in the city are also relatively weak with median household income at 84.8% of the state's average.

The district recorded AV growth in fiscal 2015 of 5.9%, marking the fourth consecutive year of increases. An improved real estate market and limited redevelopment in the largely built-out area are expected to support relatively stable AV performance over the near term. The tax base is not concentrated, with the top 10 taxpayers comprising 6.5% of total AV.