July 16 - Fitch Ratings has rated Ross Valley School District (SD), California's general obligation bonds (GOs) as follows: --$18.3 million election of 2010 GO bonds series B rated 'AA+'. The bonds will sell via negotiated sale on or about July 26, 2012. In addition, Fitch affirms the following ratings: --$22.1 million outstanding GO bonds at 'AA+'. The Rating Outlook is Stable. SECURITY The bonds are secured by an unlimited ad valorem tax pledge on all taxable property in the district. KEY RATING DRIVERS STRONG FINANCIAL POSITION: The 'AA+' rating reflects the district's strong financial position, exhibited by a high unrestricted fund balance (committed, assigned and unassigned), rising enrollment, the presence of lease revenues and a parcel tax that all significantly enhance overall revenues. Fitch believes the district's ample financial cushion mitigates the vulnerability posed by a potential state funding trigger cut in November 2012. PARCEL TAX EXTENDED: Voters approved the extension and increased rate of a parcel tax in June 2012 that will be levied through 2020. STRONG MANAGEMENT: Management has taken prudent actions to pare expenditures and the district's other post-employment benefit (OPEB) liability to mitigate the challenged state funding environment. Further, the district retains a good degree of remaining expenditure flexibility due to low class sizes and no furloughs to date. SOLID AND STABLE LOCAL ECONOMY: The local economy is strong. Wealth levels are high, unemployment is low, and the housing market has shown an impressive degree of resilience in spite of the economic downturn. The tax base is well diversified, and experienced only a modest decline in fiscal 2011 after years of moderate growth and returned to modest growth in fiscal 2012. SOUND DEBT PROFILE: The district's overall debt burden is low and capital needs are manageable given the size of the tax base. However, principal amortization is somewhat slow. CREDIT PROFILE STRONG LOCAL ECONOMY AND TAX BASE The district serves a population of approximately 23,500 in the cities of San Anselmo and Fairfax within Marin County. The cities serve as bedroom communities to San Francisco and benefit from their locations within the large and diverse Bay Area employment market. The local economy is very strong, as demonstrated by regional per capita income levels nearly twice the national average, and low poverty rates. The county's low 6.3% May unemployment rate is well below the state and moderately below the national rates of 10.4% and 7.9%, respectively. The local tax base is mainly residential, with the top 10 property taxpayers making up just 2.3% of fiscal 2012 assessed valuation (AV). Five of the top 10 taxpayers are single-family homes. AV grew by a moderate average annual 3.1% from fiscal years 2007-2012, and fell by just 1.1% in fiscal 2011 as the result of real estate price declines. However, AV grew by 1% in fiscal 2012. The area's maturity and a relatively resilient real estate market have mitigated the effects of wider housing market deterioration. STRONG FINANCIAL POSITION The district's financial position is strong, with solid fund balances, good liquidity, and a relatively diverse revenue stream for a California school district. The district receives approximately $600,000 annually from a foundation, and expects to receive approximately $3.4 million from a parcel tax in fiscal 2013 (see below for more information) and $300,000 from lease revenues. This combined $4.3 million in revenues equals nearly a quarter of total revenues, providing the district with materially enhanced resources in a challenged state funding environment. General fund operations in fiscal 2011 resulted in a $650,400 operating surplus, raising the unreserved and total general fund balances to solid levels of $3.6 million (21.5% of fiscal 2011 expenditures and transfers out) and $3.3 million (19.4%), respectively. Based on the district's adopted budget, general fund operations in fiscal 2012 are estimated to roughly break even. Budgeted revenues in fiscal 2013 are enhanced by the extension and increase of a parcel tax, renewed by voters in June 2012. The parcel tax was raised to $458 per parcel, up $149 year over year, and is anticipated to raise $3.4 million annually. Due to a 4% annual escalator, parcel tax revenues likely will keep pace with or exceed inflation moving forward. The increased parcel tax rate is expected to raise an additional $1 million annually, which would offset the district's $1 million exposure to a potential state funding trigger cut this fiscal year. The cut would be enacted if voters reject a statewide tax increase proposition in November 2012. General fund operations in fiscal 2013 are budgeted to produce a $500,000 operating surplus. However, the budget assumes trigger cuts, which would lower revenues by $1 million, would not be enacted. Management indicated that if trigger cuts are enacted, fund balances would be lowered by no more than $500,000 in fiscal 2013 and that a $300,000 deficit would be more likely. Also, management is budgeting for no enrollment growth despite expectations that the student base will increase by 75, which would raise approximately $375,000. SOUND DEBT PROFILE; MANAGEABLE RETIREE COSTS The district's debt profile is sound. After this issuance net overall debt levels will remain low at 2.5% of AV ($4,607 per capita), though amortization will fall to a somewhat low level, with 32% of debt retired in 10 years. Capital needs are moderate, consisting of completing four elementary school improvements. These improvements are expected to be funded with a $12.7 million future GO issuance, and $9 million of state funding. Debt levels would remain low after such an issuance, based on current AV levels. Management believes facility capacity will be adequate for the foreseeable future after completion of these projects. To the extent that student growth rates remain elevated, the district owns spare facilities, currently being leased, that could be converted back to instructional uses, if required. The district contributes the full annual required contribution to two state retirement funds; in fiscal 2011, such contributions consumed a manageable 5.8% of general fund resources. Labor recently agreed to a 40-year OPEB vesting period, up from 10, thus substantially lowering the district's annual required contribution rate to less than $100,000 from about $300,000.