SAN FRANCISCO-- (BUSINESS WIRE) -- Fitch Ratings assigns an 'A-' rating to West Contra Costa Unified School District, California's $30 million election of 2005, series D and D-1 general obligation bonds (GOs). Fitch also affirms the district's approximately $732 million in outstanding GO debt at 'A-'. The new bonds will sell by negotiation on or around Nov. 16, 2009. The Rating Outlook on all bonds is Negative.

The 'A-' rating reflects the bonds' unlimited ad valorem tax pledge, prudent actions by management recently to reduce expenditures, and the district's location within the large and diverse San Francisco Bay Area employment market. Balanced against these strengths is the district's currently adequate but challenged financial position, exhibited by sufficient but declining fund balances, projected deficits through at least fiscal 2012, a difficult state funding environment with the potential for mid-year cuts, and declining enrollment. Other weaknesses include a challenged local economy with high unemployment and poverty levels (despite pockets of wealth), a deteriorating real estate market, moderate tax base concentration levels with recently large assessed valuation (AV) reductions, and high debt levels with slow amortization and large capital needs. If unreserved fund balance levels continue to decline, or if the local economy further weakens, with secondary effects on the district's tax base and enrollment levels, a rating downgrade may be triggered.

The district educates approximately 29,000 students, serving a large population estimated at 227,040 in western Contra Costa County. Its territory encompasses the cities of Richmond (51% by assessed valuation [AV]), Hercules (12%), El Cerrito (11%), Pinole (7%), San Pablo (7%), and unincorporated areas (12%). The district also includes facilities of several petroleum and petroleum-related companies; the largest is Chevron Corporation, the district's top taxpayer at nearly 13% of AV. Despite pockets of wealthier areas, the majority of the district is economically disadvantaged. The City of Richmond, which makes up slightly more than half of the district, experienced a rapid rise of unemployment to 17.9% in August compared to 10.9% the year prior. Unemployment for the county and state stood at 11.2% and 12.1%, respectively, for the same period. The city's median income levels similarly lag county and state levels at 67% and 86% of their averages, respectively. The local real estate market is highly concentrated in negative amortizing and subprime loans, and foreclosure rates are well above both state and national levels. As the result of falling home prices and reportedly conservative action from the County Assessor to proactively implement Proposition 8 AV reductions, AV fell by a large 12.3% in fiscal 2010. Continued economic decline also could accelerate the district's declining enrollment trend.

The district's financial position is adequate but budgeted to deteriorate. Fiscal 2009 ended with general fund net income of $5 million, raising the total fund balance to $50.8 million (18.1% of expenditures and transfers out), while the unreserved fund balance fell by about $1.2 million to $19.8 million (7.1%). However, the surplus includes restricted categorical carryovers, and a one-time transfer of revenue limit funds from fiscal 2010 to fiscal 2009, which consequently weighs on the district's current year finances. The most recently revised budget for fiscal 2010 includes a $16 million deficit, and projections through fiscal 2012 include further declines. Much of the revenue pressures come from a challenging state revenue environment and several years of declining enrollment. In response to these revenue pressures, management has prudently made substantial expenditure reductions, including school consolidations, and looks poised to gain from enhanced labor flexibility and modified OPEB and health care benefits, pending a teachers' vote on a revised contract, which management believes will be approved. Despite progress to date in reducing expenditures, further reductions will have to be made to balance future financial operations and prevent the unreserved general fund balance from falling to narrow levels.

These bonds are the fourth series of a 2005 $400 million voter-approved authorization (Measure J) under Proposition 39. Bond proceeds will be used primarily to fund school renovation, reconstruction and modernization projects. Series D bonds will be tax exempt, while series D-1 bonds will be issued as qualified school construction bonds (QSCBs). Net debt levels are high at $5,541 per capita and 5.3% of AV, and amortization is slow, with a quarter of debt maturing within 10 years. Capital needs are large, but the district's already high tax rates and declining tax base could impair the district's ability to finance them.

Additional information is available at 'www.fitchratings.com'.

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