Fitch Affirms Pleasant Hill Rec & Park Dist., CA GOs at 'A'; Outlook Revised to Stable

Fitch Ratings takes the following action on Pleasant Hill Recreation & Park District, California (the district) bonds:

--$19.4 million general obligation (GO) bonds, election of 2009, series A (2010) affirmed at 'A'.

The Rating Outlook is revised to Stable from Negative.

SECURITY

The bonds are general obligations of the district, secured by the levy of ad valorem taxes on all taxable property within the district, without limitation as to rate or amount.

KEY RATING DRIVERS

IMPROVED FINANCIAL PERFORMANCE: The revision of the Rating Outlook to Stable from Negative reflects the district's improved financial position following two consecutive years with operating surpluses. The district appears poised for further financial improvements if recent revenue gains and operating reforms can be sustained.

LIMITED REVENUE FLEXIBILITY: Property taxes account for more than half of general fund revenues and growth is limited under California's Proposition 13. User fees for recreation programs provide the majority of non-tax revenues, but increases are somewhat constrained by market factors.

STRONG ECONOMY: The district benefits from a resilient economy and substantial tax base that outperformed the state and nation during the recent downturn. Wealth and income levels are above average and employment levels exceed pre-recession peaks.

MANAGEABLE DEBT LEVELS: The district's recent GO issuances increased outstanding debt substantially but direct and overlapping debt levels remain moderate due to limited borrowing in prior years.

RATING SENSITIVITIES

FINANCIAL PERFORMANCE KEY: Failure to maintain general fund operating balance and satisfactory financial flexibility would increase downward pressure on the rating. A sustained improvement in reserves and cash balances could support upwards rating movement.

CREDIT PROFILE

The district is located 45 miles east of San Francisco in suburban Contra Costa County and was formed in 1951. District boundaries include the city of Pleasant Hill as well as portions of two adjacent cities and unincorporated areas.

IMPROVED FINANCIAL PERFORMANCE

The district achieved a second consecutive year of positive operating results in fiscal 2013 and appears to have stabilized its finances after several years of deterioration. Increases in property tax revenues and one-time asset sales were key factors in 2013's improved results, contributing to an $892,000 general fund surplus, an impressive 14.6% of 2013 spending. Year-end cash balances of $1.3 million for 2013 were equal to approximately 2.5 months of general fund spending, a notable improvement from 2012, when general fund cash balances dropped to zero. The district's $850,000 unrestricted general fund balance at the end of 2013 reversed a negative result from 2012 and represented a healthy 13.9% of general fund spending.

The district's financial challenges arose during a deep recession that coincided with a substantial capital facility replacement program. As the district nears completion of this program and the local economy continues to improve, Fitch expects further improvements in the district's finances as well. Additionally, a recently completed strategic business plan focused on improving cost recovery for recreational programs should further stabilize the district's finances upon implementation.

LIMITED REVENUE FLEXIBILITY

The district receives a fixed share of the 1% countywide property tax levy, which provides approximately half of general fund revenues. Tax growth is limited under Proposition 13, and the district relies on user fees for the majority of non-tax revenues. Although the district has broad discretion to adjust such fees, the availability of similar services in neighboring jurisdictions can present an obstacle to rate increases.

Recent efforts to balance the district's finances have focused on reducing expenditures for personnel, resulting in reduced staffing levels and benefit costs in each of the past several years. Management expects that future budget balancing efforts, to the extent required, would address the district's service offerings to reduce subsidies for higher cost programs.

RESILIENT ECONOMY AND TAX BASE

The district benefits from a resilient economy and substantial tax base that outperformed the state and nation during the recent downturn. Taxable assessed values (TAVs) declined by a modest 2.4% between 2009 and 2012, while general fund tax revenues rose by a strong 8% in fiscal 2013. Further TAV and property tax gains appear likely over the next several years. Home values reported by Zillow.com rose by an impressive 23% year-over-year as of November 2013 following a 19% gain in the prior year.

The October 2013 unemployment rate of 5.6% for the city of Pleasant Hill was well below the state and national averages of 8.3% and 7%, respectively. Wealth and income levels for this largely residential community are 130% to 150% of state and national figures and assessed value per capita is notably high at $170,000.

MANAGEABLE LONG-TERM OBLIGATIONS

Overall debt levels are moderate at approximately 2.7% of TAV. Debt service costs are somewhat high (11% of 2013 governmental expenditures), but overall carrying costs for fixed obligations are affordable. Amortization is slow with 24% of outstanding principal repaid in 10 years.

The district participates in a state-sponsored pension plan and faces significant increases in contribution rates over the next several years to address sizable unfunded liabilities. The district provides no other post-employment benefits.

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

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope and Zillow.com.

Applicable Criteria and Related Research:

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=814857

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