TEXT-Fitch affirms Clint ISD, Texas 'AA-' GOs

Wed Aug 29, 2012 11:48pm IST

Aug 29 - Fitch Ratings takes the following rating action on the Clint Independent School District, TX (the district) bonds: --Approximately $126 million unlimited tax bonds affirmed at 'AA-'. The Rating Outlook is Stable. SECURITY The bonds are secured by revenues from an unlimited tax levied against all taxable property within the district. The bonds, with the exception of series 2009, are additionally secured by the Texas Permanent School Fund, whose bond guarantee program is rated 'AAA' by Fitch. KEY RATING DRIVERS STRONG FINANCIAL PERFORMANCE: The district consistently records operating surpluses which has resulted in the steady growth of total general fund reserves over the past five years. Management has demonstrated the ability to achieve favorable financial results during periods of both rapid enrollment growth and state funding reductions by aligning its expenditures with revenue levels. TAX BASE GROWTH: New residential construction and commercial expansion have offset valuation losses, contributing to overall tax base growth over the past several years, albeit at a slower post-recession pace. The district resides on the eastern boundary of El Paso County and is positioned to benefit from the high growth of the region given its proximity to the city of El Paso, large land mass, and low population density. MANAGEABLE DEBT BURDEN: The district's overall debt is well above average in relation to market value, although overall fixed costs (including debt service and pension contributions, and OPEB) are low in relation to general fund spending. State assistance currently funds approximately 70% of debt service expenditures. Management does not anticipate issuing new debt in the near term given the adequacy of existing infrastructure. BELOW AVERAGE SOCIOECONOMIC PROFILE: The region's income levels are below average, but have grown faster than state and national levels over the past five years. Unemployment has improved from a year ago, but continues to exceed state and national averages. WHAT COULD TRIGGER A RATING ACTION CONTINUED ECONOMIC EXPANSION: Continued development, expansion and diversity of the local economy and tax base could lead to positive rating action. CREDIT PROFILE GROWING UPPER RIO GRANDE DISTRICT The district is located approximately 18 miles southeast of El Paso (rated 'AA' with a Stable Outlook by Fitch) and encompasses Horizon City, the town of Clint, and the unincorporated area of East Montana within its large 380-square mile boundary. Ease of access to the city of El Paso and the Fort Bliss Air Defense Training Center make the district's affordable housing a primary growth driver, although the district's commercial base also reflects steady growth over the past five years. Taxable assessed valuation (TAV) grew by a compound annual average rate of over 10% since fiscal 2007, with a 6.4% gain in fiscal 2012 driven by a series of new residential construction projects throughout the district. Fitch anticipates further TAV gains in fiscal 2013 based on the level of construction activity currently underway. The top ten taxpayers are represented by utility, real estate, manufacturing, energy and construction interests with no taxpayer or sector concentration. STRONG FINANCIAL PERFORMANCE Management budgets conservatively and maintains a healthy level of reserves, which Fitch considers prudent in light of the ongoing state budget uncertainties. State funding contributed more than 75% of the district's operating revenues over the past five years, followed by ad valorem tax revenues and federal monies. A fiscal 2011 operating surplus, net of transfers, of $2 million boosted the unrestricted (total of committed, assigned and unassigned balances under GASB 54) general fund balance to $21.1 million (25.9% of general fund expenditures and transfers out). The favorable performance reflected the benefit of enrollment gains, attrition based cost savings, and use of non-recurring federal American Recovery and Reinvestment Act (ARRA) monies. Management projects a fiscal 2012 surplus of $1.2 million reflecting cost savings, combined with enrollment based revenue growth and $1.8 million in non-recurring EduJob monies which offset $3 million in state funding cuts. The fiscal 2013 balanced budget includes conservative enrollment assumptions, the second year ($2 million) of state funding cuts, and cost reductions to offset both the cuts and the end of federal stimulus funding. Federal funding sources and enrollment growth have allowed the district to make up for state revenue shortfalls with modest cost reductions, avoiding staff reductions (other than through attrition) in the fiscal 2012/2013 biennium. Fitch considers it prudent that the district is positioned to make further cost reductions based on school funding outcomes of the 83rd State legislative session. MANAGEABLE DEBT BURDEN The district's debt service payments are manageable at 12.4% of general fund expenditures and transfers out, (4% of general fund expenditures considering state debt service assistance). Metrics for overall debt outstanding are mixed, with low debt per capita ($1,734) and high debt per market value (6.6%), reflecting the limited tax base. With recently constructed school facilities, the district reports adequate capacity for the next five years based on current enrollment projections. The district's pension liabilities are limited to its participation in the state pension plan administered by the Teachers Retirement System of Texas (TRS). The district's annual contribution to TRS is determined by state law, as is the contribution for the state-run post-employment benefit healthcare plan. Including debt service, pension and other post-employment benefit contributions, payments on long-term liabilities are moderate at 14.6% of fiscal 2011 general fund expenditures and transfers out.