News Column

Fitch Rates Clint ISD, TX's ULT Rfdg Bonds 'AA-' Underlying/'AAA' PSF; Outlook Stable

June 26, 2014

AUSTIN, Texas--(BUSINESS WIRE)-- Fitch Ratings has assigned the following ratings to Clint Independent School District (ISD), Texas' (the district) unlimited tax (ULT) bonds as follows:

--$24.245 million ULT refunding bonds, series 2014 'AAA' enhanced/'AA-' underlying.

The 'AAA' long-term rating on the bonds is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose bond guaranty program is rated 'AAA' by Fitch.

The bonds are scheduled for negotiated sale during the week of June 30. Proceeds from the sale of the bonds will be used to refund a portion of the district's outstanding ULT debt for debt service savings.

In addition, Fitch affirms the 'AA-' underlying rating on the district's $122 million in outstanding ULT bonds (pre-refunding).

The Rating Outlook is Stable.

SECURITY

The bonds are direct obligations of the district and are secured by an unlimited ad valorem tax pledge of the district. In addition, the bonds are secured by the PSF guaranty.

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: The district consistently records operating surpluses which has resulted in the steady growth of total general fund reserves. Management has demonstrated the ability to achieve favorable financial results during periods of changing enrollment trends and state funding reductions by aligning 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 above average in relation to market value, although overall fixed costs (including debt service and pension contributions, and OPEB) are low in relation to governmental spending. State assistance currently funds approximately 70% of debt service expenditures. Management does not anticipate issuing new debt in the near term given the current enrollment trends and 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.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the district's healthy financial profile. The Stable Outlook reflects Fitch's expectation that such shift is unlikely.

CREDIT PROFILE

The district is located approximately 18 miles southeast of the city of El Paso (general obligation bonds rated 'AA' with a Stable Outlook by Fitch). The district serves Horizon City, the town of Clint, and the unincorporated area of East Montana within its large 380 square mile boundary.

STRONG FINANCIAL PERFORMANCE

Management budgets conservatively and maintains a healthy level of reserves, which Fitch considers prudent in light of 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.

Federal funding sources and enrollment growth allowed the district to make up for state revenue shortfalls. Modest cost reductions supported limited staff reduction through attrition in the fiscal 2012/2013 biennium. The district's audited results were better than previously projected, closing each of those years with a $2.6 and $1.6 million surplus for fiscal 2012 and 2013, respectively. At the close of fiscal 2013, the district's unrestricted fund balance stood at $25.4 million, or a solid 28.6% of spending.

The district's amended operating budget for fiscal 2014 includes a prudent use of $3 million in reserves for non-recurring capital outlays, resulting in maintenance of fund balance well above its two-month target. The preliminary fiscal 2015 budget includes a modest 1.5% pay increase to remain competitive with area school districts, flat enrollment, a conservative 2% increase in the tax base, and no tax rate changes.

MANAGEABLE DEBT BURDEN

Metrics for overall debt outstanding are mixed, with moderate debt per capita ($3,934) and very high debt as a percent of market value (14.3%), reflecting the relatively small tax base. The district's debt service payments are manageable at 10% of governmental spending, and even lower at 3% after adjusting for 74% state debt service assistance received in fiscal 2013. With recently constructed school facilities, the district reports adequate capacity for the next five years based on current enrollment projections.

The district contributes to the Teacher Retirement System of Texas (TRS), a cost-sharing, multiple-employer defined benefit pension plan. The district's pension contribution, which is set by state law, was $1.3 million (a nominal 1.2% of governmental spending) in fiscal 2013. Other post-employment benefits are also provided through TRS and district contributions are minimal. However, districts are susceptible to future funding changes by the state as evidenced by a relatively modest 1.5% of salary contribution requirement effective in fiscal 2015.

GROWING ECONOMY BENEFITS FROM PROXIMITY TO EL PASO

Growth in the district's primarily residential tax base has moderated in recent years but continued even through the recession. The district's taxable assessed valuations grew by a compound annual average of 4.8% since fiscal 2009. 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. The top 10 taxpayers are represented by a utility, real estate, manufacturing, and construction interests with no taxpayer or sector concentration.

IHS Global Insights points to the El Paso region's younger-than-average population as a key strength, supporting strong service sector growth. However, relatively low skill levels limit high-paying job growth. The city's latest unemployment rate of 6.7% for April 2014 is improved from the prior year, but lags the national and state averages of 5.9% and 4.7%, respectively. Wealth levels as measured by median household income are about 30% below state and national averages.

Enrollment growth averaged 4.4% annually from fiscal 2005 to 2011 but has since been relatively flat at its fiscal 2014 enrollment of 11,642. The district's projections for both capital planning and operations assume a modest growth rate of less than 1%, but management monitors closely to make timely budget adjustments if needed.

TEXAS SCHOOL DISTRICT LITIGATION

In February 2013 a district judge ruled that the state's school finance system was unconstitutional. The ruling, which was in response to a consolidation of six lawsuits representing 75% of Texas school children, found the system 'inefficient, inequitable, and unsuitable and arbitrarily funds districts at different levels...' The judge also cited inadequate funding as a constitutional flaw in the current system.

The judge reopened the lawsuit in June 2013 after state legislative action that partially restored state funding levels and made other program changes. The trial began January 2014. If the state school finance system is ultimately found unconstitutional, the legislature will be directed to make changes to the system to restore its constitutionality. Fitch would consider any changes that include additional funding for schools a positive credit consideration.

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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and the National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

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

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

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=836737

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Gabriela Gutierrez, CPA

Director

+1-512-215-3731

Fitch Ratings, Inc.

111 Congress Avenue, Suite 2010

Austin, TX 78701

or

Secondary Analyst

Leslie Cook

Analyst

+1-212-908-0507

or

Committee Chairperson

Jessalynn Moro

Managing Director

+1-212-908-0608

or

Media Relations

Elizabeth Fogerty, New York, +1 212-908-0526

elizabeth.fogerty@fitchratings.com

Source: Fitch Ratings


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Business Wire


Story Tools






HispanicBusiness.com Facebook Linkedin Twitter RSS Feed Email Alerts & Newsletters