The aforementioned rating is based on a guaranty provided by the
Fitch also assigns an underlying 'AA+' rating to the series 2014A bonds and to the
The Rating Outlook is Stable.
The bonds are scheduled for a negotiated sale on
The bonds are payable and secured by an unlimited ad valorem tax pledge levied against all taxable property within the district.
KEY RATING DRIVERS
SOLID RESERVES: Management's conservative fiscal practices are projected to again narrow the year's moderately-sized structural imbalance budgeted and preserve a sound financial cushion that remains in line with established policy.
TAV GROWTH STRENGTHENS: The tax base is diverse and robust. Taxable assessed valuation (TAV) continues to strengthen after modest recessionary decline. Further TAV growth is projected over the near term.
STABLE REGIONAL ECONOMY: Economic indicators for the city of Austin (the city) indicate a generally sound service area with unemployment levels that remain below state and national levels despite solid labor force growth. Income and wealth metrics are slightly below those of the state and nation. Educational attainment levels equal or exceed those of the U.S.
MODERATE LONG-TERM LIABILITIES: Overall debt levels and other long-term liabilities of the district are moderate. Amortization of principal is slightly above average. Carrying costs are low and expected to remain manageable over at least the near term.
DETERIORATION OF RESERVES: Sound reserve levels that provide significant financial flexibility underpin the high 'AA+' rating, particularly in light of the district's limited revenue-raising ability under the current school funding formula. Material deterioration of the district's financial position from a growing and unmitigated structural imbalance could signal a fundamental shift in its credit profile, leading to negative rating action. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
Austin ISD is the fifth largest school district in the state with nearly 130 campuses and a current enrollment of about 85,500, serving the city (general obligation bonds rated 'AAA' by Fitch) and about 852,000 residents.
FAVORABLE ECONOMIC CONDITIONS
While not immune to recessionary forces, the city's economy historically has been buffered by the large and stabilizing presence of state government as well as seven colleges and universities. The latter includes the
TAV GROWTH STRENGTHENS
The district's tax base has historically been characterized by strong, annual TAV growth pre-recession given area population trends and the resulting economic expansion. It remained resilient over the recession, registering only one year of a modest TAV decline in fiscal 2011 and has since reflected steady increases. TAV grew by approximately 7% in fiscal 2014, which was up from 4% in fiscal 2013. Management assumes further, moderate TAV gain in fiscal 2015, which Fitch believes is reasonable given various new development projects underway, bolstered by a robust economy. Concentration among the top 10 taxpayers is minimal at 4%; about three of the top taxpayers are large, high-tech firms.
BUILD-UP OF RESERVE CUSHION IN PRIOR FISCAL YEARS
The district is considered property wealthy and relies almost entirely on local property taxes, but its funding is subject to the state's formula and a portion of the district's operating tax levy is effectively recaptured by the state for distribution to less wealthy school districts. For fiscals 2013 and 2014, these payments approximated
The district generated large surpluses over fiscals 2010-2012 due to the receipt of one-time federal stimulus funds as well as significant budgetary cuts that addressed state funding reductions in the last biennium (fiscals 2012-2013). This combination allowed the district to maintain and improve upon its financial position. The district declared financial exigency in 2011, as required by state law, which allowed it to implement a significant reduction in force. Nearly 1,300 positions were eliminated by attrition or layoffs. Financial exigency ended roughly a year later on
Reserve levels peaked at fiscal 2012 year-end with an unrestricted general fund balance of
RELIANCE ON RESERVES MANAGEABLE TO DATE
Fiscal 2013 year-end results slightly improved upon management's previous expectations. The year's budgeted
Management again anticipates using reserves for operations, although less than budgeted at fiscal 2014 year-end. This is despite an unanticipated loss of about
A multi-year financial forecast through fiscal 2018 currently projects moderate although growing structural imbalance annually, up from
Fitch views these forecasts with some concern given the finite nature of the reserves, although recognizes the moderate size of the annual imbalance to budget and the likely conservative nature of the forecasts. Fitch assumes in the current rating action management will take appropriate steps to address the structural operating imbalance as the district nears its policy reserve threshold. Absent such developments, Fitch would likely reconsider the district's rating. An operating tax ratification election also remains available to the district that would generate about
The judge agreed to reopen testimony in
DEBT AND OTHER LONG-TERM LIABILITIES MANAGEABLE
Overall debt levels are moderate at approximately
Solid TAV gains have generally mitigated the debt service tax rate impact of the district's previous borrowings, enabling the district to implement its capital plan with limited tax rate impact. The district expects to reduce its debt service tax rate by
Management indicates the district maintains enrollment capacity in its facilities district wide. Fitch anticipates district officials will likely implement some interim measures such as attendance rezoning to manage some of its additional near- to intermediate-term capital needs for the pockets of enrollment growth not included in the outstanding GO bond authorization.
Retiree pension and healthcare benefits are provided through the Teacher Retirement System of
TRS is adequately funded at 81.9% as of
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,
--'Tax-Supported Rating Criteria',
--'U.S. Local Government Tax-Supported Rating Criteria',
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
Source: Fitch Ratings
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