The Rating Outlook is revised to Stable from Negative.
The bonds and maintenance tax notes are direct obligations of the district payable from a continuing direct annual ad valorem tax on all taxable property within the limits prescribed by law. The bonds are subject to the district's limit of
KEY RATING DRIVERS
STOUT CUSHION UNDERPINS INDEPENDENT OPERATIONS: The revision to a Stable Outlook reflects Fitch's viewpoint that the district is presently well-positioned to continue its evolution as a stand-alone institution while maintaining satisfactory finances. Spending remains closely aligned to revenue trends. Management has expanded operations carefully and expects to end the first year of independent operations with break-even results. Sizeable reserves at year-end are largely a result of one-time sale of property. A balanced budget for fiscal 2015 is projected.
STABLE TAX BASE: The rating incorporates the district's modestly growing and relatively diverse tax base.
ENROLLMENT TRENDS MIXED: Enrollment reached an all-time low at the start of fiscal 2014, but has since strengthened. Offsetting a portion of Fitch's credit concern is TSC's singular position to provide the programs and cost structure of a typical community college, which should be attractive to local students The district expects additional students in fiscal 2015 with its new early college high school program, which appears reasonable to Fitch. Fitch will continue to monitor the district's enrollment trends as a key credit factor.
BORDER ECONOMY: Unemployment remains high and exceeds state and national levels despite solid year-over-year employment growth. Income levels have grown rapidly, but remain well below average, which provides practical limitations to the district's tax and tuition-raising flexibility.
LONG-TERM LIABILITIES MODERATE: Overall debt levels are moderate. Property negotiations recently finalized with UT-
NO RATING DIFFERENTIAL: Fitch does not distinguish between the maintenance tax notes and limited tax ratings given the district's ample taxing margin.
BALANCED, STABLE FINANCIAL OPERATIONS: The 'AA-' rating incorporates Fitch's expectation that the district will experience some additional operating and enrollment pressures as it develops as a stand-alone institution. The rating remains sensitive to shifts in fundamental credit characteristics, including the preservation of sound finances and reserves that provide important financial flexibility. However, the Stable Outlook reflects Fitch's expectation that material shifts are unlikely.
TSC is a two-year comprehensive, open enrollment community college located on the
SOUND FINANCIAL POSITION
Financial performance in fiscal 2013 that remained tempered by the existing partnership cost structure with UT-
The district also realized a shift in its key revenue streams in fiscal 2013 as net tuition revenue declined as the primary revenue source and provided a nearly equal contribution at 34% with property tax revenue. Year-over-year revenue trends also fell by 23%, comparable to the aforementioned expenditure decline. Fitch would expect to see the district's key revenue streams (property tax, tuition/fee, and state funding) evolve somewhat further as a result of reporting independent operations beginning in fiscal 2014. TSC's previous partnership agreement required maintaining tuition in line with UTB; the district implemented a 1/3 reduction in its cost of full-time tuition/fees with the start of its ability to set tuition/fees independently in the fall 2013 semester (fiscal 2014).
TSC's revenue stream will also favorably capture some additional revenue diversity in the near term with federal, non-operating revenues (largely Pell Grant) received for low-income students that is currently recorded by UTB. Fitch expects much of TSC's student population will qualify for the Pell Grant as most receive some form of financial aid, comparable to many other
BALANCED RESULTS PROJECTED; STOUT RESERVES MAINTAINED
The primary operating budget of
Enrollment is assumed by management to have reached its lowest point;
The property agreement between UTB and TSC was finalized in mid-fiscal 2014. It resulted in a large one-time pay-out of approximately
The preliminary fiscal 2015 budget is under consideration. Management indicates a balanced budget is to be presented to the board and the operating tax rate (roughly
TSC is presently accredited jointly with UTB and is pursuing accreditation as a separate institution given the unwinding of the partnership. District officials report both internal and external experts assisting TSC in this process as well as an established timeline with which to accomplish this objective. Fitch believes this plan appears reasonable and thus, does not expect accreditation to become a credit issue.
SOME CAPITAL FLEXIBILITY
The recently finalized property settlement between TSC and UTB addressed all of the shared campus facilities, land, and back rent owed by UTB to the district. The settlement also provides capital flexibility to the district. Some key facilities such as science labs, the library, and recreation center will be shared between the two institutions over the intermediate term with the greater portion of operating costs attributable to UTB given its larger enrollment base. TSC has entered into various two to four year lease options for UTB's use of certain facilities at a cost of approximately
MODERATE LONG-TERM LIABILITIES
The district has no near-term new money debt plans given these property agreements and management believes it will have sufficient near-term facility capacity to accommodate further enrollment growth. UTB is proceeding with its plans to become part of a new UT institution that joins UTB and UT Pan American (
Overall debt levels are moderate at about
The college participates in the state-administered Teachers Retirement System of
TSC's direct pension costs have historically been negligible given the very minimal staffing necessitated by the partnership agreement. Fitch expects this liability to increase over the near term given the additional faculty and staffing required for independent operations, but remain moderate. This is despite legislative changes that balance more of the state's funding responsibility on
MODEST TAX BASE GROWTH IN BORDER ECONOMY
The taxing district encompasses approximately 530 acres in the eastern portion of
The area economy is based on agriculture, fishing, manufacturing, trade and tourism, and has benefited from its trade links with
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,
--'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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