Fitch removes the bonds from Rating Watch Negative and assigns a Negative Outlook.
The bonds are secured by an unlimited property tax levied annually against all taxable property within the district. Additional security is provided by the
KEY RATING DRIVERS
DETERIORATING FINANCES: The downgrade reflects the adverse financial impact of the district's weak governance and management practices, including a structural imbalance caused by overstaffing, counting non-
FINANCIAL MANAGEMENT LAPSES: The district's qualified opinion on its fiscal 2013 audit along with a large number of audit findings calls into question the reliability of reported information. Board inaction delayed the district's progress in resolving many of its management shortcomings.
BUDGET PRESSURES IN FISCAL 2015 AND BEYOND: The Negative Outlook reflects the district's difficult prospects for achieving structural balance in light of the state's planned withholding of state aid overpayments. Prolonged management lapses also reduce the reliability of financial data.
STATE CONSERVATORS ASSIGNED:
MIXED DEBT PROFILE: Debt-to-market value is very high due to the low tax base wealth, and amortization is below average. However, fixed costs for debt service and retiree benefits are quite affordable due to annual state support. Future capital needs are minimal.
WEAK TAX BASE: Tax base wealth is very low and top taxpayers are moderately concentrated in agriculture. TAV growth is occurring but at a much slower rate than historical growth due to lower levels of building activity. Tax collection rates are below average.
LIMITED BUT STABLE ECONOMY: The district's economy is fairly limited with high unemployment, high poverty, and low wealth. Fitch notes that such metrics are not unusual for smaller school districts located along the U.S.-
GOVERNANCE IMPROVEMENTS: Prolonged delays in appointing permanent leadership positions or lack of progress in resolving the district's numerous audit findings in the fiscal 2015 audit will lead to a rating downgrade.
FINANCIAL STABILIZATION: A lack of progress in restoring structural balance to the district's operating and debt service funds will lead to a rating downgrade.
DATA RELIABILITY: Inability to provide Fitch with consistently reliable financial data could result in withdrawal of the rating.
The district is located on the U.S.-
SCHOOL BOARD INACTION
The district's tenuous position, cited by Fitch in a press release dated
FISCAL 2013 OPERATING RESULTS AND AUDIT FINDINGS
The fiscal 2013 audit posted a large
The district received a qualified opinion on its fiscal 2013 audit plus a high 22 audit findings that echoed many of the problems discovered by TEA's investigation regarding significant gaps in internal controls and financial management practices. Although some progress has been made, management expects most of the findings will remain unresolved for the fiscal 2014 audit which is viewed negatively by Fitch.
STATE AID OVERPAYMENTS
A TEA audit revealed ADA discrepancies within the district's alternative school as well as errors in the lunch counts for the free and reduced-price lunch program. A separate TEA investigation discovered that the district had been including 100 non-
Although fiscal 2014 state revenues were not officially part of the TEA's investigation, TEA has indicated similar overpayments for 100 non-
FISCAL 2014 FINANCIAL PRESSURES
The new management team froze expenses and deferred certain expenditures in response to fiscal 2013's structural imbalance and the impending claw back of state revenues. Year to date cash is adequate at
FISCAL 2015 BUDGET PRESSURE
The proposed fiscal 2015 budget is still under development but management has indicated that it will reflect the loss of all 100 ADA disputed by TEA as non-eligible. To offset the loss of about
DEBT SERVICE SHORTFALL
Annual state support for debt service comprises a high 80% of unlimited tax bond debt service but is based on local taxing effort. A reduction of
2010 BOND PROJECT ON HOLD
Construction of the science and technology building, funded with voter approved 2010 bonds, was halted eight months ago after the project's architect/contractor was arrested on federal bribery charges. The project is 70% complete but Fitch notes that costs are likely to increase under a new contractor.
Management's goal is to restart the project once its financial position is stabilized. TEA's substantial debt service support of the project's bonds may complicate the project's financing if such support is withdrawn due to its inactive status.
LIMITED BUT STABLE ECONOMY
Tourism, agriculture and trade with
District taxable assessed valuation (TAV) has rebounded modestly over the last three years and recouped a 6.4% reappraisal losses posted in fiscal 2011. This deceleration is significant compared with an average annual growth rate of about 14% from fiscal years 2006 to 2010. Moderate taxpayer concentration exists, with the top 10 taxpayers accounting for 12% of TAV.
The 2014 district population is small and estimated at just over 8,000. Student ADA in the district remained flat in recent years before declining by 2% in fiscal 2014. The district is budgeting a 5% reduction in ADA in fiscal 2015 to reflect the elimination of all non-
VERY LOW PROPERTY WEALTH BRINGS SUBSTANTIAL STATE SUPPORT
A major determinant in the amount of state financial aid for
ELEVATED DEBT RATIOS WITH AFFORDABLE FIXED COSTS DUE TO STATE SUPPORT
The district's debt-to-market value ratio is very high at 16.4%, reflecting the very low property wealth levels. Debt per capita is more moderate at
The pace of principal repayment remains below average at 40% in 10 years. Debt service is level over the medium term and descends thereafter through maturity. Current facility capacity is projected as adequate over the next five years.
District employees participate in the Teacher Retirement System of
The judge agreed to reopen testimony in
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' (
U.S. Local Government Tax-Supported Rating Criteria
Tax-Supported Rating Criteria
Source: Fitch Ratings
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