Fitch Ratings has assigned an 'AAA' rating to Hitchcock Independent School District (Hitchcock ISD), Texas' $42.8 million unlimited tax school building and refunding bonds, series 2008, based on the guaranty by the Texas Permanent School Fund (PSF; insurer financial strength rated 'AAA' by Fitch). The bonds are scheduled to be sold on Aug. 19 via negotiation. Fitch has also assigned an 'A' underlying rating to the series 2008 bonds and assigns its 'A' rating on Hitchcock ISD's outstanding series 2002 unlimited tax refunding bonds totaling $2.5 million. The Rating Outlook is Stable.
Payment for the bonds is provided by an ad valorem tax levied, without legal limitation as to rate or amount, against all taxable property within Hitchcock ISD. The bonds are also secured by the PSF guarantee. Bond proceeds will be used for the construction of a new elementary school, a new football field, a new field house, a new gym, and the refunding of the unlimited tax refunding bonds series 1997.
The 'A' rating reflects Hitchcock ISD's stable financial results, strong tax base growth, good fund balance levels, high property wealth levels, high debt levels, and enrollment declines in recent years. Financial performance has remained balanced despite enrollment declines in recent years. The fiscal 2008 district enrollment was 1,102, down from 1,128 in fiscal 2007. In May 2008, Hitchcock ISD received voter support for this bond authorization, after experiencing prior bond election failures; the bond authorization was approved by 54% of voters.
The service area of Hitchcock ISD includes all of the City of Hitchcock, which is a petroleum producing and residential area located in Galveston County on State Highway 6. Hitchcock ISD has experienced rapid taxable assessed value (TAV) growth over the past five years primarily from real estate developments including HarborWalk, Delaney Cove, and Saltgrass Trails. The HarborWalk development includes a master-planned community with a marina and yacht club.
The county's economy is centered on petrochemicals, port activities, tourism and the University of Texas Medical Branch (UTMB). Galveston now ranks as the fourth largest cruise terminal in the U.S. and the largest on the U.S. gulf coast; more than 500,000 passengers boarded ships in Galveston during 2005 and 2006. UTMB is the county's largest employer, but has recently experienced layoffs to help stem operating losses. The county's economy also benefits from NASA's Johnson Space Center, which is located just north of the county line. The county's unemployment rate for June 2008 is 5.3%, and per capita income is above both the state and national averages.
The current offering represents the entire $40.0 million authorization that was approved for the construction of a new elementary school, a new football field, a new field house, gym, and a new high school. The projected debt-service tax rate increase totals $0.30 per $100 taxable assessed valuation (TAV), which will bring the rate to approximately $.475. Hitchcock ISD's direct debt burden is high at 7.3% of TAV and $6,641 per capita. Hitchcock ISD does not receive support for debt service due to its high property wealth levels. Overall debt is also high on a per capita basis at $8,803 and high as a percentage of TAV at 9.7%. The principal pay-out is slow at 28% in 10 years.
Despite declines in enrollment since fiscal 2006, financial results have remained steady with unreserved fund balances increasing to $4 million in fiscal 2007 from $2.2 million in fiscal 2003. Operating results have shown net income for three of the past five years. In fiscal 2007, Hitchcock ISD reported net income of $396,300 which included $317,000 in capital outlays for computer equipment and school bus purchases. Also, Hitchcock ISD made a prior period adjustment in fiscal 2007 of $582,400 due to the recognition of a payment received in fiscal 2006 from the state as 2006 revenue, when the payment was for the fiscal 2007 school year. This adjustment reduced general fund balance by $582,400 in fiscal 2007.
District officials project a draw-down for fiscal 2008 of $150,000, and the proposed fiscal 2009 budget draw-down is expected to be $750,000. However, Hitchcock ISD budgets conservatively and actual results likely will exceed this budget forecast. The fiscal 2009 drawdown is due largely to the planned addition of 13 new staff for new district programs. Hitchcock ISD expects to add career and technology programs, which some of the surrounding school districts are offering to keep students from transferring from Hitchcock ISD.
Fitch issued an exposure draft on July 31 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this underlying rating (see Fitch research "Exposure Draft: Reassessment of the Municipal Ratings Framework").