In the course of routine surveillance, Fitch Ratings affirms its underlying 'A' rating on South San Antonio Independent School District (the district), Texas' approximately $142.2 million in outstanding unlimited tax bonds (ULT). The bonds are direct obligations of the district and are payable from an unlimited ad valorem tax levied, without legal limitation as to rate or amount, on all taxable property located within the district. While Fitch considered the following parity bonds in its analysis and affirmed all outstanding ULT bonds in its previous commentaries, the bonds listed below did not have an explicit rating assignment. Therefore, Fitch explicitly assigns an 'A' underlying rating to the ensuing bonds as follows:
--ULT school building bonds, series 1992;
--ULT refunding bonds, series 1994;
--ULT refunding bonds, series 2004.
In addition, Fitch assigns a 'AAA' rating on the series 1992, 1994, and 2004 bonds based on a guaranty provided by the Texas Permanent School Fund, whose insurer financial strength is rated 'AAA' by Fitch. The full rating history is now available on Fitch's web site at 'www.fitchratings.com'. The Rating Outlook is Stable.
The 'A' underlying rating reflects the district's historically healthy general fund reserve levels, growing taxable values, and substantial state support for operations and debt service. Offsetting risks include above-average debt levels as a percentage of taxable assessed valuation (TAV), tax base concentration, and slow principal payout rate. Although enrollment is experiencing only modest growth, capital requirements remain sizable given the district's aging facilities. In addition, voters recently rejected a bond package for renovation of the high school. Despite ongoing capital needs, reserve levels are expected to remain satisfactory.
Located in Bexar County, the district is a residential area encompassing 21 square miles in southwestern San Antonio (the city). Total district population is estimated at about 64,000. The district's TAV has experienced impressive growth due to residential and commercial development, although property value gains have slowed considerably reflecting the downturn in the housing market. The increased residential development has helped to stem the shifting migration patterns to the northern sectors of the city and stabilize district enrollment. Tax base concentration remains, with the top ten taxpayers representing about 20% of TAV. The San Antonio area economy continues to outperform much of the country, with the city's labor force growing 2% from last year at this time, and the September unemployment rate at 6.8% is well below the rates of the state (8.3%) and nation (9.5%).
The district's financial performance benefits from conservative budgeting practices. The district continues to record favorable operating results, as evidenced by general fund surpluses in seven out of the last eight fiscal years. Fiscal 2008 operations further added to reserve levels, increasing the undesignated fund balance to a strong $25.2 million or 34.2% of spending. While the district budgeted a $5.4 million drawdown in fiscal 2009, officials now project a more modest operating deficit of approximately $2 million, bringing the undesignated fund balance to a still sizable $23.2 million. The district typically budgets for some use of beginning balance, but actual results have consistently outperformed the budget, and general fund balances remain in excess of the administration's informal goal of maintaining three months of operations in reserve.
Debt ratios, particularly debt to market value, are above average, reflecting the district's relatively low property wealth. However, the low wealth per student ratio also benefits district taxpayers with the state providing significant debt service support. Principal payout is slow with 32% retired within the next 10 years. Voters recently rejected by a 57% margin a $62 million bond authorization for renovation of the high school. Currently, there is no contingency plan in place to address renovation needs at the high school as well as other aging campuses within the district.
Additional information is available at 'www.fitchratings.com'.
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