Fitch has assigned an 'AAA' rating to Dallas Independent
School District, Texas' (the district) $284.5 million unlimited tax
school building bonds, series 2006. The rating is based on the
guarantee provided by the Texas Permanent School Fund (PSF), whose
insurer financial strength is rated 'AAA' by Fitch. Additionally,
Fitch assigns an 'AA' underlying rating to the bonds and affirms the
rating for the district's $1.26 billion unlimited tax school building
bonds outstanding. The bonds are scheduled to sell via negotiation on
or about Feb. 22 through a syndicate led by Estrada Hinojosa & Co. The
Rating Outlook is Stable.
The bonds are payable from an unlimited ad valorem tax levied against all taxable property within the district, and are secured further by the PSF guarantee. Proceeds will be used to finance the acquisition, construction and equipping of school buildings and to purchase necessary sites therefore, and to pay issuance costs.
The 'AA' underlying rating reflects the district's generally sound financial condition and extensive and diverse economic and tax base. The current offering represents the fifth and final installment of $1.4 billion in bond authorization approved by a large majority of district voters in January 2002 to address aging and overcrowded facilities. Despite the sizeable debt issuance level, debt burden and tax rates are projected to remain manageable. Offsetting credit considerations include declining operating reserves, an operations tax rate at the state mandated ceiling, growing operational needs associated with the capital building program, and general uncertainty surrounding the future of state funding of public schools in Texas.
The district's financial profile remains solid, despite operating losses and declining reserves the past two fiscal years. General fund reserves have dropped nearly 20% since fiscal 2003, the result primarily of outlays associated with salary increases and a claims dispute with a former health insurance carrier. Despite the decline, the undesignated general fund balance at fiscal 2005 year-end was still satisfactory at roughly $84 million or 8% of operating expenditures and transfers out.
For fiscal 2006 district officials anticipate results will meet original budget projections, which called for a marginal reduction in general fund spending from the prior year. Operating reserves are expected to vary little from last year's levels. Officials report that the addition of nearly 2,000 hurricane evacuee students last fall has not affected spending levels dramatically. To help control costs, the district instituted a hiring freeze in recent weeks. The operations and maintenance tax rate is at the $1.50 per $100 taxable assessed valuation (TAV) state mandated ceiling, thereby reducing the district's financial flexibility.
Although increasing, Fitch considers the district's direct debt burden still moderate at 2.5% of current TAV and roughly $1,277 per capita after this sale. The pace of debt retirement has slowed considerably with the last two debt offerings and is now well below average. Following completion of the current capital program in 2008, the district reports it is considering another bond election of at least $500 million to address additional needs.
TAV growth rebounded in fiscal 2006 after slowing appreciably the previous three fiscal years. The fiscal 2006 TAV of $62.7 billion represented a solid 5.6% increase from last year. The district's debt service tax rate has nearly tripled since fiscal 2002 to pay for the current bond program; however, it remains below the maximum projected rate conveyed to voters prior to the 2002 election.
The district is the second largest in the state, with an estimated 160,000 students. Enrollment, which has declined marginally over the past several fiscal years, is projected to stabilize around current levels. The district serves the majority of the City of Dallas, as well as all or portions of 11 area cities and towns, with a total estimated population of approximately 1.2 million. While the recent recession stalled job growth and produced unemployment rates in the city measurably higher than state and national averages, recent employment statistics suggest that economic conditions both in the city and the metropolitan area are improving; the long-term prospects for the area remain very favorable.
There is uncertainty as to the future of the school funding system in Texas. The State Supreme Court recently ruled that certain aspects of the Texas public school finance system are unconstitutional. The governor is expected to call a special legislative session, the sixth special session in less than two years, to consider school finance. The effect of any legislative action on school funding is undeterminable at this time.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
The bonds are payable from an unlimited ad valorem tax levied against all taxable property within the district, and are secured further by the PSF guarantee. Proceeds will be used to finance the acquisition, construction and equipping of school buildings and to purchase necessary sites therefore, and to pay issuance costs.
The 'AA' underlying rating reflects the district's generally sound financial condition and extensive and diverse economic and tax base. The current offering represents the fifth and final installment of $1.4 billion in bond authorization approved by a large majority of district voters in January 2002 to address aging and overcrowded facilities. Despite the sizeable debt issuance level, debt burden and tax rates are projected to remain manageable. Offsetting credit considerations include declining operating reserves, an operations tax rate at the state mandated ceiling, growing operational needs associated with the capital building program, and general uncertainty surrounding the future of state funding of public schools in Texas.
The district's financial profile remains solid, despite operating losses and declining reserves the past two fiscal years. General fund reserves have dropped nearly 20% since fiscal 2003, the result primarily of outlays associated with salary increases and a claims dispute with a former health insurance carrier. Despite the decline, the undesignated general fund balance at fiscal 2005 year-end was still satisfactory at roughly $84 million or 8% of operating expenditures and transfers out.
For fiscal 2006 district officials anticipate results will meet original budget projections, which called for a marginal reduction in general fund spending from the prior year. Operating reserves are expected to vary little from last year's levels. Officials report that the addition of nearly 2,000 hurricane evacuee students last fall has not affected spending levels dramatically. To help control costs, the district instituted a hiring freeze in recent weeks. The operations and maintenance tax rate is at the $1.50 per $100 taxable assessed valuation (TAV) state mandated ceiling, thereby reducing the district's financial flexibility.
Although increasing, Fitch considers the district's direct debt burden still moderate at 2.5% of current TAV and roughly $1,277 per capita after this sale. The pace of debt retirement has slowed considerably with the last two debt offerings and is now well below average. Following completion of the current capital program in 2008, the district reports it is considering another bond election of at least $500 million to address additional needs.
TAV growth rebounded in fiscal 2006 after slowing appreciably the previous three fiscal years. The fiscal 2006 TAV of $62.7 billion represented a solid 5.6% increase from last year. The district's debt service tax rate has nearly tripled since fiscal 2002 to pay for the current bond program; however, it remains below the maximum projected rate conveyed to voters prior to the 2002 election.
The district is the second largest in the state, with an estimated 160,000 students. Enrollment, which has declined marginally over the past several fiscal years, is projected to stabilize around current levels. The district serves the majority of the City of Dallas, as well as all or portions of 11 area cities and towns, with a total estimated population of approximately 1.2 million. While the recent recession stalled job growth and produced unemployment rates in the city measurably higher than state and national averages, recent employment statistics suggest that economic conditions both in the city and the metropolitan area are improving; the long-term prospects for the area remain very favorable.
There is uncertainty as to the future of the school funding system in Texas. The State Supreme Court recently ruled that certain aspects of the Texas public school finance system are unconstitutional. The governor is expected to call a special legislative session, the sixth special session in less than two years, to consider school finance. The effect of any legislative action on school funding is undeterminable at this time.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.