Fitch Ratings has assigned an 'AAA' rating to Canutillo
Independent School District, Texas' (the district) $7 million
unlimited tax school building bonds, series 2006A. The 'AAA' rating is
based on the guarantee provided by the Texas Permanent School Fund
(PSF) whose insurer financial strength is rated 'AAA' by Fitch. Fitch
also assigns an 'A-' underlying rating to the series 2006A bonds and
affirms the underlying 'A-' rating on the district's approximately
$45.2 million outstanding unlimited tax bonds. The Rating Outlook is
Positive.
The bonds are expected to price on April 3 via negotiation to Southwest Securities. Payment for the bonds is provided by an ad valorem tax levied, without limitation as to rate or amount, against all taxable property within the district as well as the Texas PSF guarantee. Bond proceeds will be used to finance various school facility projects and to pay issuance costs.
The 'A-' underlying rating and Positive Outlook are based on the district's continued financial improvement, conservative fiscal management, and growing tax base. Offsetting risks include above-average debt levels, moderate tax base concentration, and no taxing margin for operations. Overall, improved financial management has successfully restored the district's solid financial reserves, which were depleted in fiscal 1996. Future growth and diversification of the district's tax base coupled with continued improvement in financial performance and maintenance of moderate debt levels could result in a positive rating action for the district. The district's stable and well-regarded board and administration are also positive indicators of continued credit strength.
Located in the northeastern corner of El Paso County, the district covers 67 square miles including portions of the City of El Paso and neighboring rural areas. The district benefits from greater El Paso's strategic location and extensive transportation network, serving as a major port of entry linking Mexico, Texas, and New Mexico. At approximately 5,200 students in fiscal 2006, the district is experiencing moderate annual enrollment growth averaging 2%. For facilities planning purposes, district officials anticipate annual increases of 4% in the coming years. Ongoing and planned residential developments are adding new homes ranging from affordable to high-end gated communities, diversifying the district's home values which currently are very modest. A total of 10 residential developments are underway with over 1,300 homes.
Taxable values are outpacing enrollment gains. The district's taxable assessed valuation (TAV) increased more than an average of 11% annually since 2001. The Hoover Co. is the largest taxpayer, representing 9.7% of appraised value, with the leading 10 taxpayers representing over 21%. Although the industrial sector maintains a dominant presence in the district's tax base, its concentration has begun to give way to residential growth in the last five years. Economic growth is projected to continue with the availability of affordable land and recent completion of the Artcraft Highway.
The district's general fund balance was $7.4 million or 20.6% of expenditures in fiscal 2005. However, due to pay-as-you-go capital outlays, the district recorded a modest $127,000 net operating deficit for the year, lower than the budgeted $250,000 drawdown. Continued tax base growth in excess of its enrollment growth has caused a shift in the district's composition of revenues; state aid decreased from 67% in fiscal 2001 to 62% in fiscal 2005. In its five-year financial plan, the district anticipates general fund balance draws in fiscal years 2006 and 2007.
The district's direct and overall debt ratios are above average and expected to increase with additional capital needs associated with growing enrollment. After adjusting for substantial state support (62%) for outstanding debt, the direct debt per capita is at $1,305 and 3.9% of TAV. Overall debt ratios are at $2,029 per capita and 6% of TAV. Principal amortization is about average at 47% in 10 years.
There is uncertainty as to the current method of school funding in Texas. The state Supreme Court recently ruled that certain aspects of the Texas public school finance system are unconstitutional. The governor is calling a special legislative session next month to consider school finance. The effect of legislative action in school funding is undeterminable at this time and will continue to be monitored by Fitch.
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, conflcts 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 expected to price on April 3 via negotiation to Southwest Securities. Payment for the bonds is provided by an ad valorem tax levied, without limitation as to rate or amount, against all taxable property within the district as well as the Texas PSF guarantee. Bond proceeds will be used to finance various school facility projects and to pay issuance costs.
The 'A-' underlying rating and Positive Outlook are based on the district's continued financial improvement, conservative fiscal management, and growing tax base. Offsetting risks include above-average debt levels, moderate tax base concentration, and no taxing margin for operations. Overall, improved financial management has successfully restored the district's solid financial reserves, which were depleted in fiscal 1996. Future growth and diversification of the district's tax base coupled with continued improvement in financial performance and maintenance of moderate debt levels could result in a positive rating action for the district. The district's stable and well-regarded board and administration are also positive indicators of continued credit strength.
Located in the northeastern corner of El Paso County, the district covers 67 square miles including portions of the City of El Paso and neighboring rural areas. The district benefits from greater El Paso's strategic location and extensive transportation network, serving as a major port of entry linking Mexico, Texas, and New Mexico. At approximately 5,200 students in fiscal 2006, the district is experiencing moderate annual enrollment growth averaging 2%. For facilities planning purposes, district officials anticipate annual increases of 4% in the coming years. Ongoing and planned residential developments are adding new homes ranging from affordable to high-end gated communities, diversifying the district's home values which currently are very modest. A total of 10 residential developments are underway with over 1,300 homes.
Taxable values are outpacing enrollment gains. The district's taxable assessed valuation (TAV) increased more than an average of 11% annually since 2001. The Hoover Co. is the largest taxpayer, representing 9.7% of appraised value, with the leading 10 taxpayers representing over 21%. Although the industrial sector maintains a dominant presence in the district's tax base, its concentration has begun to give way to residential growth in the last five years. Economic growth is projected to continue with the availability of affordable land and recent completion of the Artcraft Highway.
The district's general fund balance was $7.4 million or 20.6% of expenditures in fiscal 2005. However, due to pay-as-you-go capital outlays, the district recorded a modest $127,000 net operating deficit for the year, lower than the budgeted $250,000 drawdown. Continued tax base growth in excess of its enrollment growth has caused a shift in the district's composition of revenues; state aid decreased from 67% in fiscal 2001 to 62% in fiscal 2005. In its five-year financial plan, the district anticipates general fund balance draws in fiscal years 2006 and 2007.
The district's direct and overall debt ratios are above average and expected to increase with additional capital needs associated with growing enrollment. After adjusting for substantial state support (62%) for outstanding debt, the direct debt per capita is at $1,305 and 3.9% of TAV. Overall debt ratios are at $2,029 per capita and 6% of TAV. Principal amortization is about average at 47% in 10 years.
There is uncertainty as to the current method of school funding in Texas. The state Supreme Court recently ruled that certain aspects of the Texas public school finance system are unconstitutional. The governor is calling a special legislative session next month to consider school finance. The effect of legislative action in school funding is undeterminable at this time and will continue to be monitored by Fitch.
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, conflcts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.