In the course of routine surveillance, Fitch Ratings affirms the 'A' rating on Rio Grande City Consolidated Independent School District, Texas' (the district) approximately $102.7 million unlimited tax school building bonds and the 'A-' rating on Rio Grande City Consolidated Independent School District Public Facilities Corporation's $2.1 million outstanding lease revenue bonds. The Rating Outlook for both is Stable.
The unlimited tax school building bonds are secured by an unlimited ad valorem tax assessed on all taxable property within the district. The lease revenue bonds are secured by rental payments made by the district under a lease with the public facilities corporation for the construction of an elementary school.
The 'A' rating is based on the district's sound financial management, strong voter support to fund additional capital needs, and substantial state support for operations and debt service. The rating also incorporates the district's moderate debt burden with slow principal amortization and limited tax base, which is concentrated in mineral values that are expected to decline in the near term due to declining oil and gas prices. The level of state funding offsets some concerns about tax base concentration. Maintaining appropriate reserve levels and moderate debt ratios are an important consideration to preserving the current rating level.
The large and sparsely populated district is located in Starr County and includes the county seat of Rio Grande City. Both the city and county experienced rapid population growth in the 1990-2000 period. Average daily attendance has modestly increased at annual average rate of approximately 1% since 2002. Starr County's economy is based on agriculture and mineral production, including oil and natural gas, whose previously growing valuations in recent years have resulted in considerable concentration among the district's top 10 taxpayers. Characterized by very low wealth, portions of Starr County have been designated an economic empowerment zone in an attempt to bring private sector jobs to the community, whose unemployment rate equaled 15.2% in December 2008, an increase over the 12.4% in December 2007.
Because of very low wealth per average daily attendance, the district receives substantial state aid for operations, equal to about 77% of general fund revenues in fiscal 2008. Sound financial management is evidenced by the district's adequate reserve levels. In fiscal 2007, the district gained voter-approval for a 13-cent tax rollback that generated approximately $5 million in additional revenues in fiscal 2008. The revenue increase contributed to the district's $2.3 million operating surplus, increasing the unreserved, undesignated general fund balance to about $14.2 million or roughly 17% of expenditures, transfers out, and other uses. The adopted fiscal 2009 budget is balanced.
State support for outstanding debt is equal to about 69% of debt service. Despite this support, the district's overall debt burden is moderate at $1,140 per capita and 4% of taxable assessed value. Pending approval by the state legislature for Instructional Facilities Allotment (IFA) funding, the district plans to undertake a $37 million bond issuance approved by 84% of voters in November 2008.
Principal amortization of lease revenue bonds and unlimited tax debt is well below average at 34% in 10 years.
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Fitch Ratings
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Andy
Kaaz, 512-215-3730, Austin
or
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Email: cindy.stoller@fitchratings.com