Fitch Ratings has affirmed the following outstanding bonds for Bryan Independent School District, Texas (the district) as part of its continuous surveillance efforts:
--$154 million general obligation unlimited (ULT) bonds at 'AA' (excluding series 2009 unlimited tax bonds which are not rated by Fitch).
The Rating Outlook is Stable.
RATING RATIONALE:
--Bryan ISD maintains a stable financial profile and sizeable reserve levels, despite some financial pressure from its below average state revenue target.
--Historically strong tax base gains resulting from higher levels of residential and commercial development have dwindled in light of overall weaker economic conditions.
--Although somewhat limited in nature, the area's economic underpinnings remain strong and include a historically stable employment base of government, health care, and education.
--Enrollment growth is healthy and manageable.
--Debt levels are moderately high. Given the district's relatively recent opening of additional school facilities, capital needs over the near term are projected to be manageable.
KEY RATING DRIVER:
--The district's ability to maintain balanced operations and solid reserves in light of its revenue pressures and despite significant budget cuts in recent years is integral to maintaining credit quality.
SECURITY:
The bonds are secured by an unlimited ad valorem tax pledge of the district as well as a guaranty from the Texas Permanent School Fund.
CREDIT SUMMARY:
Located about 90 miles equidistant from Houston and Austin, the district serves the city of Bryan, which is part of the larger College Station-Bryan metropolitan statistical area (MSA), and a surrounding, predominately rural 400 square-mile area. With approximately 50,000 students, the large, flagship campus of the Texas A&M University System in College Station drives much of the local economy. The dominant governmental sector and large university student work force contribute to below-average income levels and cost-of-living. Unemployment in the MSA rose on a year-to-year basis, but remained well below state and national levels at 6.2% in October 2010.
From fiscal years 2006-2009, taxable values grew on average about 10% annually but began slowing in fiscal 2010 in light of overall weaker economic conditions. Taxable gains were again modest in fiscal 2011 at not quite 3%; generally flat valuation growth is anticipated for fiscal 2012. Recent enrollment trends reflect healthy yet manageable growth annually; on average, student enrollment, which totaled almost 16,000 in fiscal 2011, has grown at an annual pace of 1.5% over the last five fiscal years.
The district maintains its historically stable financial profile and sizeable reserves, despite some financial pressure from its below average state revenue target (established by the state's school funding formula and not adjusted for annual cost drivers) and additional operating expense for new school facilities. In October 2009, district voters rejected a tax ratification election that would have permitted an operating tax rate increase, potentially generating additional revenue of $3.4 million annually. Nonetheless, in fiscal 2010, the district generated an almost $4 million operating surplus, assisted by one-time revenues and conservative budgeting practices, which boosted its general fund reserves to approximately $29 million or a large 27% of spending, slightly exceeding management's revised reserve policy that maintains a lower but still solid 60-90 days of spending
While the $105 million fiscal 2011 general fund expenditure budget incorporated further spending cuts, balanced operations required the use of almost $2 million in one-time revenue from health insurance fund balance. However, district officials currently project using only about $1 million of these funds due to additional revenue from higher than budgeted enrollment and minimally break-even operating results. Comparable to many Texas school districts, management is proactively preparing for probable cuts to state aid over the next biennium (fiscal years 2012 and 2013) based on the state's projected revenue shortfall and is currently targeting at least $2.5 million in further budget reductions for fiscal 2012, primarily from staffing reductions.
Overall debt levels are moderately high at 5% of market value or roughly $3,000 per capita; direct debt levels are more moderate as the district receives some state support for its debt service based on its comparatively low property wealth per student. Amortization of principal is average at 51%. Near-term capital needs are projected to be manageable given the district's relatively recent opening of additional school facilities. Management reports preliminary plans to approach voters for another bond authorization within the next two years, primarily for facility maintenance needs and an elementary school.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc, and IHS Global Insight.
Applicable criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 16, 2010);
--'U.S. Local Government Tax-Supported Rating Criteria' (Oct. 8, 2010).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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