Fitch Ratings has assigned an 'AAA' rating to the following Waxahachie Independent School District, Texas' (the district) unlimited tax bonds (ULTs):
--$30.2 million ULT refunding bonds, series 2011;
--$2.5 million ULT Qualified School Construction Bonds (QSCBs), taxable series 2011.
The 'AAA' long-term rating is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose Insurer Financial Strength is rated 'AAA' by Fitch.
The ULT Refunding bonds, series 2011 are scheduled for negotiated sale on June 22. Proceeds from the sale will be used to refund a portion of the district's outstanding unlimited tax debt. The ULT QSCBs, taxable series 2011 are scheduled for competitive sale also on June 22. Proceeds will be used to improve district facilities.
Fitch also assigns an 'AA-' underlying rating to the ULT refunding bonds, series 2011 and QSCBs taxable series 2011 and affirms the 'AA-' rating on the district's $120.7 million (pre-refunding) outstanding ULT debt.
The Rating Outlook is Stable.
RATING RATIONALE:
--The district's financial position is solid, characterized by ample reserves and liquidity.
--The district benefits from its location along a major transportation corridor and proximity to the larger Dallas-Fort Worth (DFW) economy and employment base.
--Tax base growth moderated in fiscal 2010 and declined modestly in fiscal 2011.
--Top taxpayer concentration is above average but Fitch derives comfort from the diversity of companies comprising the list.
--Overall debt levels are moderately high and the pace of amortization is very slow, which reflects the use of capital appreciation bonds.
--Enrollment is expected to continue to increase at a moderate pace over the near term.
KEY RATING DRIVERS:
--The maintenance of solid reserve levels is necessary to mitigate budgetary pressure associated with enrollment growth and preserve financial flexibility in light of state aid cuts.
--A manageable capital plan is also essential to maintaining the current rating given the current debt burden and slow pace of principal amortization.
SECURITY:
The bonds are secured by an unlimited ad valorem tax pledge levied against all taxable property within the district. The bonds are further secured by a guaranty from the Texas PSF.
CREDIT SUMMARY:
Waxahachie ISD, located about 30 miles south of Dallas, is situated in the center of Ellis County along Interstate 35 East. The district's proximity to the larger DFW economy and employment base as well as its location along a major transportation route has fostered a fairly diversified manufacturing and industrial base. More recently, the availability of affordable land has spurred residential development, facilitating growth in both enrollment and the district's tax base. Current enrollment is about 7,400 which reflects a nearly 7% increase from the prior year and moderate 4% compound annual growth since 2006. Based on a demographer's projections, enrollment growth is expected to continue at about 4%-5% annually over the near term.
In contrast to previously solid levels of growth, the district's tax base contracted modestly by 1% for fiscal 2011, reflecting a sluggish housing market and declines in commercial and industrial sector values. Preliminary figures for fiscal 2012 indicate flat taxable assessed valuation (TAV) of $2.8 billion. Top taxpayer concentration remains above average at about 20%, but Fitch derives comfort from the diversity of companies comprising the list. As of March 2011, the city's unemployment rate of 7.6% had improved to below the state (8.1%) and national rate (9.2%).
District financial operations are sound, with operating surpluses posted in each of the past five fiscal years. Audited fiscal 2010 results show a $3.8 million operating surplus (8% of spending) and unreserved general fund balance totaling an impressive $25.5 million or 54% of spending. The district's liquidity position is also solid, with cash and investments totaling $24 million or 183 days cash on hand.
A balanced budget was originally adopted for fiscal 2011, but aided by additional revenue from enrollment growth officials now expect to post a $2.5 million operating surplus. To accommodate recent enrollment gains and shifting enrollment patterns, management has initiated pay-go capital spending to reconfigure facilities, including converting two existing campuses to a middle school and elementary school, and adding and renovating classrooms. Offset by the anticipated year-end surplus, a net use of about $7 million of general fund balance is anticipated in fiscal 2011 which would push the unreserved general fund balance to $18.5 million or a still solid 35% of budgeted operating expenditures.
Management is planning for sizable cuts in state aid for fiscal years 2012 and 2013 as a result of the state's budget shortfall. While there is uncertainty regarding the severity of the cuts due to ongoing school funding negotiations, a plausible loss of between $3.5 million-$4 million (7%-8% of total operating revenue) is anticipated for fiscal 2012. In response, management is currently holding vacant positions open and will make cuts to departmental budgets as needed; the district may also use up to $2 million of fund balance in fiscal 2012 to close the shortfall. However, even after an aggregate drawdown on fund balance of roughly $9 million in fiscal years 2011 and 2012 for capital spending and to cope with a budget shortfall, Fitch notes that the district's unreserved general fund balance would remain at a level consistent with this rating category.
The current $2.5 million QSCB issuance will exhaust the remaining balance of the $28.1 million authorization approved by voters in May 2010. Proceeds will be used to supplement spending on campus improvements from the previous 2010 bond issuance. Management noted that following completion of the improvements from these proceeds as well as campus reconfiguration, facility capacity can accommodate anticipated enrollment growth for the next 3-5 years. Consequently, the district has no additional immediate capital needs or debt plans.
The district's direct debt burden is average and overall debt burden is moderately high at $4,596 per capita and high at 5.6% of TAV. Due to the use of capital appreciation bonds and ascending debt service schedule, amortization is very slow with only 17.5% of principal retired (on a non-accreted basis) in 10 years. The district contributes to the Teacher Retirement System of Texas (TRS) and made 100% of its required contribution in the last three years. Other post-employment benefits (OPEB) are also provided through TRS. Pension and OPEB costs in fiscal 2010 totaled $4.8 million or about 2% of general fund spending, a manageable cost to the district.
Additional information is available at 'www.fitchratings.com'
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc., IHS Global Insight, and the Texas Municipal Advisory Council.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', Aug. 16, 2010;
'U.S. Local Government Tax-Supported Rating Criteria', Dec. 21, 2009.
For information on Build America Bonds, visit www.fitchratings.com/BABs.
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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