|[March 05, 2013]
Fitch Affirms Palestine ISD, TX's ULT Bonds at 'AA-'; Outlook Stable
AUSTIN, Texas --(Business Wire)--
Fitch Ratings affirms the 'AA-'on the following Palestine Independent
School District, Texas' unlimited tax (ULT) bonds:
--$61.7 million ULT schoolhouse building bonds, series 2009.
The Rating Outlook is Stable.
SECURITY: The bonds are secured by an unlimited ad valorem tax levied
against all taxable property in the district.
KEY RATING DRIVERS
STRONG FINANCIAL POSITION: Financial operations are strong, as
demonstrated by robust reserves and healthy levels of liquidity.
MIXED DEBT PROFILE: Debt levels are moderate on a per capita basis but
above average relative to market values; however, both should improve
over time given the district's lack of future debt plans. Principal
amortization is very slow.
LIMITED ECONOMY: The area's economic base is generally rural and
agricultural, characterized by below average wealth indicators. The
government and retail sectors provide a significant share of local
FLAT TAX BASE: District tax base growth has been moderate and
consistent, although it has slowed recently.
STAGNANT ENROLLMENT BASE: Enrollment levels have declined significantly
over the past decade, although some stabilization over the past two
years has occurred.
CONTINUED STRONG FINANCIAL POSITION:
The rating is sensitive to shifts in fundamental credit characteristics
including the district's strong financial management practices. The
Stable Outlook reflects Fitch's expectation that such shifts are highly
The district is located in Anderson County approximately 95 miles
southeast of Dallas and 135 miles north of Houston. The city of
Palestine serves as the population center and commercial hub of the
district. The area is predominantly rural with agricultural interests
and oil and gas production serving as the primary economic components.
The district's limited rural economy is based on agriculture and oil and
gas production. In addition to energy production, primary employment
sectors are led by government (including a number of correctional
facilities), retail trade, and manufacturing. County employment levels
have ramped up notably since 2010 and grew significantly in 2012 by
2.6%. Concurrently, county unemployment rates declined steadily and
totaled 7% in December 2012, above the state average (6%) but below the
U.S. average (7.6%). Wealth indices are low, with per capita income for
the city of Palestine at 73% and 67% of the state and national averages,
MANAGEABLE CONCENTRATION WITHIN FLAT TAX BASE
In the wake of the last recession, the district's tax base growth has
been modest, growing by 1.6% or less since fiscal 2011. Market value per
capita remains moderate at $72,000. Some concentration is apparent among
the top 10 taxpayers; they account for 15% of taxable assessed value,
led by Wal-Mart with approximately 4% of the tax base. Other leading
taxpayers include an oil and gas producer and an electric utility.
DISTRICT ENROLLMENT IMPACTED BY COMPETITION
Compettion from charter schools and private schools contributed to a
decline in the district's Average daily attendance (ADA) which fell by
4.2% between fiscals 2007 and 2013. However, a modest current year
rebound may indicate some stabilization despite the opening of a new
charter school within the district. Management attributes the ADA
increase to the recent completion of renovations to many of the
district's facilities. Fitch will monitor future ADA figures to
determine if the trend is sustainable. Fitch notes the district's
practice to budget for flat enrollment and year-round monitoring of its
ADA as positive management practices.
REVENUE ENHANCEMENT AIDS FINANCES
The district continues to build up its financial reserves, reporting
general fund operating surpluses in six of the last seven fiscal years.
Such performance is notable given the stagnant enrollment base and flat
taxable values. In 2007, voters approved an increase to the district's
operations and maintenance (O&M) tax rate to the state maximum ($1.17
per $100 TAV). Along with tight controls and attention to sustainable
staffing, this revenue enhancement enabled the district to maintain
structural balance despite state aid declines associated with ADA
losses. State aid, once the district's largest revenue source, has
decreased annually in fiscal years 2009-2012.
The fiscal 2012 unrestricted general fund balance totaled $10 million,
equal to a strong 37.6% of spending, despite a planned draw down of
$641,000 or 2.3% of spending for capital projects. Liquidity was also
ample at 5.6 months of recurring operating expenses. Such results have
enabled the district's compliance with its three-month fund balance
The fiscal 2013 budget is balanced and based on a conservative
projection of flat average daily attendance (ADA). District management
reports that year-to-date ADA exceeds the budgeted level by 3.2%, which
Fitch views favorably. Along with $1.5 million in new grant money
(awarded annually through fiscal 2015), ADA growth-related funding is
expected to offset $1.2 million (equal to 5% of general fund revenue) in
state aid cuts in fiscal 2013. Fitch expects that a more modest
projected fiscal 2014 state aid cut of $0.6 million (2.5% of general
fund revenue) will also be offset by grant money.
MIXED DEBT PROFILE
The district's debt profile is mixed, characterized by an above average
debt per market value (5.5%) and slow principal amortization rate (25%
of principal retired in 10 years), balanced against moderate debt per
capita ($3,984) and limited capital plans and debt needs. All of the
district's six campuses were improved with the proceeds from the series
2009 bonds, leading management to expect a 10-15 year horizon before
additional debt will be necessary. As the district's sole outstanding
ULT bonds, the series 2009 bonds were structured with fixed rates and do
not include any capital appreciation bonds (CABs).
The district participates in the Teachers Retirement System of Texas
(TRS), which provides pension benefits to its members as well as other
post-employment benefits (OPEB). In fiscal 2012, the district's carrying
costs for its bonds and TRS contributions totaled a moderate 15% of
fiscal 2012 total expenditures.
Additional information is available at 'www.fitchratings.com'.
The ratings above were solicited by, or on behalf of, the issuer, and
therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, University Financial Associates,
LoanPerformance, Inc., IHS (News - Alert) Global Insight
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 14, 2012;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14,
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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