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| [March 21, 2013] |
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Fitch Affirms College Station ISD, Texas GOs at 'AA+' Underlying; Outlook Stable
AUSTIN, Texas --(Business Wire)--
Fitch Ratings takes the following rating action on College Station
Independent School District, Texas' (the district) general obligation
(GO):
--$212 million unlimited tax bonds affirmed at 'AA+' underlying.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by an unlimited ad valorem tax pledge of the
district. $183 million of the bonds are additionally secured by a
guarantee provided by the Texas Permanent School Fund (PSF), whose bond
guaranty program is rated 'AAA' by Fitch.
KEY RATING DRIVERS
SOUND FINANCES: The district's financial profile is solid, featuring
strong reserve levels and flexibility. The district faces continued
state funding uncertainties and operating and capital needs related to
enrollment growth.
ECONOMY BENEFITS FROM UNIVERSITY PRESENCE: The local economy is stable,
though somewhat limited, and benefits from the presence of Texas A&M
University, which has been a driver for continued economic expansion.
Local wealth and income levels are below average, due in part to the
large student population. Area unemployment is lower than state and
national levels.
ELEVATED DEBT BURDEN: District debt levels are high and amortization is
average. Debt levels are expected to remain elevated, as additional
issuance is contemplated to address enrollment growth related capital
needs. Combined debt service, pension, and other post-employment (OPEB)
costs are manageable.
RATING SENSITIVITIES
The rating is sensitive to shifts in fundamental credit characteristics
including the district's strong financial management practices. The
district's history of maintaining solid reserves while addressing
operating and capital needs indicates continued rating stability.
CREDIT PROFILE
Located approximately 90 miles equidistant from Houston and Austin, the
district serves the city of College Station, which is part of the larger
College Station-Bryan metro area and functions as a regional hub for the
predominately rural surrounding area. With nearly 50,000 students, the
large, flagship campus of the Texas A&M University system in College
Station is predominately located within the district's boundaries and
drives much of the area economy. The district has seen enrollment growth
of about 3% annually in recent years, which officials expect to
continue. Current enrollment is about 11,000 students.
SOUND FINANCES FEATURE STRONG RESERVE LEVELS
The district's financial position is sound. Despite growth pressures,
conservative financial management has resulted in the maintenance of
strong reserve levels. As of fiscal year 2012, the district's
unrestricted general fund balance was $36.1 million, or approximately
46% of spending. Unrestricted balances have been above 39% of spending
for the last five years despite modest to moderate operating deficits in
three of the last five fiscal years.
District finances have been pressured by recent years' state aid
reductions combined with increased operating costs associated with the
opening of new school facilities. In response, the district has
controlled expenditures through staff reductions, with instructional
reductions achieved largely through attrition, cuts to certain service
contracts, and increasing staff work load. To support current year
operations, the district opted to increase is operations and maintenance
tax rate by $0.04 to $1.04 pr $100 of taxable value, the statutory
maximum permitted without voter approval. The district still retains
some flexibility within the maximum permitted with voter approval
($1.17).
DEFICIT BUDGETED FOR FISCAL YEAR 2013
The district budgeted an operating deficit of $4.7 million (about6% of
spending) for the current fiscal year, reflecting reduced state aid and
increased operational expenditures associated with bringing a new high
school facility fully on line. The district has a history of
conservative budgeting leading to actual results outperforming budgeted
projections. However, even if unrestricted general fund reserve levels
decreased by the budgeted amount, the resulting balance would still be a
strong 38% of spending.
Preliminary expectations for the fiscal year 2014 budget include an
operating deficit of approximately the same amount as fiscal year 2013.
This estimate assumes continued ramp up costs for the new high school
facility and flat state funding levels.
ECONOMY BENEFITS FROM UNIVERSITY PRESENCE
The area economy benefits significantly from the presence of Texas A&M
University, which continues to be a driver for economic expansion. In
addition to spurring ongoing housing development, the university was
recently awarded a multi-billion dollar grant from the Department of
Homeland Security to establish a major pandemic vaccination center.
Additional area business expansions include the opening of a new
hospital in College Station later this year and the city's rezoning of
the area near the hospital as a medical corridor for planned medical
related businesses.
Area unemployment levels are typically well below those of the state and
nation, and the metro area's December 2012 unemployment rate of 5% (vs.
6% for the state and 7.6% for the nation) continued that trend. While
income and wealth levels are below average, they are affected by the
large student population. Tax base growth continues (about 5%-6% annual
taxable assessed value [TAV] growth in 2012 and 2013) though it has
moderated from higher prior year levels. Continued growth is projected,
reflecting recent and expected residential and business expansions.
DEBT LEVELS ARE HIGH
The district's overall debt levels, including overlapping debt, are high
on a per capita basis ($4,492) and as percentage of market value (6.8%).
Debt service as a percentage of general government spending is above
average at about 18%. Debt amortization is average, with about 53% of
principal retired within 10 years.
Debt levels are likely to remain at these levels as the district
addresses capital needs associated with on-going enrollment growth. The
district has been experiencing about 3% average annual enrollment growth
in recent years and expects continued growth at this rate. New issuance
of about $60 million to $100 million for new school and warehouse
facilities is currently being contemplated. The district's current debt
service tax rate ($0.295 per $100 of taxable value) leaves capacity
below the statutory $0.50 tax rate test for new debt.
The district provides pension and retirement health benefits through the
Teacher Retirement System of Texas (TRS). District pension and other
post-employment benefit (OPEB) costs are modest (about 1% of spending).
As of Aug. 31, 2012, the TRS funded ratio was 81.9% or 73.8% using
Fitch's more conservative 7% discount. Combined debt service, pension,
and OPEB costs are manageable at about 18.6% of 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,
S&P/Case-Shiller Home Price Index, IHS (News - Alert) Global Insight, National
Association of Realtors
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=685314
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DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
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WEBSITE.
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