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TMCNet:  Fitch Affirms Canyon ISD (TX) ULT Bonds at 'AA'; Outlook Stable

[October 08, 2013]

Fitch Affirms Canyon ISD (TX) ULT Bonds at 'AA'; Outlook Stable

AUSTIN, Texas --(Business Wire)--

Fitch Ratings affirms its 'AA' rating for the following Canyon Independent School District, Texas' (ISD; the district) unlimited tax (ULT) bonds:

--$2.5 million ULT refunding and improvement bonds, series 2002A;

--$48.2 million ULT refunding bonds, series 2007;

--$25.9 million ULT school building bonds, series 2007.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an unlimited ad valorem tax, levied against all taxable property in the district and are further secured by the Texas Permanent School Fund guaranty.

KEY RATING DRIVERS

SOLID FINANCIAL PROFILE: The district's financial profile remains strong and is characterized by solid general fund reserve levels and sound management practices.

GROWING, DIVERSE TAX BASE: The district's diverse tax base continues to expand, although at a slower pace.

MODERATE DEBT BURDEN: Debt levels are moderate and amortization is below-average. Capital needs are expected to be manageable despite recent acceleration of enrollment growth.

PARTICIPATION IN REGIONAL ECONOMY: Canyon ISD benefits from its proximity to the larger Amarillo MSA employment base and economy. The area's economy is stable and the city serves as the regional commercial hub for the Texas panhandle.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics; future credit quality could depend on the district's continued trend of its strong operating performance balanced against the implementation of its ensuing capital improvement plans.

CREDIT PROFILE

The district is located along the southern border of Amarillo in Randall County, serving a 720-square mile area that is largely rural and encompasses roughly 54,000 individuals. The city of Amarillo is a regional hub that serves as the banking, distribution, and commercial center for the Texas panhandle. The district's economic base is benefiting from its proximity to Amarillo, and shifting away from its rural, agricultural roots toward that of a suburban, bedroom community.

STRONG FINANCIAL PROFILE

The district's financial profile is characterized by its conservative management, consistent positive operating results, and solid financial reserves. The district posted net operating surpluses after transfers in four of the last five fiscal years. A modest $1.2 million drawdown in fiscal 2010 was attributed to a $4 million planned capital project for a support facility.

At the close of fiscal 2012, the district's unrestricted general fund balance totaled a solid $27.6 million, or 52.1% of spending, more than double the district's informal target of three months or 25% of expenditures. The district has prudently planned to spend down some of its excess fund balance for onetime capital outlays. The district planned to draw down reserves by $3.3 million for capital projects in fiscal 2013, but due to its conservative operating budget, the draw down is now projected at only $1 million. The fiscal 2014 operating budget is balanced. However, district management is working on a capital plan that may result in a drawdown of reserves. Given the district's very high reserves, history of conservative management practices and adherence to its policies, Fitch believes the district will continue to maintain solid reserves.

MODERATE DEBT LEVELS WITH MANAGEABLE FACILITIES NEEDS

Debt levels are moderate at $2,459 per capita or 3.1% of market value. Principal amortization is below average at a rate of 44% within 10 years. The fiscal 2014 debt service tax rate of $.19 per $100 of taxable assessed valuation (TAV) has declined from the $0.25 levied in fiscal 2012 and is well below the statutory cap of $.50 per $100 of TAV for new debt issuance. The district is in the process of forming a committee to assess facility needs, prioritize, and make recommendations on size for a possible bond election as early as May 2015. Given the manageable growth needs and the relatively low debt service tax rate, Fitch believes the debt burden will remain manageable upon implementation of a long-term capital plan.

The district's pension liabilities are limited to its participation in the state pension plan (TRS). The district's annual contribution to TRS is determined by state law as is the contribution for the state-run post-employment healthcare plan. District employees contribute to TRS for pensions at 6.4% of annual compensation, and the state pays the local district's contribution (6% in fiscal 2012), with the exception of district contributions for probationary employees and for benefits on employees' salaries that exceed the TRS statutory minimum. Including debt service, fixed costs for long-term liabilities are manageable at less than 13% of governmental fund spending in fiscal 2012. Since the state provides for the majority of the district's contributions, the carrying costs are projected to remain manageable.

GROWING ENROLLMENT AND TAX BASE

Growth trends in the district's enrollment and tax base have resulted from the area's available land, which spurred predominately residential development pushing south from Amarillo. While moderating slightly in fiscal years 2010 and 2011, the tax base continued to grow, reaching nearly $3.6 billion in fiscal 2014. Attendant commercial and retail development has further expanded the tax base; taxpayer concentration is minimal with the top 10 taxpayers comprising only 8% of current TAV. District enrollment totals roughly 9,200 students and has grown at an average annual pace of just over 2% over the past five years.

STABLE ECONOMY

Amarillo area unemployment levels are typically below state and national levels and although they rose, they remained below 6% during the national recession. At 5.1% in July 2013, the unemployment rate remains well below the state's 6.7% and the national 7.7% unemployment rates. City wealth levels trail the state and national levels, but the county median household income levels are 12% and 8% above that of the state and U.S. levels, respectively.

Additional information is available at 'www.fitchratings.com'.

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, Zillow, IHS (News - Alert) Global Insight, National Association of Realtors, and the Texas Municipal Advisory Council.

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=804381

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND 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 SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.


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