|[October 08, 2013]
Fitch Rates Socorro ISD, TX's ULT Refunding Bonds 'AA-' Underlying / 'AAA' PSF
AUSTIN, Texas --(Business Wire)--
Fitch Ratings assigns the following ratings to Socorro Independent
School District, Texas' (the district) unlimited tax (ULT) bonds as
--$56.3 million ULT refunding bonds, series 2013A 'AAA' enhanced / 'AA-'
The 'AAA' long-term rating on the bonds is based on a guaranty provided
by the Texas Permanent School Fund (PSF), whose bond guaranty program is
rated 'AAA' by Fitch.
The bonds are scheduled for negotiated sale as early as Oct. 9. Proceeds
from the sale of the bonds will be used to refund a portion of the
district's outstanding ULT debt for debt service savings.
Fitch also affirms the 'AA-' underlying rating on the district's $569
million in outstanding ULT bonds (pre-refunding).
The Rating Outlook is Stable.
The bonds are direct obligations of the district and are secured by an
unlimited ad valorem tax pledge of the district. In addition, the bonds
are secured by the PSF guarantee.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The district's financial position remains
sound as indicated by the maintenance of strong reserve levels;
flexibility is also derived from the comfortable margin on the operating
and maintenance (O&M) tax rate.
SIGNIFICANT STATE SUPPORT: Due to its low wealth levels, the district
receives considerable state aid for operations and debt service.
PROMISING GROWTH PROSPECTS: Ample and affordable land and location
within the broader El Paso metropolitan statistical area (MSA) have
fueled steady population and enrollment growth. Enrollment gains are
projected to continue at current levels due to the steady stream of
additional troops to Ft. Bliss expected in the near term.
HIGH DEBT BURDEN: The district's debt levels rose rapidly with the
issuance of the 2011 bond program over the last three years. Continued
growth is projected at a moderate pace and will likely require
additional debt issuance. Principal amortization of existing debt is
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental
credit characteristics including the districts healthy financial
profile. Maintenance of solid reserves while addressing its large and
ongoing capital needs is a key credit consideration.
Socorro ISD is located east of the city of El Paso (general obligation
bonds rated 'AA' with a Stable Outlook by Fitch) in an arid ranching
area that includes a portion of the Ft. Bliss military installation and
the Briggs Army Airfield. The district includes the city of Socorro,
Horizon City, a portion of the city of El Paso, and unincorporated areas
of El Paso County.
CHANGE IN FISCAL YEAR BOOSTS FUND BALANCE RESERVES
The district's financial profile remains sound, and while operating
results have shown a mix of surpluses and deficits since fiscal 2006,
general fund reserves are strong, boosted by a change in reporting
period. For fiscal 2011, audited results include a $20 million general
fund net operating surplus (8% of expenditures), a result primarily of
the change in the district's fiscal year-end from Aug. 31 to June 30.
The accounting change resulted in a shortened 10-month reporting period
and pushed July and August expenditures into fiscal 2012, with the
one-time surplus falling to the general fund balance. Absent the
accounting change, the district projects it would have ended fiscal 2011
with balanced operations.
SOLID RESERVES MAINTAINED
Audited results for fiscal 2012, the first year of the district's new
reporting period, registered a large $9 million (3% of expenditures)
surplus resulting primaril from budgeted but unspent funds for capital
outlays. The district's unrestricted general fund balance at fiscal 2012
year-end was $73.8 million or a strong 26% of spending, which is well
above the district's fund balance goal of two months of spending (17%).
The district expects reserve levels going forward to be closer to the
policy goal due to planned non-recurring capital outlays.
The fiscal 2013 budget was balanced, but slower than budgeted enrollment
growth resulted in an estimated $4 million revenue shortfall. Management
promptly addressed this with budget measures to curb spending and
unaudited results point to another large $10 million surplus resulting
in solid general fund balance reserves well in excess of its two-month
fund balance policy.
The fiscal 2014 operating budget is balanced with reinstatement of some
of the prior years' state funding cuts. The budget includes salary
adjustments, opening of two new schools, summer school programs, and
increases in health care insurance costs to comply with the Affordable
Care Act. The fiscal 2014 actual enrollment growth is trailing the
budgeted growth, but management reports that the budget was built with
aggressive expenditure assumptions that it expects unexpended budget
items will offset any revenue shortfalls. Moreover, the district
committed $1.8 million of unassigned fund balance for one-time capital
HIGH DEBT LEVELS OFFSET BY PROSPECTS FOR CONTINUED GROWTH
Overall debt levels are high at $5,000 per capita and 9.5% of market
value (MV). The pace of amortization is slow with 34% retired in 10
years. The debt service burden on the budget will likely rise over time
from 8.8% of general government spending in fiscal 2012, or a very
manageable 4% when adjusted for state debt service support. The district
benefits from substantial state support for debt service (54% in fiscal
2012) due to its low wealth levels.
The district recently issued the final installment of $297 million in
debt authorization approved by 55% of voters in May 2011. The entire
bond program consisted of new construction of three new campuses
(including one combination elementary/middle school), completion or
expansion of two existing campuses, and district-wide technology,
classroom, and HVAC upgrades. The district issued the entire
authorization in three years, from 2011 to 2013.
The district contributes to the Teacher Retirement System of Texas
(TRS), a cost-sharing, multiple-employer defined benefit pension plan.
The district's pension contribution, which is set by state law, was $3
million (a nominal 0.8% of governmental spending) in fiscal 2012. Other
post-employment benefits (OPEB) are also provided through TRS and
district contributions are minimal.
Growth in the district's primarily residential tax base has moderated in
the last three years but continued even through the recession. The
district's taxable assessed valuations grew by a compound annual average
of roughly 6% since fiscal 2008, aided by the ongoing residential
development that is spurred by abundant affordable land within the
Enrollment growth has been moderate, at just under 3% annually since
2008. The fiscal 2013 enrollment is just under 44,300 students. Much of
the growth has been spurred by the arrival of additional troops and
their dependents to Ft. Bliss; officials expect enrollment to grow to
more than 49,000 students by fiscal 2016 and continue growing at a more
modest pace thereafter.
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, IHS (News - Alert) Global Insight, and the Municipal
Advisory Council of Texas.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (August 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (August 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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