|[January 22, 2014]
Fitch Affirms Lubbock-Cooper ISD, TX's $87.4MM ULTs at 'AA'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms the following underlying rating on Lubbock-Cooper
Independent School District, Texas (the district):
--$119.7 million unlimited tax (ULT) bonds, series 2006, 2009 and 2010,
The Rating Outlook is Stable.
The bonds are secured by ad valorem taxes levied against all taxable
property within the district, without limitation as to rate or amount.
In addition, series 2006 and 2010 bonds are secured by the Texas
Permanent School Fund (PSF), whose bond guarantee program is rated 'AAA'
KEY RATING DRIVERS
ELEVATED DEBT LEVELS TO INCREASE: Already high debt ratios are likely to
increase further given the very slow repayment of outstanding principal
and potential approval of a new money bond authorization this spring.
STRONG FINANCIAL PERFORMANCE: The district has maintained solid reserve
levels despite reductions in state aid and cost pressures from
STATE FUNDING CHALLENGES ABATED: Increases in state aid for fiscals 2014
and 2015 will reverse previous declines in what is a significant source
of revenue for the district.
STRONG TAX BASE GROWTH & STABLE AREA ECONOMY: The district's tax base is
growing at a steady rate after a period of robust growth, and income
metrics are well above state and national averages.
The rating is sensitive to the rate of growth in the tax base, which
could affect both financial performance and the debt burden. If tax base
growth does not keep pace with growth in enrollment and annual debt
service, both financial margins and the debt service tax rate could be
The district has a population of 22,907 and serves the southern portion
of the city of Lubbock (GO bonds rated 'AA+' by Fitch; Stable Outlook)
and the unincorporated community of Woodrow. The district currently
operates seven campuses, two of which opened in 2011 and 2012, and has
an average daily attendance of 4,807 students for 2013 - 2014.
STABLE & DIVERSE AREA ECONOMY
The district benefits from its location near Lubbock, where health care,
education, and government comprise the area's largest non-agricultural
employment sectors. Largest employers include Texas Tech University
(TTU), Covenant Health System, and TTU Health Sciences Center. The area
unemployment rate has remained consistently lower than the state and
national rates and improved to a favorable 4.6% in October 2013 from
4.9% in 2012. Income levels for the district are well above state and
HIGH DEBT BURDEN
Overall debt ratios are high at $6,128 per capita and 7.2% of full
value, and amortization is very low with 12% retired within 10 years.
The district currently levies $0.44 per $100 of taxable assessed value
(TAV) of the $0.50 statutorily permitted debt service tax rate for new
BOND ELECTION TO BE HELD IN MAY 2014
Debt levels will rise pending voter approval of a bond election to be
held in May. The district will seek $50-$53 million of bond
authorization to fund an addition to the high school and a new
elementary school. Prior bond authorizations have received favorable
approval rates, and community responsiveness to the current proposition
Fitch expects the issuance of additional voter approved bonds would
require an increase in the tax rate to the new debt issuance statutory
cap of $0.50, which subsequently limits flexibility regarding the timing
and size of new money borrowings. Even with rapid current enrollment
growth trends, management estimates the added capacity at the high
school and the additional elementary school will be sufficient over the
long-term, although Fitch believes that continued strong enrollment
growth would influence future debt needs.
Furthermore, the district's tax base performance is strong and shows
signs of continued growth. TAV increased 6.2% and 6.7% in fiscals 2013
and 2014 following many years of robust growth. Fich believes
assumptions for continued yet moderate growth going forward are
reasonable, which will improve the district's capacity to incur debt
DRAW ON (News - Alert) RESERVES IN FISCAL 2013
Audited results for fiscal 2013 depict a $1.4 million draw on fund
balance after transfers. This deficit was due to the staffing and
operations of two recently opened campuses, a middle school and an
elementary school. Historically the general fund has recorded break-even
or positive year-end results, and has added to fund balance despite
expenditure pressures from enrollment growth. The fiscal 2013
unrestricted fund balance of $7.8 million equates to a strong 23.3% of
spending, although notably down from 30% at the end of fiscal 2012.
Fitch believes maintenance of about the level of current reserves is an
important credit strength for the district.
State aid declined slightly in fiscals 2012 and 2013 as a result of a
legislative reduction in school support at the state level. State aid
for the district is projected to increase by $2 million in fiscal 2014
and an additional $0.5 million in fiscal 2015, which equates to a 13.3%
and a 3.2% gain in state aid year-over-year, respectively. These
additions are due to an increase in school funding at the state level
and enrollment gains within the district.
EXPENDITURE REDUCTION IN 2014 BUDGET
Despite the additional state aid in 2014, the district has budgeted an
$839,881 deficit due to increasing operating expenditures. Management is
addressing this loss through a 10% across-the-board non-payroll cut in
expenditures, which should save an estimated $450,000. These cuts, along
with a conservative tax collection rate assumption and the receipt of an
intergovernmental transfer, should bring the district back to structural
balance at year end.
OTHER LONG-TERM LIABILITIES MANAGEABLE
Retiree pension and healthcare benefits are provided through the Teacher
Retirement System of Texas (TRS), a cost-sharing multiple employer plan.
TRS is adequately funded at 81.9% as of Aug. 31, 2012, though Fitch
estimates the funded position to be lower at 73.8% when a more
conservative 7% return assumption is used.
The district's annual contribution to TRS is determined by state law as
is the contribution for the state-run post-employment benefit healthcare
plan. The district's cost for pension and other post-employment benefits
(OPEB) represented less than 1% of governmental fund expenditures in
fiscal 2013, as plan contribution amounts are principally paid by the
state and district employees.
The state's payment of district pension costs is an important credit
strength as it keeps overall carrying costs manageable in the face of a
high and growing debt burden. Carrying costs for the district (debt
service in addition to pension and OPEB costs) remain very manageable,
consuming 9.3% of governmental fund spending in fiscal 2013 but this is
due largely to the very slow amortization. Fitch will continue to
monitor the level of state support for school district pension payments,
noting contributions for all districts in the state will increase
modestly to 1.5% of the statutory minimum portion of payroll from 0%
beginning fiscal 2015.
TEXAS SCHOOL FINANCE LITIGATION
In February 2013 a district judge ruled that the state's school finance
system is unconstitutional. The ruling, which was in response to a
consolidation of six lawsuits representing 75% of Texas school children,
found the system 'inefficient, inequitable, and unsuitable and
arbitrarily funds districts at different levels'. The judge also cited
inadequate funding as a constitutional flaw in the current system.
The judge reopened the lawsuit in June 2013 after state legislative
action that partially restored state funding levels and made other
program changes. A new trial date of January 6, 2014 has been set. If
the state school finance system is ultimately found unconstitutional,
the legislature will be directed to make changes to the system to
restore its constitutionality. Fitch would consider any changes that
include additional funding for schools a positive credit consideration.
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, IHS (News - Alert) Global Insight, and the 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
U.S. Local Government Tax-Supported Rating Criteria
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.
AVAILABLE ON 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
[ InfoTech Spotlight's Homepage ]