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TMCNet:  Fitch Rates Birdville ISD, TX's ULT Bonds 'AAA' PSF; 'AA+' Und; Outlook Stable

[February 10, 2014]

Fitch Rates Birdville ISD, TX's ULT Bonds 'AAA' PSF; 'AA+' Und; Outlook Stable

AUSTIN, Texas --(Business Wire)--

Fitch Ratings has assigned an 'AAA' rating to the following Birdville Independent School District, Texas' (ISD; the district) unlimited tax (ULT) refunding bonds:

--$20.3 million ULT refunding bonds, series 2014

The 'AAA' rating is based on a guarantee provided by the Texas Permanent School Fund (PSF), whose bond guarantee program is rated 'AAA' by Fitch.

The series 2014 refunding bonds are scheduled to sell as early as the week of Feb. 17 via negotiation. Proceeds will be used to refund certain outstanding obligations for debt service savings and to pay related issuance costs.

In addition, Fitch assigns an 'AA+' underlying rating to the series 2014 refunding bonds and affirms the 'AA+' rating on the district's $203.8 million in outstanding ULT bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are direct obligations of the district, secured by an unlimited tax levied against all taxable property within its boundaries. The bonds are also insured as to principal and interest repayment from a guaranty provided by the PSF.

KEY RATING DRIVERS

STRONG AND STABLE FINANCIAL POSITION: The district's financial position is a credit positive, characterized by stable and sizeable reserve levels. Liquidity is also strong.

FAVORABLE ECONOMIC CONDITIONS: The district benefits from its proximity to the larger Fort Worth economy and employment base, which fared relatively well during the recession. Tarrant County unemployment levels are typically on par with those of the Dallas-Fort Worth MSA as well as the state and below the nation.

FLAT TAX BASE; ENROLLMENT EXPECTED: The district's tax base is mature and predominantly residential; as such, taxable assessed valuation (TAV) and enrollment are projected to remain fairly flat over the near term.

GENERALLY POSITIVE DEBT PROFILE: Overall debt levels are moderately elevated. However, the district's direct debt profile is favorable given its above-average pace of principal amortization, flat to descending annual debt service payments, and remaining flexibility under the $0.50 test for new money issuance. Capital needs remain manageable given current enrollment trends.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the district's sound financial management practices. The district's history of maintaining solid reserves while addressing operating and capital needs supports expectations for rating stability.

CREDIT PROFILE

The district is located in Tarrant County, north of Fort Worth and near the Dallas-Fort Worth International Airport. Its 42-square mile service area is largely built-out and includes the cities of North Richland Hills, Haltom City, Richland Hills, and Watauga, as well as a portion of the city of Hurst. Enrollment growth in this mature district remains modest, averaging less than 1% annually over the last decade. An open enrollment policy for non-district students enables the district to maximize facility utilization and formula funding. Current enrollment is at 24,226 students.

STRONG FINANCIAL POSITION MAINTAINED

The district's financial position remains strong, characterized by stable and sizeable reserves that are typically in excess of the district's established policy to maintain a minimum of 20% of spending in general fund reserves. Actual financial performance generally outperforms budget due to management's conservative budgeting practices. Statewide funding cuts over the fiscal 2012 and 2013 biennium were proactively managed with corresponding budget cuts enabling the district to maintain structural balance and its historically strong reserve levels. The district ended fiscal 2013 with unrestricted general fund reserves at $57 million, or a solid 33.7% of spending.

A favorable economic climate and rising state revenue forecasts led state officials to restore some of the funding that was cut during the previous biennium. The district's state funding for fiscal 2014 was increased by an estimated $8 million. The district is conservatively utilizing the bulk of this increased funding for one-time capital outlays that would have otherwise been funded with bond proceeds. Despite this spending, management estimates ending th year with a relatively modest $1 million drawdown for the year, expecting to maintain reserves in excess of 30% of spending. Fiscal 2015 revenue estimates point to roughly $3.6 million in increased funding.

FAVORABLE DEBT PROFILE WITH MANAGEABLE NEEDS

Overall debt levels are above average at 5.7% of market value or roughly $3,400 per capita. The pace of debt repayment is rapid with 60% of the district's direct debt retired in 10 years; the district maintains a 20-year maximum amortization policy for new debt offerings. The current offering will refund the series 2004 bonds for debt service savings. Additionally, the district will redeem $4.4 million in bonds prior to redemption with surplus debt service funds.

The district's capital needs are manageable. Given the maturity of the district and modest growth rates, the capital needs are largely related to renewal and replacement of its aging facilities. The district sought voter approval for a $183.2 million GO bond package in May 2013, but the election failed. Disapproval of the bond package is believed to be related to the district's proposal to consolidate four elementary schools into two schools. A new committee will revise the proposal and the district is likely to return to voters in November 2014 with a smaller bond package. The district's current debt service schedule descends from roughly $27 million annually to $12 million beginning in fiscal 2022, giving the district flexibility for new money offerings.

RETIREE LIABILITIES NOT A CREDIT PRESSURE

Retiree pension and healthcare benefits are provided to employees 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.

Other post-employment benefit (OPEB) contributions paid by the district are nominal, as the state and employees also pay the bulk of these costs. Total pension and OPEB contributions made by the district in fiscal 2013 totaled a very low 1.1% of governmental fund expenditures. The state's payment of district legacy costs is a credit strength as it keeps overall carrying costs reasonable in the face of a high and potentially growing debt burden. Starting next fiscal year (2015) pension contributions for all districts in the state will rise to 1.5% on the statutory minimum portion of payroll from zero, increasing carrying costs. Increases in district funding requirements beyond fiscal 2015 could create additional budget pressure.

STABILITY IN ENROLLMENT, ECONOMY AND TAX BASE

County unemployment levels continued to decline as a result of expanded employment opportunities that outpaced labor force growth, consistent with the Dallas-Fort Worth MSA and the state. At 5.5% as of November 2013, county unemployment is slightly below that of the Dallas-Fort Worth MSA (5.6%) and state (5.8%) and below the 6.6% national average.

The district is primarily residential in nature and serves as a bedroom community for the greater metropolitan area. Historically healthy tax base growth that averaged roughly 5% per annum flattened in fiscal 2010 and subsequently declined by a moderate 7% in fiscal 2011, due largely to weaker economic conditions. Growth resumed by fiscal 2012 but at a much more modest pace. For fiscal 2014, the district's TAV at $7.3 billion remains slightly below the fiscal 2010 peak. Management expects modest TAV growth in the near term, although some additional growth may be spurred by recent completion of major highway improvements within the district.

TEXAS SCHOOL DISTRICT LITIGATION

In February 2013 a district judge ruled that the state's school finance system was 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 and districts' inability to exercise 'meaningful discretion' in setting tax rates as constitutional flaws in the current system.

The judge agreed to reopen testimony after the Texas legislature restored $4.5 billion in school funding in its 2013 session. The increased funding levels apply to school district budgets in fiscal years 2014 and 2015. The judge will determine if the additional funding affected arguments made during the trial. The testimony, which began Jan. 21, 2014, is expected to last roughly three weeks. It is anticipated that the original ruling, if upheld, will ultimately be appealed to the state supreme court.

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, 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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=820167

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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