|[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
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.
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.
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.
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
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
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
U.S. Local Government Tax-Supported Rating Criteria
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