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TMCNet:  Fitch Affirms Mabank ISD, TX ULTs at 'AA'; Outlook Stable

[February 26, 2014]

Fitch Affirms Mabank ISD, TX ULTs at 'AA'; Outlook Stable

AUSTIN, Texas --(Business Wire)--

Fitch Ratings has affirmed its 'AA' rating on the $49.5 million outstanding unlimited tax bonds (ULTs) of Mabank Independent School District (the district).

The Rating Outlook is Stable.

SECURITY

The outstanding ULTs are secured by an unlimited ad valorem tax levied against all taxable property within the district. In addition, the bonds are secured by the Texas PSF guarantee, whose bond guarantee program is rated 'AAA' by Fitch.

KEY RATING DRIVERS

SOUND FISCAL PROFILE: The district's solid financial performance is reflected in ample general fund balances. The tenured management team typically outperforms its structurally balanced budget.

STABLE ECONOMY: The largely rural economy continues to transition into a residential community, driving steady tax base growth. Mabank is a popular recreational destination drawing weekend visitors from nearby Dallas-Fort Worth that have spurred residential and commercial growth.

MODERATE DEBT: Overall debt levels are manageable, as the district borrows infrequently. The amortization rate is well below average, but infrastructure capacity is adequate and officials do not anticipate issuing debt in the next several years.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the city's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Mabank ISD is located in an agricultural and oil producing area approximately 50 miles southeast of Dallas serving a population of about 19,300, with boundaries that include portions of Kaufman, Henderson and Van Zandt Counties.

AGRICULTURAL-BASED ECONOMY

The three principal communities in the district are Mabank, Gun Barrel City and Seven Points. Nearby Cedar Creek Reservoir is a major tourism attraction, and improved highway access to the area from Dallas over the past decade has generated both residential and commercial development. The Kaufman County unemployment rate improved to 5.6% as of November 2013 (from 6.2% in November 2012), similar to the 5.8% rate for Texas and below the 6.6% national average rate for the same period. The improvement reflects steady growth of the employment base over the past two years.

Market value appreciated by a compound annual growth rate of about 4% over the past seven years ending in fiscal 2014. The district attributes much of the growth to the development surrounding Cedar Creek Reservoir, the fourth largest lake in Texas. The reservoir is 18 miles long and provides 320 miles of shoreline, most of which has been built out. The short commute to Dallas benefits the community, with reported summer weekend populations increasing 10-20 times that of year-round residents. The district anticipates modest near term tax base growth as farmland continues to be converted for residential property usage, especially in northern Kaufman County.

The district's full value per capita is moderate at $80,000 for fiscal 2014; the tax base is without concentration. With a total tax rate of $1.38 per $100 of taxable assessed valuation (TAV), including a maintenance and operations (M&O) tax rate at the statutory cap of $1.04, the tax burden is moderate. The districtdoes not have immediate plans to seek an M&O tax rate increase.

STRONG FINANCIAL PERFORMANCE

Consistent financial results over the past five fiscal years reflect prudent financial management. The district instituted cost savings to mitigate fiscal 2012/2013 state funding cuts. These included position reductions, a salary freeze during fiscal 2012, and supply and travel budget reductions. A fiscal 2013 net operating surplus of $524,000 improved the unrestricted general fund balance to $6.4 million, a strong 26.8% of spending.

The district expects to end fiscal 2014 with like reserves. Reinstatement of $1.4 million in fiscal 2014 state aid allows the restoration of several positions cut during the last biennium. The district is positioned to reap ongoing savings form utility and transportation improvement funded in part with grant monies.

MANAGEABLE DEBT

Overall debt is moderate at $2,656 per capita, or 3.8% of market value; principal amortization is below average at 31% within 10 years. The district's interest and sinking fund (I&S) tax rate of $.34 per $100 of TAV is well below the $0.50 statutory cap for new debt issuance, although the district does not plan to issue debt for the foreseeable future given sufficiency of capacity remaining in current facilities.

Carrying costs for debt service, pensions and other-postemployment benefits (OPEB) are low at 11.3% of fiscal year 2013 governmental spending. The state's funding of school districts' payments to the Texas Teachers Retirement System (TRS) keeps costs low. However, districts are vulnerable to future funding changes by the state as evidenced by a relatively modest 1.5% of salary contribution requirement effective fiscal year 2015.

TEXAS SCHOOL DISTRICT 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 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. 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=821816

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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