|[February 27, 2014]
Fitch Rates Northside ISD, TX ULTs 'AAA' PSF/'AA+' Underlying; Outlook Stable
AUSTIN, Texas --(Business Wire)--
Fitch Ratings has assigned an 'AAA' rating to the following Northside
Independent School District, Texas (the district) unlimited tax bonds
--$73.11 million unlimited tax refunding bonds, series 2014.
The 'AAA' long-term rating is based on a guaranty provided by the Texas
Permanent School Fund (PSF), whose bond guarantee program is rated 'AAA'
The bonds are expected to price via negotiation the week of March 3,
2014, subject to market conditions. Proceeds will be used to refund
outstanding debt for interest savings.
In addition, Fitch assigns an 'AA+' underlying rating to the series 2014
bonds and affirms the 'AA+' rating on the district's $1.9 billion
unlimited tax debt outstanding.
The Rating Outlook is Stable.
The bonds are payable from and secured by an unlimited ad valorem tax
levied against all taxable property in the district. The bonds are
secured further by the PSF guaranty.
KEY RATING DRIVERS
FINANCIAL FLEXIBILITY: The district's financial profile is characterized
by consistently strong operating performance and healthy reserves. Sound
fiscal management and establishment of a budget stabilization fund
position the district favorably for ongoing growth and the uncertainties
of future state funding.
HEALTHY TAX BASE: The district's taxable assessed valuation (TAV)
continues to realize solid growth following a recessionary lull.
Benefitting from its location in the larger San Antonio metro area, the
largely residential tax base continues to enjoy growth from both
residential and commercial/industrial sectors. The tax base has no
ONGOING ENROLLMENT GROWTH: The district is the fourth largest in the
state, typically adding two to three schools a year, a rapid growth
pattern which Fitch anticipates to continue based on the district's
projected enrollment growth.
HIGH DEBT LEVELS: Overall debt is high in relation to the district's
population and market value, not atypical for rapidly growing suburban
districts in the state. Fitch expects debt levels to remain high as the
district is only about two-thirds built-out. Ample interest and sinking
fund (I&S) tax rate capacity remains to support future issuance.
CHANGE IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental
credit characteristics including the district's strong financial
management practices. The Stable Outlook reflects Fitch's expectation
that such shifts are unlikely.
The district is located in the larger San Antonio metropolitan area and
serves the rapidly growing northwest portion of Bexar County and
surrounding areas, with a fiscal 2014 population of about 578,000.
STRONG FINANCIAL FLEXIBILITY
The district has maintained strong financial performance despite the
pressures associated with sustained enrollment growth and state funding
cuts. The district completed fiscal 2013 with a sound $30 million
operating surplus after transfers representing 4.5% of spending. Results
were driven largely by enrollment-based revenues mitigating state
funding cuts and supporting new school openings.
The district maintains a high degree of financial flexibility both in
its unrestricted reserves of $185 million (a healthy 28% of spending in
fiscal 2013) and its demonstrated ability to reduce spending as needed
to meet its obligations. The district cut more than $60 million from its
budget over fiscal 2011 and 2012, enabling it to maintain strong
performance during the state's fiscal 2012/2013 funding cuts. Cost
reduction measures included the elimination of close to 1,000 positions
through attrition, a salary freeze, reduced starting pay for new
teachers, and increased classroom sizes.
Officials project the district's fiscal 2014 unrestricted reserves to
remain relatively constant at about 28% of spending. The reserves
include $25 million committed to technology deployments and about $29
million for new school openings which the district anticipates drawing
down in the next several years. The fiscal 2014 budget includes
reinstatement of a portion of state funding cuts ($33 million, or 9% of
total state support to the general fund) and the opening of two new
schools. Budget assumptions include reasonable erollment and tax base
GROWING NORTHWEST SAN ANTONIO BEDROOM COMMUNITY
The district's fiscal 2014 TAV of $35.4 billion has increased 85% since
fiscal 2006, mirroring growth in the greater San Antonio area. After
several years of modest growth, fiscal 2014 TAV posted a strong 6.4%
gain, reflecting revaluation gains in addition to new construction.
Based on new residential and commercial development underway, officials
expect between 4.5% and 5.5% TAV growth in fiscal 2015, which Fitch
considers consistent with current growth patterns and regional trends.
Given that the district is only about 65% built-out, and much of the
major road infrastructure in the district is in place, the prospects for
continued growth are favorable.
Job growth continues to support a favorable county unemployment rate of
5.5% in Dec. 2013, below state (5.6%) and national (6.5%) averages for
the same period. The district's income level trends moderately above
state and national averages.
HIGH DEBT; ONGOING CAPITAL NEEDS
Overall debt ratios are high at about $5,800 per capita and 8.1% of
market value, reflecting district and overlapping municipal
infrastructure requirements over the past decade. A slow amortization
rate of about 33% in ten years contributes to Fitch's expectation of
high debt levels into the foreseeable future.
The district's debt service burden consumes 10.7% of fiscal 2013
governmental expenditures. The district historically maintains a
moderate amount of its debt portfolio in variable rate demand
obligations (VRDOs), currently 22%, within the district's policy ceiling
of 30%. Terms of the VRDOs include a three-to-five year initial fixed
rate term, a soft put back to bondholders in lieu of liquidity support
and optionality to periodically reset the rate to a long-term fixed
basis. The risk to the district is in the case of a failed remarketing
whereby the district would pay an elevated interest rate, capped at a
fixed rate currently ranging from 6% to 8% as applicable to the
district's outstanding VRDOs.
District voters authorized $535 million in unlimited tax school building
bonds in May of 2010. The district expects to issue the remaining $180
million by the close of fiscal 2014. The district's trustees have called
a GO bond election in May 2014 for $648 million for upgrades and new
facilities. Fitch anticipates that the new money authorization if
passed, would have a potential moderate impact on overall debt in
relation to market value over the next four years, dependent on growth
of overlapping debt and the rate of the district's tax base growth.
The district's I&S rate ($0.336 per $100 of TAV) is well below the
statutory new-issuance test ceiling of $0.50. The district
conservatively projects that the new authorization could increase its
I&S tax rate by as much as 12 cents to $0.456 per $100 of TAV. However,
Fitch notes that similar conservative projections had not materialized
in the district's recent past due to healthy tax base growth.
LIMITED PENSION/OPEB OBLIGATIONS
The district's pension liabilities are limited to its participation in
the state pension plan administered by the Teachers Retirement System of
Texas (TRS). 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. Including debt service, pension and OPEB
contributions, carrying costs were a moderate 11.3% of fiscal 2013
governmental spending, benefitting from the state's strong pension
funding system currently in place. However, districts are susceptible 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
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,
CoreLogic/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
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 (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
[ InfoTech Spotlight's Homepage ]