|[May 14, 2014]
Fitch Affirms Crandall ISD, TX's ULTs at 'A+'; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms the following underlying rating on Crandall
Independent School District (ISD), Texas (the district):
--$42.7 million unlimited tax (ULT) bonds, series 2002, 2008, 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, the series 2002 and 2010 bonds are secured by the Texas
Permanent School Fund (PSF), whose bond guarantee program is rated 'AAA'
KEY RATING DRIVERS
STABLE FINANCIAL POSITION: The district maintains strong reserves
despite pressures associated with enrollment growth. A history of
favorable financial performance reflects conservative budgeting and
prudent cost management.
RESIDENTIAL COMMUNITY OUTSIDE DALLAS: The district's tax base remains
somewhat limited and largely residential in nature. Access to the large
and diverse Dallas-Fort Worth (DFW) employment market contributes to the
district's low unemployment rate and income levels above state and
HIGH DEBT: High overall debt reflects facility construction associated
with the enrollment growth experienced by the district in the past
decade. Near-term plans to address capacity issues will require
additional issuance and place pressure on the district's interest and
sinking fund (I&S) statutory tax rate capacity.
PRESSURE TO FUND CAPITAL NEEDS: Pressure to maintain a tax rate below
the statutory $0.50 per $100 taxable assessed valuation (TAV) test for
new debt issuance may hinder the district's ability to issue additional
new money debt for its capital needs.
RURAL NORTH TEXAS SCHOOL DISTRICT
Located approximately 25 miles southeast of the city of Dallas, Crandall
ISD is one of seven school districts serving Kaufman County. As a result
of its proximity to the Dallas-Fort Worth Metroplex and availability of
inexpensive land, the county's population grew by over 60% since the
2000 census. District enrollment growth has mirrored the population with
average daily attendance (ADA) almost doubling in the past 15 years to a
total of 3,001 students in 2014.
The county's unemployment rate of 5.8% as of March 2014 is on par with
the Texas average and lower than the national average. The county's
median household income exceeds that of the DFW area, state and nation.
STABLE TAX BASE
The district's TAV was resilient during and after the recession,
experiencing just one year of decline in fiscal 2013 of 2.2%, partly
driven by the revaluation of raw acreage resulting from a one-time
change in the county's valuation methodology. Growth in TAV resumed in
fiscal 2014 with a 1.5% increase and management expects a growth rate of
approximately 2% annually in the near term, which Fitch considers
reasonable given the residential construction currently underway.
The total tax rate will stay flat in fiscal 2014 for the fourth
consecutive year, with operations and I&S tax rates at $1.04 and $0.484
per $100 TAV, respectively. The district is currently at its operations
tax cap and does not have plans to go to voters for an override. Future
debt issuances will cause the debt service tax rate to push up against
the Texas Attorney General's $0.50 per $100 TAV tax limit for new money
issuances, somewhat restricting the district's ability to address future
facility needs driven by enrollment growth.
STABLE FINANCIAL POSITION
The district has completed seven consecutive years with operating
surpluses, including a modest $434,000 surplus net of transfers for
fiscal 2013. The unrestricted general fund balance of $8.2 millin
represents a strong 41% of spending, which exceeds the district's fund
balance policy (two-three months of general fund spending). Management
expects an additional year of positive operations in fiscal 2014 due to
an adopted surplus budget and higher-than-expected state funding from a
jump in enrollment. In addition to adding $500,000 to unrestricted fund
balance, the district will use surplus revenues to fund a variety of
projects that address technology upgrades, transportation improvements,
and athletic facility renovations.
As a result of facility construction due to enrollment growth, overall
debt levels are high at 8.8% of market value and $5,836 on a per capita
basis without taking into consideration the approximately 50% of debt
service support the district receives from the state.
The district currently has $20 million authorized but unissued bonds
from the 2007 election and plans to seek additional authorization in the
amount of $15 million. The additional debt is scheduled for 2016 to
address capacity issues at the elementary and high school levels based
on enrollment projections of 3.5%-5%.
Amortization is average with 54.5% of debt retired in 10 years despite
the district's heavy reliance on capital appreciation bonds (CABs).
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 just 1.03% 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% of governmental fund spending in fiscal 2013. 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 Jan. 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
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