|[May 23, 2014]
Fitch Rates Socorro ISD, Texas' ULT Refunding Bonds 'AA-'; Outlook Stable
AUSTIN, Texas --(Business Wire)--
Fitch Ratings has assigned the following ratings to Socorro Independent
School District, Texas' (the district) unlimited tax (ULT) bonds as
--$52.9 million ULT refunding bonds, series 2014A 'AAA' enhanced / 'AA-'
The 'AAA' long-term rating on the bonds is based on a guaranty provided
by the Texas Permanent School Fund (PSF; rated 'AAA' by Fitch).
The bonds are scheduled for negotiated sale during the week of May 27.
Proceeds from the sale of the bonds will be used to refund a portion of
the district's outstanding ULT debt for debt service savings.
In addition, Fitch affirms the 'AA-' underlying rating on the district's
$537 million in outstanding ULT bonds (pre-refunding).
The Rating Outlook is Stable.
The bonds are direct obligations of the district and are secured by an
unlimited ad valorem tax pledge of the district. In addition, the bonds
are secured by the PSF guaranty.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The district's financial position remains
sound as indicated by the maintenance of strong reserve levels.
Flexibility is also derived from the comfortable margin on the operating
and maintenance (O&M) tax rate.
SIGNIFICANT STATE SUPPORT: Due to its low wealth levels, the district
receives considerable state aid for operations.
PROMISING GROWTH PROSPECTS: Ample and affordable land and location
within the broader El Paso metropolitan statistical area (MSA) have
fueled steady population and enrollment growth. Enrollment gains are
projected to continue at a moderated pace given current development
HIGH DEBT BURDEN: The district's debt levels rose rapidly with the
issuance of the 2011 bond program over the last three years. Continued
enrollment growth as projected will likely require additional debt
issuance. Principal amortization of existing debt is slow.
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental
credit characteristics including the district's healthy financial
profile. Maintenance of solid reserves while addressing its large and
ongoing capital needs is a key credit consideration.
The district is located east of the city of El Paso (general obligation
bonds rated 'AA' with a Stable Outlook by Fitch) in an arid ranching
area that includes a portion of the Fort Bliss military installation and
the Briggs Army Airfield. The district includes the city of Socorro,
Horizon City, a portion of the city of El Paso, and unincorporated areas
of El Paso County.
SOLID RESERVES MAINTAINED
The district's financial profile remains sound, and operating results
have shown surpluses in each of the last four years. General fund
reserves are strong, boosted by a 2011 change in fiscal year end from
Aug. 31 to June 30. The accounting change resulted in a shortened
10-month reporting period and pushed July and August expenditures into
fiscal 2012, with the one-time surplus falling to the general fund
Audited results for fiscal 2013 registered a large $10.7 million (4% of
expenditures) surplus in the general fund. Slower than budgeted
enrollment growth resulted in a revenue shortfall. However, prompt
budgetary measures curbed spending to produce strong audited results.
The district's unrestricted general fund balance at fiscal 2013 year-end
was $85.9 million or a strong 29% of spending, which is well above the
district's fund balance goal of two months of spending (17%). The
district expects future reserve levels to be closer to the policy goal
due to planned, non-recurring capital outlays.
The fiscal 2014 budget was balanced, but actual enrollment again trailed
budgeted growth. The budget was built with aggressive expenditure
assumptions, and management projects that unexpended budget items will
offset the revenue shortfall for a projected surplus of over $10
million. Management expects to adopt a balanced budget for fiscal 2015.
HIGH DEBT LEVELS OFFSET BY PROSPECTS FOR CONTINUED GROWTH
Overall debt levels on an accreted basis are high at $5,168 per capita
and 10% of market value. The pace of amortization is slow with 32%
retired in 10 years. The debt service burden on the budget will likely
rise with future debt issuance from 7% of government spending in fiscal
2013, a very manageable 4% when adjusted for state debt service support.
The district benefits from substantial state support for debt service
(47% in fiscal 2013) due to its low wealth levels.
During the years 2011 to 2013, the district issued $297 million in debt
authorization approved by 55% of voters in May 2011. The entire bond
program consisted of construction of three new campuses (including one
combination elementary/middle school), completion or expansion of two
existing campuses, and district-wide technology, classroom, and HVAC
upgrades. Management expects that unspent bond proceeds will meet
facility needs for the medium term.
The district contributes to the Teacher Retirement System of Texas
(TRS), a cost-sharing, multiple-employer defined benefit pension plan.
The district's pension contribution, which is set by state law, was $3
million (a nominal 0.7% of government spending) in fiscal 2013. Other
post-employment benefits are also provided through TRS and district
contributions are minimal.
Growth in the district's primarily residential tax base has moderated in
recent years but continued even through the recession. The district's
taxable assessed valuations grew by a compound annual average of 4.5%
since fiscal 2009, aided by the ongoing residential development that is
spurred by abundant affordable land within the district's boundaries.
Enrollment growth has been moderate, slowing from 4% in fiscal 2010 to
1.4% in fiscal 2013. The fiscal 2013 enrollment is just under 44,300
students. Much of the growth has been spurred by the arrival of
additional troops and their dependents to Fort Bliss. Officials expect
enrollment to grow to about 47,000 by fiscal 2016, continuing at a
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 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. The trial began January 2014. 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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