|[June 26, 2014]
Fitch Rates Clint ISD, TX's ULT Rfdg Bonds 'AA-' Underlying/'AAA' PSF; Outlook Stable
AUSTIN, Texas --(Business Wire)--
Fitch Ratings has assigned the following ratings to Clint Independent
School District (ISD), Texas' (the district) unlimited tax (ULT) bonds
--$24.245 million ULT refunding bonds, series 2014 'AAA' enhanced/'AA-'
The 'AAA' long-term rating on the bonds is based on a guaranty provided
by the Texas Permanent School Fund (PSF), whose bond guaranty program is
rated 'AAA' by Fitch.
The bonds are scheduled for negotiated sale during the week of June 30.
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
$122 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 PERFORMANCE: The district consistently records
operating surpluses which has resulted in the steady growth of total
general fund reserves. Management has demonstrated the ability to
achieve favorable financial results during periods of changing
enrollment trends and state funding reductions by aligning expenditures
with revenue levels.
TAX-BASE GROWTH: New residential construction and commercial expansion
have offset valuation losses, contributing to overall tax base growth
over the past several years, albeit at a slower post-recession pace. The
district resides on the eastern boundary of El Paso County and is
positioned to benefit from the high growth of the region given its
proximity to the city of El Paso, large land mass, and low population
MANAGEABLE DEBT BURDEN: The district's overall debt is above average in
relation to market value, although overall fixed costs (including debt
service and pension contributions, and OPEB) are low in relation to
governmental spending. State assistance currently funds approximately
70% of debt service expenditures. Management does not anticipate issuing
new debt in the near term given the current enrollment trends and
adequacy of existing infrastructure.
BELOW-AVERAGE SOCIOECONOMIC PROFILE: The region's income levels are
below average, but have grown faster than state and national levels over
the past five years. Unemployment has improved from a year ago, but
continues to exceed state and national averages.
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental
credit characteristics including the district's healthy financial
profile. The Stable Outlook reflects Fitch's expectation that such shift
The district is located approximately 18 miles southeast of the city of
El Paso (general obligation bonds rated 'AA' with a Stable Outlook by
Fitch). The district serves Horizon City, the town of Clint, and the
unincorporated area of East Montana within its large 380 square mile
STRONG FINANCIAL PERFORMANCE
Management budgets conservatively and maintains a healthy level of
reserves, which Fitch considers prudent in light of ongoing state budget
uncertainties. State funding contributed more than 75% of the district's
operating revenues over the past five years, followed by ad valorem tax
revenues and federal monies.
Federal funding sources and enrollment growth allowed the district to
make up for state revenue shortfalls. Modest cost reductions supported
limited staff reduction through attrition in the fiscal 2012/2013
biennium. The district's audited results were better than previously
projected, closing each of those years with a $2.6 and $1.6 million
surplus for fiscal 2012 and 2013, respectively. At the close of fiscal
2013, the district's unrestricted fund balace stood at $25.4 million,
or a solid 28.6% of spending.
The district's amended operating budget for fiscal 2014 includes a
prudent use of $3 million in reserves for non-recurring capital outlays,
resulting in maintenance of fund balance well above its two-month
target. The preliminary fiscal 2015 budget includes a modest 1.5% pay
increase to remain competitive with area school districts, flat
enrollment, a conservative 2% increase in the tax base, and no tax rate
MANAGEABLE DEBT BURDEN
Metrics for overall debt outstanding are mixed, with moderate debt per
capita ($3,934) and very high debt as a percent of market value (14.3%),
reflecting the relatively small tax base. The district's debt service
payments are manageable at 10% of governmental spending, and even lower
at 3% after adjusting for 74% state debt service assistance received in
fiscal 2013. With recently constructed school facilities, the district
reports adequate capacity for the next five years based on current
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 $1.3
million (a nominal 1.2% of governmental spending) in fiscal 2013. Other
post-employment benefits are also provided through TRS and district
contributions are minimal. However, districts are susceptible to future
funding changes by the state as evidenced by a relatively modest 1.5% of
salary contribution requirement effective in fiscal 2015.
GROWING ECONOMY BENEFITS FROM PROXIMITY TO EL PASO
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 4.8%
since fiscal 2009. Ease of access to the city of El Paso and the Fort
Bliss Air Defense Training Center make the district's affordable housing
a primary growth driver. The top 10 taxpayers are represented by a
utility, real estate, manufacturing, and construction interests with no
taxpayer or sector concentration.
IHS (News - Alert) Global Insights points to the El Paso region's younger-than-average
population as a key strength, supporting strong service sector growth.
However, relatively low skill levels limit high-paying job growth. The
city's latest unemployment rate of 6.7% for April 2014 is improved from
the prior year, but lags the national and state averages of 5.9% and
4.7%, respectively. Wealth levels as measured by median household income
are about 30% below state and national averages.
Enrollment growth averaged 4.4% annually from fiscal 2005 to 2011 but
has since been relatively flat at its fiscal 2014 enrollment of 11,642.
The district's projections for both capital planning and operations
assume a modest growth rate of less than 1%, but management monitors
closely to make timely budget adjustments if needed.
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 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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