|[August 01, 2014]
Fitch Affirms Bridgeport ISD, TX's GO Bonds at 'AA-' Underlying; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings has affirmed the following Bridgeport Independent School
District, Texas (the district) ratings:
--$27.2 million unlimited tax (ULT) bonds at 'AA-'.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax pledge of the
district. In addition, the bonds are secured by the Texas Permanent
School Fund (PSF), whose bond guarantee program is rated 'AAA' by Fitch.
KEY RATING DRIVERS
TAX BASE CONCENTRATION: Natural gas and power generation properties
dominate the local economy, with the top 10 taxpayers constituting 35%
of taxable assessed value (TAV). Significant capital investment of these
properties and the output demand from the energy sector combined with
the district's high reserve levels somewhat mitigate these concerns.
SOLID FINANCIAL PERFORMANCE: Strong financial performance has yielded
operating surpluses in four of the last five fiscal years. Unrestricted
general fund balance and liquidity remain healthy despite recent state
funding cutbacks in recent years.
MINIMAL GROWTH PRESSURES: The district maintains a modest student
enrollment with minimal growth pressures and ample capacity in existing
MODEST LONG-TERM LIABILITIES: The district's debt profile is
characterized by manageable direct debt, rapid principal amortization,
and limited debt plans. Affordable carrying costs for debt service and
retiree benefit contributions are a credit positive.
The rating is sensitive to shifts in fundamental credit characteristics
including the district's financial management practices and high fund
balance level. The Stable Outlook reflects Fitch's expectation that such
shifts are unlikely.
The district encompasses about 146 square miles in Wise County,
north-central Texas, with a 2012 population of 12,326. Shifts in the
locally dominant natural gas industry have caused fluctuations in the
district's modest enrollment base of approximately 2,200 students in
CONCENTRATED ECONOMIC BASE
Natural gas production from the Barnett Shale and other affiliated
industries dominate the local economy along with a sizable electric
utility plant. Tax base and sector concentration remains high at about
35% of TAV in fiscal 2014. The top two taxpayers, Wise County Power
Plant (owned by Suez Energy Generation) and Devon Gas Services,
contribute a substantial 24% to district TAV.
Overall, the local tax base grew at a steady, modest pace throughout the
economic downturn. TAV grew by 2.2% in fiscal 2013, and an additional
3.2% in fiscal 2014.
Unemployment rates historically have been lower than the state and
national averages; the May 2014 rate of 4.4% is below both the state
(5.1%) and nation (6.1%). County employment grew by 2.5% over the
12-month period ending May 2014. District enrollment has declined in
recent years as population has fluctuated. Resident wealth levels are
below average, consistent with the historical trend.
STRONG FINANCIAL PROFILE
The district continues to maintain a sound financial profile despite
operating pressures associated with state funding cuts of $2.3 million
(27%) since 2011 and enrollment declines of approximately 1.5% per year.
Conservative expenditure forecasting and enrollment budgeting have
allowed the district to maintain a healthy financial cushion despite
decreases in operating revenues. The district has actively managed
spending in line with revenue declines, with positive operations in
three of the last five fiscal years. Deficits (after transfers) in
fiscal years 2011 and 2012 were driven by capital investments including
installation of the district's technology program.
The district's unrestricted general fund balance increaed to $10.4
million in fiscal 2013 (83% of general fund spending) from $9.9 million
(49%) in fiscal 2012, due to the issuance of $5.9 million tax
maintenance notes. Funds from the notes reversed an operating deficit
(before transfers) of $408,000 driven by approximately $1 million of
planned capital spending. The district's fund balance policy requires an
unrestricted balance equal to a prudent 25% of spending, and management
indicated that though capital spending is planned for future years,
there is no intention to reduce reserves to this level.
The fiscal 2014 budget is approximately level with the prior year with
total spending of $18 million, including the use of $477 of fund
balance. Management projects final results will reflect a reduction in
fund balance of approximately $500,000 for capital projects, reducing
total fund balance to $14.9 million, or a still-healthy 81% of budgeted
general fund spending.
AFFORDABLE LONG-TERM LIABILITIES
Overall debt per capita is moderate at $3,926 and 2.9% of market value.
Principal amortization is rapid at 67% retired in 10 years. The
district's debt service tax rate is less than half of the state attorney
general's threshold for new debt issuance. The district does not
anticipate the need for additional debt following the tax maintenance
notes in fiscal 2013, as enrollment declines have created excess
capacity in the district's existing facilities.
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 state historically has borne most of the costs,
although districts will assume a higher share beginning in fiscal 2015.
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, totaling less than 1% of governmental fund spending in fiscal
2013. 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 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, including debt service,
pension and other post-employment benefit (OPEB) contributions, were a
low 10.9% of fiscal 2013 governmental fund spending. Starting in fiscal
2015, pension contributions for all districts in the state will rise to
1.5% on the statutory minimum portion of payroll, from zero, increasing
carrying costs further, although pass-through state aid is projected to
largely offset the year's increase. Further increases in district
funding requirements beyond fiscal 2015 could create additional budget
pressure, which Fitch will monitor.
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 the districts' inability to exercise
'meaningful discretion' in setting tax rates as constitutional flaws in
the current system.
The judge agreed to reopen testimony in January 2014 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.
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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