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Fitch Affirms Comal ISD, TX ULT Bonds at 'AA'; Outlook StableNEW YORK --(Business Wire)-- Fitch Ratings affirms Comal Independent School District, Texas' (ISD, or the district) unlimited tax (ULT) bonds as follows: --$481 million ULT bonds at 'AA'. A full list of bonds is included at the end of this press release. The Rating Outlook is Stable. SECURITY 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, all outstanding series except the 2009 bonds are secured by the Texas PSF, whose bond guarantee program is rated 'AAA' by Fitch. KEY RATING DRIVERS SOLID FINANCIAL POSITION: Strong financial management, conservative budgeting, and a history of operating surpluses have produced significant operating reserves and liquidity. STRONG & GROWING ECONOMY: Assessed valuation has made strong gains post-recession due to continuing residential growth of the greater San Antonio-New Braunfels area. POSITIVE SOCIOECONOMIC PICTURE: Residents' income levels and tax base wealth are above average, while employment continues to grow. CAPITAL NEEDS PERSIST: Enrollment gains have required the addition of significant new facility capacity. Growth has moderated, but capital needs will continue into the foreseeable future due to current school capacity levels. ELEVATED DEBT BURDEN: Key debt ratios are above average and amortization is slow. Future debt plans will likely keep debt levels high. The district has adequate debt margin under the state's tax rate cap for new debt issuance. RATING SENSITIVITIES ELEVATED DEBT: The rating is sensitive to changes in the district's long-term liability profile. Fitch expects the above-average debt burden to continue to rise, limiting the potential for positive rating action over the near term. CREDIT PROFILE This district is located approximately 20 miles north of San Antonio and serves a predominantly rural 589-square-mile area primarily in Comal County, extending into portions of Kendall, Hays, Guadalupe, and Bexar counties. GROWING SUBURBAN DISTRICT Population growth in the district has significantly outpaced the state and nation, almost doubling since 2000. Enrollment was at 20,257 as of September 2014, up 3.9% from the prior year, which is in line with the five-year annual average growth rate. Prior to the recession, enrollment growth averaged higher at around 6%. The district's most recent demographic study indicates growth at current rates will pressure capacity at several campuses in the next two to five years. The district benefits from its proximity to San Antonio and Austin, as roughly two-thirds of its working population commutes to these labor markets. Comal County's August 2014 unemployment rate improved year-over-year to a relatively low 5.0% from 6.0%, benefiting from a 2.1% gain in total employment during this period. The unemployment rate is below the state (5.5%) and national (6.3%) averages. District individual income levels, as measured by per capita money income, are above average at 141% of the state and 137% of national averages. Per capita market value is a high $152,000. Growth in taxable assessed value (TAV) has picked up since a one-year, modest contraction post-recession. TAV increased a cumulative 25% since 2010, and certified values for fiscal 2015 show 12% growth, the strongest year in that period. The average home taxable value in the district increased from $169,233 in fiscal 2014 to $184,411 in 2015, and management projects continued TAV growth over the near term given ongoing residential and commercial construction. Fitch views current projections as reasonable based on review of economic data, and prospects for continued growth are also bolstered by the district's proximity to San Antonio, land availability, and transportation infrastructure. STRONG FINANCIAL PROFILE District finances are soundly managed reflected by strong fund balance and liquidity. Fiscal 2013 ended with a $3 million surplus after transfers driven by an underspending of the budget, thus boosting unrestricted reserves to a strong 29% of spending at year-end and in excess of the 25% policy floor. The district transitioned from a fiscal year-end of Augus 31 to June 30 in fiscal 2014. The irregular reporting period marked another year of positive operating results with an estimated $12 million surplus, about half of which was attributable to the fiscal year change. The district employed at least $1 million for band instruments, custodial equipment, and other one-time uses in fiscal 2014. The fiscal 2015 budget is balanced and shows a 12% increase in spending from the previous 10-month period's budget, including salary increases for teachers and staff and an additional 112 full-time employees. The added spending is funded through increases in state funding from enrollment growth and property tax revenues through higher valuations. Strong revenue growth has also driven the tax rate down in fiscal 2015 from $1.43 per $100 TAV in the previous year to $1.39. Fitch believes current revenue trends provide the district with sufficient flexibility to help manage capacity-related spending pressures. ELEVATED DEBT BURDEN & SIGNIFICANT CAPITAL NEEDS Debt levels are above average at $6,400 per capita but more moderate at 4.2% of market value (MV). This debt calculation includes the accreted value of outstanding capital appreciation bonds (CABs), which make up a moderate portion of the total debt portfolio. District officials are considering seeking voter authorization of additional debt as early as 2015 of approximately $150 million for new campuses and other capital needs, which would be issued over the course of two years. If approved by voters, the new money would raise already elevated debt metrics and increase the debt service tax rate in the near term. Forecasts that assume reasonable continuation of TAV and enrollment growth project the debt service tax rate to remain below the state's $0.50 test for new money debt issuance, preserving some debt capacity for the future. The district may also address capacity pressures through school boundary changes and portable classrooms, tactics that could be used as a contingency plan in case of failure of the authorization or to augment the effectiveness of the new money issuance. OTHER LONG-TERM LIABILITIES MANAGEABLE The district's pension liability is limited to its participation in the state plan administered by the Teachers Retirement System of Texas (TRS), a cost-sharing multiple-employer plan. 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 less than 1% 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 affordable in the face of a potentially growing debt burden. Carrying costs for the district (debt service, pension, and OPEB costs) consumed a manageable 16% of governmental fund spending in fiscal 2013. Fitch will continue to monitor the level of state support for school district pension payments, noting pension contributions for all districts in the state increased to 1.5% on the statutory minimum portion of payroll from 0% beginning in fiscal 2015. TEXAS SCHOOL FUNDING LITIGATION For the second time in the past 18 months a Texas district judge ruled in August 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 underfunded. The judge also ruled that local school property taxes are effectively a statewide property tax due to lack of local discretion and therefore are unconstitutional. Following a similar ruling in February 2013, the judge granted a motion to reopen the lawsuit four months later after state legislative action that partially restored state funding levels and made other program changes. Fitch expects the state will appeal the latest ruling to the state supreme court. 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 view positively any changes that include additional funding for schools and more local discretion over tax rates. Fitch affirms the following series of ULT bonds at 'AA': -Series 2005, 2005-A, 2006A, 2007, 2008A, 2009, 2010, 2011, 2012, and 2012A. 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, the Municipal Advisory Council of Texas, 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 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015 U.S. Local Government Tax-Supported Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314 Additional Disclosure Solicitation Status http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=905114 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. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE 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 WEBSITE. |
