Fitch Rates New Braunfels ISD, TX 2012A Refunding Bonds 'AAA' PSF; 'AA' Underlying; Outlook Stable
Fitch Ratings assigns an 'AAA' rating to the following New Braunfels Independent School District, Texas' (the district) unlimited tax bonds (ULTs):
--$11.765 million ULT refunding bonds, series 2012A.
The 'AAA' rating reflects the guarantee provided by the Texas Permanent School Fund (PSF), whose bond guarantee program is rated 'AAA' by Fitch.
Fitch also assigns an 'AA' underlying rating to the series 2012A refunding bonds.
The bonds are expected to price via negotiated sale later this week, subject to market conditions. Proceeds from the sale will be used to refund outstanding ULTs for savings.
In addition, Fitch affirms the 'AA' underlying rating on the district's $141.5 million outstanding ULTs (pre-refunding).
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax levied against all taxable property in the district, and are secured further by the PSF guarantee.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: Conservative fiscal management has consistently produced positive operating results in four of the last five fiscal years, increasing the unrestricted general fund balance to very strong levels.
TAX BASE EXPANSION: Residential and commercial development has picked up in the district resulting in tax base growth in fiscal 2013 of 7.8% over the prior year, continuing the reversal of a modest one-year dip in taxable assessed valuation (TAV) in fiscal 2011.
MANAGEABLE DEBT BURDEN: The district's above-average debt burden reflects the accelerated enrollment growth prior to the downturn and facility construction of the last five fiscal years, but it is mitigated by the district's favorable wealth profile and prospects for growth.
ROBUST ECONOMY: The district's economic base benefits from its location in the San Antonio metropolitan area. Income levels remain above average and local unemployment levels compare favorably to state and national averages.
ECONOMY SUPPORTED BY PROXIMITY TO SAN ANTONIO
Located 30 miles north of San Antonio, the district encompasses 75 square miles and serves primarily the city of New Braunfels (the city). The local economy centers on tourism, manufacturing, distribution, healthcare, and retail trade. The city's location and access to the extensive economic bases of both San Antonio and Austin offers residents additional employment opportunities; this is reflected in the area's historically low unemployment rates.
For September 2012, the city's unemployment rate stood at 5.0%, well below the 6.1% recorded from the prior year at this time, and below the rates of the city of San Antonio (6.0%), the state (6.3%), and nation (7.6%). In addition, the labor force grew 2.1% during this same period. The district's current population is estimated at 44,450, and has shown an average annual increase of nearly 3% since 2000. Wealth indices are above average.
ENROLLMENT GROWTH SLOWS; TAV GROWTH REBOUNDS
Enrollment also continues to record steady gains, averaging 2% annually from 2007-2013, down from previously rapid growth. TAV increased by an average of more than 4.8% annually during the same period. Moderation in values of existing properties and a slowdown in new home starts contributed to a decline of approximately 1% in fiscal 2011 TAV to $2.9 billion. However, the district's tax base expanded for fiscal 2012 and 2013 due to accelerated commercial and residential development in the area, resulting in notable TAV increases of 2.7% and 7.8%, respectively. The district's TAV for fiscal 2013 reached $3.2 billion.
Management anticipates additional increases in student count and TAV going forward, given the ongoing northern expansion of San Antonio as well as the availability of affordable land within the district. Given the district's recent enrolment and tax base history, Fitch considers this expectation reasonable.
STRONG FINANCIAL FLEXIBILITY
The district continues to maintain a sound financial profile despite operating pressures associated with state funding cuts. A trend of annual operating surpluses has contributed to growing reserve levels, including an unrestricted fund balance (committed, assigned and unassigned per GASB 54) that reached $34.8 million or 73% of spending in fiscal 2012. Liquidity is also favorable, with fiscal 2012 cash and investments representing more than 80% of operating expenditures. State support for district operations is average, accounting for 39% of general fund revenues in 2012.
State funding cuts totaled approximately $500,000 (1% of general fund revenue) in fiscal 2012 and the district balanced the fiscal 2012 budget despite further enrollment pressures and the opening of a new middle school. Audited results for fiscal 2012 show a substantial $4.7 million surplus, achieved through cost savings from increased utility efficiency, retirement incentives, and staffing reductions in both support services and professional positions.
The adopted 2013 budget conservatively assumes a $3.6 million operating deficit due to significant state and federal funding cuts. Management expects balanced results at year end, which appears reasonable given management's track record of budgeting conservatively.
ABOVE-AVERAGE DEBT BURDEN
District debt ratios are above average, but have come down from previous levels due to ongoing population and tax base expansion. Overall debt ratios stand at about $5,000 debt per capita and 6% of market value. Payout is about average at 48% repaid in 10 years.
District employees participate in the Teachers Retirement System of Texas (TRS), a cost-sharing multiple employer pension system. Contributions are made by plan members and the state on behalf of the district, eliminating any liability for the district. The district's total long-term liabilities (debt service, pension and OPEB contributions) represent a manageable 22% of fiscal 2012 general and debt service fund expenditures.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
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, National Association of Realtors, the Underwriter, and the Municipal Advisory Council of Texas.
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
Matt Dustin, +1-512-215-3727
111 Congress Ave, Suite 2010
Austin, TX 78801
Gabriela Gutierrez, +1-512-215-3731
Laura Porter, +1-212-908-0575
Elizabeth Fogerty, New York, +1-212-908-0526