Fitch Affirms Beeville ISD, Texas' ULTs at 'AA-' Underlying; Outlook Stable
Fitch Ratings affirms its underlying 'AA-' rating on Beeville Independent School District (ISD), Texas' (Beeville ISD or the district) outstanding unlimited tax (ULT) bonds as follows:
--Approximately $22.9 million in outstanding ULT bonds.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax pledge of the district. The bonds are also insured as to principal and interest repayment from a guaranty provided by the Texas Permanent School Fund (guaranty rated 'AAA', Stable Outlook by Fitch)
KEY RATING DRIVERS
STRONG FINANCIAL POSITION MAINTAINED: General fund reserves have strengthened in the last two fiscal years from previously solid levels due largely to conservative budgeting and spending practices.
DEBT AND OTHER LONG-TERM LIABILITIES MODERATE: The debt profile remains moderate, characterized by modest debt levels, average principal amortization, and manageable future capital needs.
LIMITED ECONOMY; LOW WEALTH LEVELS: The local economy is fairly narrow in this predominately rural area; income/wealth levels are well below state and national averages.
GROWTH, CONCENTRATION IN TAX BASE: The district has realized recent taxable assessed valuation (TAV) gains mainly due to increased economic activity surrounding the Eagle-Ford Shale oil/natural gas formation. Tax base concentration is moderately high at 15%; a majority of top taxpayers are in the energy sector.
STAGNANT ENROLLMENT TRENDS: The small enrollment base typically reflects flat to very modest declines annually.
Beeville Independent School District is located approximately 50 miles northwest of Corpus Christi, the closest metropolitan area. Characteristic of an agricultural area, district population (estimated at approximately 27,000) has remained relatively flat since 2000 with median household income roughly 20% below the state and U.S. averages. Annual enrollment trends as measured by average daily attendance (ADA) are comparably flat to modestly declining; a 1% enrollment decline was realized over the last five fiscal years.
RECENT ECONOMIC AND TAX BASE EXPANSION IN RURAL SOUTH TEXAS COMMUNITY
The area economy is limited but generally stable, based on agriculture, oil and gas production, and related commercial activities. Government and retail trade are the largest non-agricultural employment sectors. County unemployment levels have historically been above those of the state since 2003, but reflect a decline on a year-over-year basis from a high 8.1% in October 2011 to 6.5% in October 2012. This was despite a healthy growth in labor force over the same period.
Since 2007, the district has typically realized solid annual TAV gains. Recent improvement in employment levels and strong, cumulative TAV gains of about 20% over fiscal years 2012 and 2013 that brought TAV up to approximately $692 million are due largely to the expanded economic activity spurred by the Eagle-Ford Shale, a portion of which underlies the county.
Nonetheless, despite this growth, about one-third of the district's TAV comes from residential values, with the next largest portion (roughly 30%) consisting of acreage. Tax base concentration is moderately high at 15% with a majority of the top taxpayers in the energy sector. At a minimum, Fitch expects that ongoing activity surrounding this relatively newly discovered oil and natural gas formation should allow for continued, modest expansion of the tax base over the near term.
ENHANCED RESERVES IN FISCAL YEARS 2011 AND 2012
The district receives substantial state support for operations (about 70% in fiscal 2012) as a property-poor district. Historically solid financial reserves that totaled no less than 26% of spending have characterized the district's financial position since fiscal 2006, enhancing the district's financial flexibility. The district typically maintains reserves well above its informal floor of $6 million-$7 million or about three months of spending. Management's conservative budgeting and spending practices historically have generated healthy annual operating surpluses and that trend continued in fiscals 2011 and 2012.
The district implemented various cost-saving measures in preparation for preliminarily announced state funding cuts over the biennium (fiscals 2012 and 2013). These measures in large part relied on salary savings from reducing or eliminating some of its more highly paid positions. In addition, the district benefitted from the receipt of a total of $1.1 million in nonrecurring federal ARRA funds in fiscal 2011 that served to offset some of the year's general fund spending and better prior year-end projections. Unrestricted general fund reserves rose to $12.7 million or almost 60% of spending in fiscal 2011, up from the prior year's solid unreserved balance of $9.9 million or about 43% of spending.
State funding cuts were not as severe as originally expected and the district received about $625,000 in nonrecurring federal EduJobs funds in fiscal 2012. While total operating revenue held fairly flat at $24 million, previously implemented cost savings and management's continued conservative financial practices saw the district generate approximately $2.2 million in operating surplus, increasing the unrestricted general fund balance to $14.8 million or nearly 68% of spending at year's end.
The $24.7 million fiscal 2013 operating budget was adopted as balanced and includes a one-time, 4%, cost of living salary increase of about $800,000. Year-to-date operations are running in line with budget according to management, although Fitch believes a less sizeable operating surplus is likely given reduced cost savings opportunities in the year's budget.
MODEST LONG-TERM LIABILITIES
Overall debt levels are modest at about $800 per capita and 2% of market value. The debt burden is assisted by a sizeable amount (just under 50%) of state support for the district's debt service, given its comparatively low property wealth per student. Amortization is slightly above average with 58% of principal repaid in 10 years. In addition to its outstanding ULT bonds, the district has previously issued $1.6 million in maintenance tax notes (not rated by Fitch) that do not receive state support primarily for equipment and stadium renovations.
Capital needs are manageable; the district may pursue pay-go capital spending for the construction of a baseball field with the use of $1.5 million from general fund reserves. Annual debt service for the outstanding ULTs and maintenance tax notes rises slightly to reach maximum annual debt service of $2.7 million in fiscal 2015 and declines thereafter, holding steady at roughly $1.7 million from fiscal 2016 through fiscal 2027. The district's debt profile consists of current interest bonds and some capital appreciation bonds with no exposure to variable-rate debt or derivatives.
The district's pension and other post-employment benefit (OPEB) liabilities are limited to its participation in the state pension plan administered by the Teachers Retirement System of Texas (TRS). TRS is a cost-sharing, multiple-employer plan in which the state rather than the district provides the bulk of the employer's annual pension contribution as a pass-through revenue to the district. 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 consistently funds its annual required contributions. Carrying costs for the district (debt service, pension, OPEB costs, net of state support) totaled a low 6% of governmental fund spending in fiscal 2012.
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, LoanPerformance, Inc., and IHS Global Insight.
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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