Fitch Rates Comal ISD, TX's ULT Rfdg Bonds 'AAA' PSF; 'AA' Underlying; Outlook Stable
Fitch Ratings assigns an 'AAA' rating to the following Comal Independent School District, Texas' (the district) bonds:
--$158.04 million unlimited tax (ULT) refunding bonds, series 2012A.
The rating is based on a guaranty provided by the Texas Permanent School Fund, whose bond guaranty program is rated 'AAA' by Fitch.
In addition, Fitch assigns an underlying 'AA' rating to the series 2012A bonds.
The bonds are expected to price via negotiation the week of Nov. 5. Proceeds will be used to refund certain outstanding bonds for interest cost savings.
Fitch also affirms its 'AA' underlying rating on approximately $518 million in outstanding district ULT bonds.
The Rating Outlook is Stable.
The 2012A bonds and outstanding bonds (except for series 2009 building bonds) carry the Texas PSF guaranty. The bonds are secured by an unlimited ad valorem tax pledge levied against all taxable property within the district.
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 appreciated significantly over the past five fiscal years 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 over the past five years. Although growth has moderated, capital needs will continue into the foreseeable future.
ELEVATED DEBT BURDEN: Key debt ratios are above average and amortization is slow. Future debt plans will likely keep debt levels high. The district currently retains adequate debt margin under the state's tax rate cap for new debt issuance.
GROWING SUBURBAN DISTRICT
This fast-growth district is located approximately 20 miles north of San Antonio and serves a predominantly rural 585-square-mile area primarily in Comal County, extending into portions of Kendall, Hays, Guadalupe, and Bexar counties. Fiscal 2013 enrollment of 18,566 is up 4.7% from the prior year, which slightly exceeds the preceding 4% five-year annual average growth rate. The district's most recent demographic study indicates that even modest near-term growth will likely 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 unemployment rate improved year-over-year to a relatively low 5.4% from 6.2%, benefiting from a strong 2.9% gain in total employment during this period. The unemployment rate is below the state's 7.0% and national 8.2% rate. Individual income levels, as measured by per capita money income, are above average at 136% of the state and 124% of national averages. Per capita market value is a high $129,000.
District TAV growth continues, though at a slower pace than the double-digit growth rate seen prior to fiscal 2010. TAV was essentially flat from fiscal years 2010-2012 but climbed 3.3% in fiscal 2013. The district is considered property wealthy for the purposes of state funding. Management projects modest TAV growth over the near term given ongoing residential and commercial construction, which Fitch views as reasonable based on review of economic data. The 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 and fund balances and liquidity provide a good fiscal cushion. The district posted operating surpluses after transfers in each fiscal year from 2006-2010 ranging from $1 million - $16.6 million, increasing general fund reserves to a strong $56 million or 44% of spending at the close of fiscal 2010. A positive operating margin in fiscal 2011, aided by receipt of $2.9 million of one-time federal aid, 2011 further bolstered reserves, from which the district transferred $30 million to fund ongoing capital improvements in advance of a future bond program. The residual unrestricted portion of general fund balance (the sum of committed, assigned, and unassigned per GASB 54) equaled a still robust $31.4 million or 24.3% of spending (excluding one-time transfers out).
Management offset acute state funding cuts ($18 million in formula-driven revenue lost over the 2012-13 fiscal biennium) with cost reductions -- via attrition savings, foregoing staff raises, and increasing to class-size ratios -- as well as gains in attendance-based revenue. Management presently expects to conclude fiscal 2012 with a $2.8 million increase to available fund balance after transfers, which Fitch considers likely based on review of unaudited financial statements.
The fiscal 2013 budget was balanced, again benefiting from revenue gained from attendance growth, while providing raises to staff and adding 15 new staff to a new elementary school. Multi-year financial forecasts beyond 2013 show continued positive operating results. Management intends to replenish the portion of general fund reserves appropriated for capital improvements ($30 million in fiscal 2011) with future bond proceeds, returning unassigned fund balance to above the district's 25% policy floor.
ELEVATED DEBT BURDEN & SIGNIFICANT CAPITAL NEEDS
Debt levels are above average, though similar to many rapid growth districts in the state, at $6,633 per capita and 5.1% of market value (MV). This debt calculation includes the currently accreted value of outstanding capital appreciation bonds (CABs). The maximum annual debt service burden on the budget consumes a high 23% of fiscal 2011 general fund and debt service expenditures.
The current offering is a refunding for level interest cost savings to be taken over the life of the bonds. Officials anticipate seeking voter authorization of additional debt as early as fall 2013 in the range of $180 million - $245 million to fund new campuses. The issuance would increase debt ratios and the debt service tax rate over 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.
AFFORDABLE PENSION & OPEB
Pension benefits and OPEB are provided through the Teacher Retirement System of Texas (TRS), a cost-sharing multiple employer plan. The district's annual required contribution for each benefit plan is set by state law and are relatively minimal, as most risks and costs are the liability of the state along with participating employees. The district's combined ARC for pension and OPEB totaled a nominal 1.5% of fiscal 2011 general 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, Zillow.com, 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
111 Congress Ave, Suite 2010
Austin, TX 78701
Peter Fitzpatrick, +44 20 3530 1103 (London)