[March 15, 2012]

Fitch Rates Goose Creek CISD, TX Series 2012 ULT Rfdg Bonds 'AAA' PSF; Assigns 'AA' Underlying

Fitch Ratings assigns the following ratings to the Goose Creek Consolidated Independent School District (CISD), Texas (the district) unlimited tax (ULT) refunding bonds:

--$42.725 million ULT refunding bonds, series 2012 'AAA'.

The 'AAA' long-term 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 2012 bonds.

The bonds are expected to price via negotiation the week of March 19, 2012. Proceeds will be used to refund a portion of the district's outstanding obligations.

Fitch also assigns the underlying rating on $306.7 million of outstanding district ULT bonds at 'AA'.

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, the bonds are secured by the Texas PSF guarantee.

KEY RATING DRIVERS

HIGHLY INDUSTRIAL ECONOMY: The district is home to the largest petroleum refinery and among the largest petrochemical plants in the U.S., residing in the Houston-Sugar Land-Baytown metropolitan area with a population of nearly 6 million. With port access and a rich multimodal transportation network, the area also serves as a regional distribution hub.

CONCENTRATED BUT LONGSTANDING TAX BASE: Fitch expects the district's tax base concentration to remain substantially high due to expansions underway by top taxpayers, but notes the essentiality of the petrochemical processing and refinery business in the U.S. Additionally, the presence of some diversity between upstream and downstream petroleum usage within the district's tax base helps mitigate the impact of oil price volatility.

STRONG FINANCES WITH ABUNDANT RESERVES: The district historically outperforms the budget and maintains sizable general fund reserves of more than 40% of spending, a key credit factor to help the district manage potential revenue fluctuations associated with its concentrated industrial tax base. In anticipation of school funding cuts, officials achieved cost savings in fiscal 2011, which when combined with enrollment growth, offset the state funding reductions. Management expects fiscal year 2012 results to further supplement reserves and projects a balanced fiscal 2013 budget.

MANAGEABLE DEBT BURDEN: The district's direct debt burden is modest. Overall debt is above average, but is somewhat mitigated by a strong local economy, expanding tax base, and adequate wealth levels. The district does not receive state aid in support of debt service given its wealthy industrial tax base. Additional planned borrowings are likely to keep the overall debt levels elevated, but manageable.

CREDIT PROFILE

HIGHLY INDUSTRIALIZED ECONOMY

Goose Creek CISD serves a population of almost 100,000, primarily in the southeastern portion of Harris County, the 6th largest manufacturing county in the U.S., and partially in Chambers County. Bordered by the San Jacinto River on the west and the Houston Ship Channel to the south, the area provides waterway access for industrial and recreational uses.

The district's enrollment has increased steadily over the past 10 years to over 21,000 in fisca 2011. Officials conservatively project enrollment gains of 1.5% to 2.0% over the next several years, which Fitch considers reasonable based on recent trends. Population, employment, income and average wage growth of the Houston-Sugar Land-Baytown metro area has outstripped U.S. averages over the past three years.

The district's tax base is represented by petrochemical, oil refinery, distribution, electric utility and manufacturing concerns, led by ExxonMobil (Issuer Default Rating of 'AAA' by Fitch), which comprised a high 27% of the fiscal 2011 tax base. ExxonMobil's Baytown plant is the largest petrochemical refinery in the U.S. While the concentration represents a credit risk, Fitch notes the key role of oil refining and petrochemical processing in the national economy. The balance of upstream refining activity and downstream chemical and manufacturing processing use of oil also helps to mitigate the impact of oil price volatility.

Fiscal 2012 taxable assessed valuation (TAV) of $8.5 billion is sizeable and expected by management to grow over the next several years, which Fitch considers reasonable based on reported estimates from the county assessor's office projecting greater than 2% growth overall, led by 6% growth in the industrial sector. Additionally, the top three taxpayers have all announced plant expansions over the next several years, which augurs well for the district's tax revenues, employment and local housing market.

SOUND FINANCIAL MANAGEMENT

The district completed fiscal 2011 with a $16.9 million operating surplus net of transfers, bolstering its unrestricted general fund balance (consisting of committed, assigned and unassigned funds) to a sizeable $77 million (46% of spending). The fiscal 2011 net margin benefited from approximately $8 million in Texas Education Association (TEA) revenues which compensated the district for fiscal 2007 through 2010 underpayments, as well as $5.7 million in cost subsidies from federal stabilization funds.

Management proactively reduced fiscal 2011 costs through attrition and school consolidations, which combined with ongoing growth, mitigate the state funding reductions totaling $10 million applicable to fiscal years 2012 and 2013. Officials expect to add $4 million to $5 million to fiscal 2012 fund balance and report a balanced budget in fiscal 2013. The district's conservative financial management is characterized by results which typically exceed the budget and a policy targeting unrestricted fund balance to 40% of spending. Fitch considers the maintenance of sizeable fund balances a key to credit quality given the highly concentrated tax base.

ABOVE-AVERAGE, BUT MANAGEABLE DEBT

The impact of direct debt service on the budget is manageable at 13.4% of fiscal 2011 general fund expenditures. Overall debt is above average as measured by debt per capita of $6,321, or 6.2% of market value. Planned issuances of debt in the next several years are expected to keep the district's debt level elevated, but manageable, considering ongoing population and tax base growth.

The district provides pension and other post employment benefits (OPEB) through the Texas Retirement Association (TRS), with annual required contributions for fiscal 2011 of $1.6 million and $702,000, respectively. The district also provides qualified employees with a money purchase plan, contributing $4.1 million in fiscal 2011, funded from the general fund and special revenue funds. The district's fixed costs, including debt service, pension and OPEB comprised a manageable 16.2% of total general fund expenditures in fiscal 2011.

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 (News - Alert) Global Insight, Zillow.com, National Association of Realtors

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 15, 2011);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842

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.

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