|[January 29, 2013]
Fitch Rates El Paso ISD, Texas' ULT Rfdg Bonds 'AAA' PSF; 'AA' Underlying; Outlook Stable
AUSTIN, Texas --(Business Wire)--
Fitch Ratings has assigned 'AAA' PSF ratings and 'AA' underlying ratings
to the following El Paso Independent School District, Texas' (the
--$59 million unlimited tax (ULT) refunding bonds, series 2013;
--$9.6 million ULT refunding bonds, taxable series 2013-A.
The bonds are expected to sell via negotiation on Jan. 30. Proceeds will
be used to refund outstanding obligations for debt service savings.
In addition, Fitch affirms the following ratings:
--$424.7 million outstanding ULT bonds at 'AA';
--$20.4 million outstanding maintenance tax notes at 'AA'.
The Rating Outlook is Stable.
The bonds are secured and payable by an unlimited property tax levy and
are further secured by the Texas Permanent School Fund (PSF), bond
guarantee program rated 'AAA' by Fitch. The maintenance tax notes are
payable from all available funds including, but not limited to, the
operations and maintenance tax levy limited to $1.04 per $100 taxable
assessed valuation (TAV) on all taxable property located within the
SOLID FINANCIAL RESERVES: The district's financial reserves have
stabilized in recent years. Operations yielded a healthy surplus for
LARGE AND DIVERSE TAX BASE: The district's diverse tax base remained
relatively stable and experienced no material TAV declines during the
HIGH DEBT BURDEN: Overall debt levels are high despite substantial state
support for district debt. The pace of principal amortization is below
average, due in part to the accelerated debt issuances in recent years
to make improvements to existing campuses and to prepare for anticipated
enrollment gains related to the Fort Bliss expansion.
MANAGEABLE CAPITAL PLAN: The district does not currently have voter
authorization to issue new ULT debt and does not intend to approach the
voters in the next three to five years. Capital needs are manageable
given that Fort Bliss expansion, which is nearly complete, did not
translate to previously expected enrollment increases.
DIVERSE ECONOMY: Much of the city's economic activity emanates from its
position in a key NAFTA trade corridor near Mexico's maquiladora
assembly plants, as well as the presence of Fort Bliss. The recent
expansion at Fort Bliss and an emerging healthcare sector somewhat
offset credit concerns regarding historically below-average but
improving income levels and high unemployment rates.
ACCREDITATION AT RISK: The district's accreditation was placed on
probation by the Texas Education Agency (TEA) due to manipulation by the
former superintendent of testing procedures to improve academic
standing. TEA has placed a conservator in the district and has named a
new governing board for the district (pending approval from the
Department of Justice).
WHAT COULD TRIGGER A RATING ACTION
MANAGEMENT ISSUES GO UNRESOLVED: Fitch believes a loss of accreditation
is unlikely because the district, along with the TEA, is proactively
addressing the issues that led to the district's probation. However,
failure of the district to avoid revocation of its accreditation would
result in the cessation of operational funding by TEA.
The district is the tenth largest school district in the state and the
largest in the City of El Paso. Historically, the area's economy has
been based on international trade, manufacturing, and copper mining. An
expanding military presence (Fort Bliss and Biggs Army Airfield) and
educational concerns (the University of Texas at El Paso and Texas Tech
University Medical School) add stability to the local economy.
Area income levels as measured by median household income are below
average, reflecting in part the area's lower cost of living. Government
and educational entities comprise most of the top 10 civilian employers,
which provide roughly 25% of the area's employment. Major additions to
the city's retail, commercial and healthcare sectors brought
unemployment rates down to record lows in 2007 and 2008. They rose along
with he national unemployment rate through 2011 and similarly improved
in 2012. At 7.5% in November 2012, El Paso's unemployment rate remains
well above the state's 5.8% and slightly above the U.S. rate of 7.4%.
ACCREDITATION ON (News - Alert) PROBATIONARY STATUS
The TEA put the district on probation in August 2012, after finding that
the district's reported improved academic performance from 2009 to 2010
was the result of the former superintendent manipulating student testing
procedures. The forensic audit and investigation is presently ongoing
within the district into the manipulation of student records.
Additionally, the TEA assigned a monitor to oversee the structural
integrity of the district, campus testing, and student records.
In December, the TEA appointed a five-member board of managers, pending
pre-clearance from the U.S. Department of Justice, and elevated the
monitor's role to conservator until the board of managers is formally
installed. The TEA also appointed the current interim superintendent,
who was not involved with the fraudulent reporting, to continue serving
in his current role when the board of managers is installed. An
examination of the district's organizational structure and system of
internal controls on academic reporting and procedures is pending the
conclusion of the forensic audit and investigation. Given that
management of the district is in transition and may be for some time,
Fitch will be looking for stability of operations during that period.
Fitch is concerned about the recent findings that led the TEA to place
the district's accreditation on probationary status and the risk at
which they put the district. Fitch believes the forensics audit
findings, the district's plan to address any findings, and TEA's
response to the district's efforts will be key determinants in any
near-term rating action. Fitch will continue to monitor the district's
current situation and will provide additional commentary as credit
relevant developments occur.
BRAC IMPACT ON ENROLLMENT GROWTH
The recent expansion of the military presence at Fort Bliss as a result
of the Pentagon's 2005 base realignment and closure (BRAC)
recommendations led to large addition of troops and massive military and
related private investment in the area. Troop population grew from about
9,000 in 2005 to 27,000 and is projected to increase to 30,600 by 2014.
The district positioned itself from both an operations and facilities
standpoint for a large influx of student population. However, enrollment
levels related to Fort Bliss growth proved difficult to forecast. Due to
extended overseas deployments, troop dependents have not relocated to
the area to the extent originally projected. This pattern has resulted
in lower than budgeted enrollment figures and has translated to a
somewhat erratic pattern in financial performance and challenges in
DEBT LEVELS ABOVE AVERAGE
The district's overall debt ratios are moderately high at nearly $3,400
per capita and 6.4% of total market valuation despite significant state
support for debt service. The district currently receives state support
for roughly 30% of its annual debt service requirements. Debt
amortization is below average, with about 38% of principal maturing in
10 years. Because of the lack of enrollment growth, the district does
not expect to seek another bond election for about three to four years
and reportedly has sufficient capacity for the currently projected
growth. All of the previous bond authorizations have been issued, and
proceeds remain to construct two new schools when the need arises. Even
with the sizable amount of recently-issued debt, the current debt
service tax rate is relatively low at $0.19 per $100 of TAV.
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 of Texas on behalf
of the district, thus eliminating any liability for the district. The
system also offers post-employment health insurance benefits (OPEB) to
INCREASED GENERAL FUND RESERVES
Voters in June 2010 rejected a proposition to augment the district's O&M
tax levy (worth $18 million in additional state and local funds),
leading management to cut 89 non-teaching positions in fiscal 2011.
Audited fiscal 2011 results reflect only 10 months due to a change in
the district's fiscal year end from Aug. 31 to June 30. The unrestricted
general fund balance increased to an ample $76.3 million, or 18.4% of
spending. These results were boosted primarily by the change in fiscal
year, as only 10 months of expenditures were charged against a full year
Fiscal 2012 audited results were positive and better than originally
expected despite large state aid cuts. The district responded to the
reduced state funding with budget cuts that included the elimination of
116 non-instructional positions. At the close of fiscal 2012, the
district added nearly $11 million to total fund balance, ending the year
with unrestricted general fund balance at $93.6 million, or 21% of
spending. The fiscal 2013 budget is balanced, and management reports
that year-to-date financial performance is in line with budget.
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, and
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 14 2012;
--'U.S. Local Government Tax-Supported Rating Criteria', dated Aug. 14,
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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