TMCnet News
Fitch Affirms College Station ISD, Texas GOs at 'AA+' Underlying; Outlook StableAUSTIN, Texas --(Business Wire)-- Fitch Ratings takes the following rating action on College Station Independent School District, Texas' (the district) general obligation (GO): --$212 million unlimited tax bonds affirmed at 'AA+' underlying. The Rating Outlook is Stable. SECURITY The bonds are secured by an unlimited ad valorem tax pledge of the district. $183 million of the bonds are additionally secured by a guarantee provided by the Texas Permanent School Fund (PSF), whose bond guaranty program is rated 'AAA' by Fitch. KEY RATING DRIVERS SOUND FINANCES: The district's financial profile is solid, featuring strong reserve levels and flexibility. The district faces continued state funding uncertainties and operating and capital needs related to enrollment growth. ECONOMY BENEFITS FROM UNIVERSITY PRESENCE: The local economy is stable, though somewhat limited, and benefits from the presence of Texas A&M University, which has been a driver for continued economic expansion. Local wealth and income levels are below average, due in part to the large student population. Area unemployment is lower than state and national levels. ELEVATED DEBT BURDEN: District debt levels are high and amortization is average. Debt levels are expected to remain elevated, as additional issuance is contemplated to address enrollment growth related capital needs. Combined debt service, pension, and other post-employment (OPEB) costs are manageable. RATING SENSITIVITIES The rating is sensitive to shifts in fundamental credit characteristics including the district's strong financial management practices. The district's history of maintaining solid reserves while addressing operating and capital needs indicates continued rating stability. CREDIT PROFILE Located approximately 90 miles equidistant from Houston and Austin, the district serves the city of College Station, which is part of the larger College Station-Bryan metro area and functions as a regional hub for the predominately rural surrounding area. With nearly 50,000 students, the large, flagship campus of the Texas A&M University system in College Station is predominately located within the district's boundaries and drives much of the area economy. The district has seen enrollment growth of about 3% annually in recent years, which officials expect to continue. Current enrollment is about 11,000 students. SOUND FINANCES FEATURE STRONG RESERVE LEVELS The district's financial position is sound. Despite growth pressures, conservative financial management has resulted in the maintenance of strong reserve levels. As of fiscal year 2012, the district's unrestricted general fund balance was $36.1 million, or approximately 46% of spending. Unrestricted balances have been above 39% of spending for the last five years despite modest to moderate operating deficits in three of the last five fiscal years. District finances have been pressured by recent years' state aid reductions combined with increased operating costs associated with the opening of new school facilities. In response, the district has controlled expenditures through staff reductions, with instructional reductions achieved largely through attrition, cuts to certain service contracts, and increasing staff work load. To support current year operations, the district opted to increase is operations and maintenance tax rate by $0.04 to $1.04 pr $100 of taxable value, the statutory maximum permitted without voter approval. The district still retains some flexibility within the maximum permitted with voter approval ($1.17). DEFICIT BUDGETED FOR FISCAL YEAR 2013 The district budgeted an operating deficit of $4.7 million (about6% of spending) for the current fiscal year, reflecting reduced state aid and increased operational expenditures associated with bringing a new high school facility fully on line. The district has a history of conservative budgeting leading to actual results outperforming budgeted projections. However, even if unrestricted general fund reserve levels decreased by the budgeted amount, the resulting balance would still be a strong 38% of spending. Preliminary expectations for the fiscal year 2014 budget include an operating deficit of approximately the same amount as fiscal year 2013. This estimate assumes continued ramp up costs for the new high school facility and flat state funding levels. ECONOMY BENEFITS FROM UNIVERSITY PRESENCE The area economy benefits significantly from the presence of Texas A&M University, which continues to be a driver for economic expansion. In addition to spurring ongoing housing development, the university was recently awarded a multi-billion dollar grant from the Department of Homeland Security to establish a major pandemic vaccination center. Additional area business expansions include the opening of a new hospital in College Station later this year and the city's rezoning of the area near the hospital as a medical corridor for planned medical related businesses. Area unemployment levels are typically well below those of the state and nation, and the metro area's December 2012 unemployment rate of 5% (vs. 6% for the state and 7.6% for the nation) continued that trend. While income and wealth levels are below average, they are affected by the large student population. Tax base growth continues (about 5%-6% annual taxable assessed value [TAV] growth in 2012 and 2013) though it has moderated from higher prior year levels. Continued growth is projected, reflecting recent and expected residential and business expansions. DEBT LEVELS ARE HIGH The district's overall debt levels, including overlapping debt, are high on a per capita basis ($4,492) and as percentage of market value (6.8%). Debt service as a percentage of general government spending is above average at about 18%. Debt amortization is average, with about 53% of principal retired within 10 years. Debt levels are likely to remain at these levels as the district addresses capital needs associated with on-going enrollment growth. The district has been experiencing about 3% average annual enrollment growth in recent years and expects continued growth at this rate. New issuance of about $60 million to $100 million for new school and warehouse facilities is currently being contemplated. The district's current debt service tax rate ($0.295 per $100 of taxable value) leaves capacity below the statutory $0.50 tax rate test for new debt. The district provides pension and retirement health benefits through the Teacher Retirement System of Texas (TRS). District pension and other post-employment benefit (OPEB) costs are modest (about 1% of spending). As of Aug. 31, 2012, the TRS funded ratio was 81.9% or 73.8% using Fitch's more conservative 7% discount. Combined debt service, pension, and OPEB costs are manageable at about 18.6% of 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 (News - Alert) Global Insight, 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 http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=686015 U.S. Local Government Tax-Supported Rating Criteria http://www.fitchratings.com/creditdesk/reports/report_frame.cfm rpt_id=685314 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. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. |
