Fitch Rts Northside ISD, Texas $90MM ULT Bnds Ser 2008 'AA' Underlying; Upgrades $1.2B Parity Bnds

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns an 'AA' underlying rating to Northside Independent School District (ISD or the district), TX's $90 million unlimited tax school building bonds, series 2008. In addition, Fitch upgrades its rating on the district's $1.2 billion in outstanding parity debt to 'AA' from 'AA-'. The series 2008 bonds are expected to sell the week of June 23 via negotiation. The district has applied for a guaranty from the Texas Permanent School Fund (PSF). Upon their approval, the 'AAA' rating will be assigned to the current offering based on the insurer financial strength of the PSF, which is rated 'AAA' by Fitch. The Rating Outlook is Stable.

The upgrade of the district's underlying rating to 'AA' reflects the district's consistently strong financial management and performance within a rapid enrollment growth environment, continued strong taxable assessed valuation (TAV) growth, and its large and diverse employment base, balanced by the district's above average debt levels. The district's rising debt burden is due to very large growth related capital needs, with voters consistently supporting the district's bond programs. Serving the rapidly growing northwest portion of Bexar County and surrounding areas, the district continues to record sizeable gains in TAV, rising by a compound average annual rate of almost 13% per year over the last five fiscal years, including a large 20% increase in fiscal 2008. To accommodate its rapid enrollment growth, averaging 3,000 students per year, an impressive 70% of voters approved the largest bond election in district history for $693 million in May 2007. The favorable prospect for continued rapid tax base growth and the strong voter support for the bonds moderate the credit impact to the district's debt profile.

Annual enrollment growth has averaged almost 5% per year over the last five years. The district's fiscal 2008 enrollment grew by over 3,600 for a total enrollment base of 85,546 students, making it the state's fourth largest district. This high-growth mode caused the district to seek and obtain nearly $1.8 billion in bond authorizations since 1998. The May 2007 authorization funds growth-related needs that include nine elementary schools, two middle schools, and one high school plus classroom additions, campus renovations, science labs, and technology and transportation needs.

The current offering represents the second installment of the aforementioned authorization. The district's current direct debt burden has risen substantially and now totals over $2,800 per capita and 4.5% of TAV, due in part to declining amounts of state support for outstanding debt. Overall debt ratios are also above average at over $4,833 per capita and 7.6% of TAV. The district's principal amortization rate is slow at 31% in 10 years, but is not unusual for rapidly growing districts. The May 2007 bond authorization is projected to increase the district's debt service tax rate by a modest $0.045 per $100 TAV.

Despite pressures associated with consistent enrollment growth, financial performance has been solid as evidenced by undesignated fund balances of 10% or better of expenditures since fiscal 1995, which exceed management's goal of one month of expenditures. For fiscal 2007, the district posted a large $22 million general fund operating surplus due to lower than budgeted expenditures. The district's growing financial cushion is impressive, comprised of a $48.6 million undesignated fund balance and $56 million in additional reserves, totaling $104 million or 19% of spending in fiscal 2007. Notably, the district has set aside $52 million of these reserves for the opening of new schools, to purchase furniture, equipment, and for pre-design costs which it will draw down over the next three years.

Fiscal 2008 is projected to use nearly $8 million of the designated general fund reserves for the opening of three new schools and the provision of 5% pay raises. The proposed fiscal 2009 budget will include the adoption of the optional $0.04 O&M tax levy allowed by law without voter approval. These 'super pennies' are projected to generate $22 million in additional local and state revenues and will help offset over $19 million in new growth expenditures, including the opening of three new schools, plus $19 million in teacher pay hikes. Aided by year-end budget sweeps and the use of new school designations, the district projects it will maintain strong year end reserves through fiscal 2011.

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