Fitch Rates El Paso ISD, Texas $142MM ULT Bonds 'AAA' PSF/'A+' Underlying; Outlook Positive

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to $142.2 million of El Paso Independent School District (the district), TX's unlimited tax school building and refunding bonds, series 2008. The 'AAA' rating is based on the guarantee provided by the Texas Permanent School Fund (PSF), whose insurer financial strength is rated 'AAA' by Fitch. In addition, Fitch assigns an underlying 'A+' rating to the series 2008 bonds, which are expected to sell on or about Aug. 14 via a negotiated sale. Also, Fitch affirms the 'A+' underlying rating on the district's approximately $388.2 million in outstanding unlimited tax bonds. The Rating Outlook is Positive.

The bonds are payable from an unlimited property tax levy on all taxable property located within the district. Bond proceeds will be used to acquire, construct, improve, repair, renovate, and equip school buildings, purchase necessary sites and to pay issuance costs.

The underlying 'A+' rating and Positive Outlook reflect the district's growing reserve levels, accelerating taxable values, and sustained voter support for much needed bond programs. Offsetting risks include the operating and capital pressures associated with a projected surge in enrollment. Substantial troop additions to Ft. Bliss will add significantly to the district's historically stable enrollment base and is spurring large-scale residential and commercial development in the northeastern part of El Paso (the city). The district will be challenged in providing sufficient instructional space for military and civilian dependents, facilitated by the passage of its second major bond authorization in four years. Despite these large authorizations, additional state debt support will keep debt levels above average but manageable. The accurate timing of enrollment increases will be key to avoiding future structural imbalances to the district's finances during this transitional period. The maintenance of solid reserve levels through the impending enrollment boost, along with continued solid tax base growth, may lead to positive credit considerations.

The district, the seventh largest school district in the state, encompasses over 250 square miles and serves the majority of the City of El Paso. The area's economy is based on international trade and manufacturing, copper mining, and ore smelting. Stability is also provided by the large military presence (Fort Bliss and Biggs Army Airfield) and educational concerns (the University of Texas at El Paso). As a result of base realignment and overall expansion of the armed forces, Ft. Bliss is expected to receive 27,000 additional troops with the majority of school age troop dependents enrolling in the district. By 2011, the increased troop strength is expected to boost district enrollment by about 9,700 in military and civilian personnel dependents.

The district's tax base is diverse with taxable values increasing again after years of stagnant growth. Taxable assessed valuation (TAV) grew by a notable 16% and 13% in fiscal years 2007 and 2008, respectively, increasing by $3.1 billion over that period. The ongoing $5 billion expansion of Ft. Bliss has spurred the development of large master planned communities as about 65% of the additional troops are expected to live off-base. Furthermore, the relocation of air cavalry and armored aviation units to Ft. Bliss is expected to attract high-technology companies for both services and research and development. The city's unemployment rate is already trending down to near record levels, totaling 5.2% in May 2008.

The current offering is the last installment of a $230 million bond program approved by 53% of voters in May 2007, mostly for new schools and classroom additions. This was the second key authorization approved by voters since 2003, allowing the district to address the majority of its total capital needs, including its most pressing deferred maintenance needs. The tax rate impact from this authorization is projected to be modest under reasonable TAV growth assumptions.

The district's direct debt profile remains modest at under $1,000 per capita and 2.6% of TAV after adjusting for state support. Overall debt ratios are now moderately high as a percentage of TAV at 6.0% but moderate on a per capita basis at under $2,300. The district's principal amortization rate was previously rapid but has trended down to a below average rate of 38% in 10 years.

The district's financial performance has improved notably since a new board and administration implemented improved cost controls and budget cuts, leading to operating surpluses over the last two fiscal years. Fiscal 2006 posted a $7.6 million general fund surplus, increasing its undesignated fund balance to $42.3 million or 10.8% of spending. Additionally, fiscal 2007 results posted a large $20.9 million operating surplus and a nearly 15% reserve, due largely to accruals and the rolling forward of purchase orders and unspent funds. However, projected fiscal 2008 operating results point to a large operating deficit due mostly to a sizeable differential between projected and actual average daily attendance (ADA) associated with shifting deployment patterns at Ft. Bliss. The proposed fiscal 2009 operating budget is balanced but based on an ADA surge of 1,300 or 2.4%, due mostly to the arrival of military troop dependents, plus natural growth and new attendance initiatives.

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