AUSTIN, Texas--()--Fitch Ratings has assigned an 'AAA' rating to the following Hurst-Euless-Bedford Independent School District, Texas' (the district) unlimited tax bonds (ULTs):
--$136.5 million ULT school building bonds, series 2011;
The 'AAA' long-term rating is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose Insurer Financial Strength is rated 'AAA' by Fitch.
The series 2011 bonds are scheduled for negotiated sale the week of July 25. Proceeds from the sale will be used to construct and improve school facilities, acquire equipment and land for school buildings, and pay the costs of issuance.
Fitch also assigns an 'AA+' underlying rating to the series 2011 bonds and affirms the 'AA+' rating on the district's $205.2 million outstanding ULT debt.
The Rating Outlook is Stable.
KEY RATING DRIVERS
--The district has maintained a very strong financial profile, characterized by high reserve levels, ample liquidity, and conservative budgeting.
--Planned residential development, balanced against the maturity of the main population canters, is expected to continue a trend of modest enrollment gains over the near term.
--The district benefits from its location along a key transportation corridor connecting the greater Fort Worth area with the city of Dallas and DFW International airport. The local economy is somewhat concentrated in aviation, but diversified between aviation manufacturing, airport operations, and corporate airline headquarters.
--Taxable assessed valuation (TAV) contracted modestly in fiscal 2011, with flat TAV expected for fiscal 2012.
--Overall debt levels are high with this issuance and amortization of all ULT debt is slightly below average; Fitch considers future capital needs manageable, with no new debt planned in the near term.
SECURITY
The bonds are secured by an unlimited ad valorem tax pledge levied against all taxable property within the district. The bonds are further secured by a guaranty from the Texas PSF.
CREDIT PROFILE
The district is located between Dallas and Fort Worth in Tarrant County and includes the primarily residential cities of Hurst, Euless, and Bedford within its 44-square mile boundaries. Due to the maturity of its population centers, the district's enrollment (presently at just above 21,000) has grown modestly in recent years. Officials expect enrollment gains to continue at just above 1% annually over the near term, spurred somewhat by construction of the Viridan, a 2,000 acre mixed use community located within the district's boundaries. After previously being delayed by the economic downturn, construction of the development is underway and is projected to include 3,500 single-family homes at build out. District socioeconomic indicators are favorable, characterized by above average income levels and low poverty and unemployment rates.
Aviation is a major component of the district's tax base. The two largest taxpayers are Bell Helicopter and American Airlines Inc., equal to a moderate 3.9% and 2% of the district's fiscal 2011 TAV, respectively; additionally, a portion of DFW International Airport lies within the district's boundaries. Other important sectors include retail (Northeast Mall) and healthcare. Commercial development is expected to be enhanced by major highway improvements within the district; the North Tarrant Express expansion project is currently underway and will improve Highway 121 (which bisects the district), a key route connecting the greater Fort Worth area with the city of Dallas and DFW Airport. Taxable assessed valuation (TAV) growth was steady and moderate prior to fiscal 2010, but with some weakening of residential and commercial values, TAV flattened in fiscal 2010 and declined 1% in fiscal 2011. While current figures for June show slight year-over-year TAV growth, officials realistically expect flat TAV for fiscal 2012.
Financial performance remains very strong, with operating surpluses posted in each of the past five fiscal years. Audited fiscal 2010 results show $6.7 million operating surplus (5% of spending) and unreserved general fund balance totaling an impressive $69.5 million or 49% of spending. Liquidity is also solid, with cash and investments at nearly $80 million or 240 days cash-on-hand. Management forecasted a $1.1 million use of fund balance for fiscal 2011, but aided by conservative budgeting and enrollment assumptions now expect at least a $500,000 surplus, even after a $500,000 contingency reservation and a $3.5 million transfer to a capital projects fund to acquire land for a future elementary school site.
The state's budget shorts Texas school districts by roughly $4 billion over the next biennium, which translates to an $8.6 million revenue loss in fiscal 2012 for the district and additional $4.2 million revenue loss in fiscal 2013. In preparation for the shortfall, officials have carved out about $5 million in savings in the fiscal 2012 budget, which includes the elimination of 34 positions, stipend and program cuts, a pay freeze, and other discretionary savings. The district will also benefit from a one-time payment of $3.4 million in federal EduJobs funds and officials plan to tap $400,000 in excess worker's comp reserves, which in sum is expected to generate a nearly $2.3 million operating surplus for fiscal 2012. While the district's multi-year financial forecast does show a modest use of fund balance in fiscal 2013 to offset the state cuts, officials note that further savings are queued up and Fitch expects that reserves will be substantially maintained at a level in line with the current rating.
The current offering represents the entirety of the $136.5 million in debt authorization approved by voters in May 2011. Roughly $113 million will be used towards school facility and technology improvements and the balance towards improving two high school activity centers, with debt service structured to match the useful life of the assets. The expected tax rate impact is fairly sizable at $0.14 per $100 TAV, which will push the district's total tax rate to a moderately high $1.42 per $100 TAV. However, Fitch notes the strong voter support for the authorization (75% approval for Proposition 1 and 62% approval for Proposition 2, respectively) helps to offset concerns over the tax rate impact.
With this issuance the district's overall debt levels are moderately high on a per capita basis and rise to an above average 5.5% of full market value. Upon completion of the bond program, the district's future capital needs include the construction of an elementary school (associated with the Viridan development) and a secondary school, but officials do not plan to seek additional debt authorization for these projects until 2017. The district contributes to the Teacher Retirement System of Texas (TRS), a public employee retirement system that is a cost-sharing, multiple employer defined benefit pension plan; other post-employment benefits (TRS-Care) are also provided through TRS. Combined pension and OPEB spending totaled $2.1 million or a modest 1.5% of general fund spending.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, Zillow.com, National Association of Realtors, and the Texas Municipal Advisory Council.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 16, 2010);
--'U.S. Local Government Tax-Supported Rating Criteria' (Oct. 08, 2010).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566
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