AUSTIN, Texas--()--As part of its continuous surveillance efforts, Fitch Ratings takes the following action on Lubbock-Cooper Independent School District (Lubbock-Cooper ISD), Texas:
--$123.9 million unlimited tax (ULT) bonds, upgraded to 'AA' from 'AA-'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by ad valorem taxes levied against all taxable property within the district, without limitation as to rate or amount. In addition, the bonds are secured by the Texas Permanent school fund (PSF) guaranty, whose bond guarantee program is rated 'AAA' by Fitch.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The upgrade to 'AA' is based on the strength of the district's financial performance as indicated by five consecutive years of positive operating margins, despite the pressures of high enrollment growth. Management prudently maintains adequate general fund balances, which provide flexibility in light of continued pressure on state finances.
HEALTHY TAX BASE: The positive rating action also reflects significant growth of the primarily residential tax base, which remained strong during the recession, spurred by build out of the south and southwest region of Lubbock County. Management expects the trend to continue, which Fitch considers reasonable based on residential development currently underway.
ABOVE AVERAGE DEBT: The district's above average debt reflects recent infrastructure needs, but is somewhat mitigated by the strong local economy. Management does not anticipate issuing new debt for at least five years given the capacity provided with the addition of two new schools.
STABLE LOCAL ECONOMY: Lubbock serves as the education and medical center of this highly mechanized agricultural area, which accounts for more than half of the state's cotton production.
ABOVE AVERAGE SOCIOECONOMIC PROFILE: The low unemployment rate reflects solid job growth, and the region benefits from affordable housing and relatively stable home prices. Median household income is somewhat below average, but has grown more quickly than the national average in the past two years.
CREDIT PROFILE
STABLE LOCAL ECONOMY
The largely rural district serves the southern portion of the city of Lubbock (GO bonds rated 'AA+' by Fitch) and the unincorporated community of Woodrow. Educational, health services, and government are among the top employment sectors and provide a stabilizing influence to the region. Top employers include Texas Tech University, Covenant Health System, Lubbock Independent School District and University Medical Center. The county is also home to over 200 manufacturing plants representing products that include semiconductors, vegetable oils, irrigation equipment and pipe, plastics and farm equipment, paperboard boxes, millwork, foodstuffs, prefab homes, poultry and livestock feeds, boilers and pressure vessels, automatic sprinkler system heads and structural steel fabrication.
Growth has favored the south and southwest portions of Lubbock County, almost doubling the district's largely residential taxable assessed valuation (TAV) in the past five years to $1.7 billion in fiscal 2012. The top 10 taxpayers represent real estate, financial, utility, agriculture and retail sectors, with no appreciable taxpayer or sector concentration. The district's tax collection rates have remained strong and stable over the past five years.
SOUND FINANCIAL MANAGEMENT
Rapid enrollment has placed pressure on the district's finances; nevertheless, officials managed spending to preserve healthy fund balances. The fiscal 2011 unrestricted fund balance of $8.6 million (or 28.7% of spending) exceeds the district's liquidity target and provides a necessary cushion against future state funding cuts. State funding contributed 45% of the district's fiscal 2011 total revenue, down from 51% in fiscal 2008, due to the growth of property tax revenues. Federal stimulus money provided $1.1 million of the district's revenues in fiscal 2011.
The balanced fiscal 2012 budget includes savings from attrition, as well as a variety of program and departmental budget cuts, which helped to mitigate the state's reduced funding level. The fiscal 2012 budget also benefits from $656,000 of EduJobs monies. Management is in the early stages of developing the fiscal 2013 budget and retains additional cost flexibility based on undeployed strategies developed in fiscal 2011. The M&O tax rate has remained at the statutory cap of $1.04 per $100 of TAV since fiscal 2008 and officials do not currently plan to seek voter approval to tap any of the additional $0.13 available.
ABOVE AVERAGE DEBT
Above average debt of $6,415 per capita (or 7.8% of market value) resulted from a sizeable capital expansion program, which is winding down with completion of a new elementary and middle school. Amortization is slow, with 12.7% of principal scheduled for retirement within 10 years. Given the expectation of continued tax base growth, officials do not anticipate an immediate increase in the I&S tax rate of $0.459 per $100 of TAV, which is currently close to the statutory cap of $0.50 per TAV for new debt issuance. The district does not expect to issue new debt for at least five years.
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, eliminating any liability for the district. The system also offers post-employment health benefits to retirees.
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 Global Insight, Zillow.com, National Association of Realtors.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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