Fitch Rates Lake Travis ISD, TX ULT Rfdg Bonds Series 2013 'AAA' PSF; 'AA+' Und.; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has assigned an 'AAA' rating to the following Lake Travis Independent School District (ISD), Texas (the district) bonds:

--$108.285 million unlimited tax (ULT) school refunding bonds, series 2013.

The 'AAA' rating is based on a guaranty provided by the Texas Permanent School Fund (PSF) which is rated 'AAA' by Fitch. Fitch has also assigned an underlying 'AA+' rating to the 2013 bonds.

The bonds are expected to price via negotiation as early as the week of Feb. 4, 2013, pending market conditions. Proceeds from the sale of the bonds will be used to refund a portion of the district's currently outstanding bonds for interest cost savings.

In addition, Fitch affirms approximately $302 million in outstanding district ULT bonds (pre-refunding) at 'AA+'.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an unlimited ad valorem tax pledge of the district. In addition, the bonds are secured by the PSF, whose bond guarantee program is rated 'AAA' by Fitch.

SENSITIVITY/RATING DRIVERS

STRONG FINANCIAL PROFILE: The district's financial profile is a positive credit factor, characterized by large reserve levels and a consistent record of conservative budget practices.

STABLE AND DIVERSE ECONOMY: The local economic climate is favorable and continues to demonstrate low unemployment and a healthy local housing market despite the national recession.

GROWTH CONTINUES: Both the district's tax base and student enrollment have exhibited steady growth, and housing construction continues in the area. A recent demographic study projects that the district's enrollment growth will continue at a rapid annual rate of 6%, which is in line with historical growth.

ELEVATED DEBT BURDEN: The district's overall debt burden is high, particularly on a per capita basis. Fitch believes solid population and tax base growth are likely to continue, making the burden decline somewhat over time. No additional debt is planned within the next several years.

CREDIT PROFILE

Lake Travis ISD is located approximately 18 miles west of Austin, Texas, and is a relatively wealthy residential community.

EXEMPLARY FINANCIAL PERFORMANCE

The district's financial position is strong, as evidenced by an audited fiscal 2012 unrestricted general fund balance level of $29.8 million (38% of annual spending). Fund balances have exceeded 20% of spending for each of at least the past 10 audited years, maintaining a high degree of financial flexibility through two national recessions. Financial strength is enhanced through consistently conservative budgeting, and by the board of trustees' ability (and stated willingness) to eliminate its optional 20% homestead tax exemption in the event of unforeseen fiscal distress in the district.

The district maintained healthy reserves and conservative budgeting as it navigated the 2012-2013 state funding biennium. The Texas legislature trimmed K-12 funding levels statewide, and the district contended with a funding reduction totaling $6 million over this two-year period.

Management absorbed the cuts in the fiscal 2012 budget to achieve positive results through spending reductions in various departments (primarily maintenance, transportation, and athletic departments). The fiscal 2013 budget was adopted with a $2.4 million deficit, but management projects a balanced result at year-end. Fitch believes this is a reasonable projection as prior year performance has generally been positive relative to the budget.

DESIRABLE RESIDENTIAL COMMUNITY

Enrollment and the tax base have steadily expanded in recent years, and continued growth is anticipated. Student enrollment has grown at a rapid annual rate of 6% over the past five years, and the district's external demographer has recently forecast that trend to continue over the next 10 years. The district's fall 2013 enrollment was approximately 7,800 students. Given recent history and the comparatively strong regional economy, Fitch believes this forecast is reasonable.

The district's taxable assessed value (TAV) has expanded at a healthy compound annual rate of 5.5% over the past five fiscal years. Growth has been more modest in recent years, including a small decline in fiscal 2011 and a 4.6% increase in fiscal 2013, due to the impact of the recession on homebuilding and residential property values. Housing data available to Fitch indicate that the Austin area market is performing well relative to other markets in terms of new starts and housing prices. Three new residential developments are currently in progress within the district, each expected to add between 1,200 to 1,500 rooftops at final completion in the next few years.

PART OF THE AUSTIN METRO ECONOMY

The district is part of the mature and diversified area economic base anchored by the large and stabilizing presence of state government and higher education, as well as major employers in the high-technology manufacturing and healthcare sectors.

Wealth levels in the district are well above state and national averages; per capita money income is 190% of the Texas average and 170% of the U.S. average, and median household income is roughly 187% of the state average and 181% of the U.S. average.

The unemployment rate in Travis County has trended downward after spiking in 2009 and 2010. The county's November 2012 rate of 4.8% was well below both the Texas (5.8%) and U.S. (7.4%) averages for the month.

ELEVATED DEBT BURDEN; NO DIRECT PENSION LIABILITY

The district's overall net debt burden is elevated at 5.6% of fiscal 2013 market value and quite high $9,200 per capita. Fitch expresses some concern over the elevated debt levels, but believes continued growth is likely given recent trends, ongoing economic development, and an independent demographer's projections. The district issued a large amount of debt in 2012 which it expects will take care of debt-funded capital needs for the next five years.

Maximum annual debt service as a percentage of fiscal 2012 general fund expenditures is high at 31%. Reflecting the strong tax base, however, the debt service tax rate is well below the $0.50 per $100 of TAV cap upon issuance at $0.37. However, if the expected economic growth does not materialize, the rate could increase, causing the fixed debt costs to become a greater credit concern.

District voters have shown support for the district's capital improvement plan, as evidenced by the successful November 2011 GO authorization. Proceeds from that issuance are being used to construct the district's sixth elementary school, a second middle school, and various campus expansions and upgrades. The new authorization has put moderate upward pressure on the district's debt service tax rate, increasing from $0.28 to $0.37 per $100 TAV.

Employee pensions are administered by TRS, the state's defined benefit CSME pension plan. Contributions are set by statute according to actuarial analysis and for Lake Travis are funded entirely by employees and the state. OPEB is also provided by the state. This lack of burden is an additional offset to Fitch's concerns about high debt levels.

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, National Association of Realtors, the Underwriter, and the Municipal Advisory Council of Texas.

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

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Contacts

Fitch Ratings
Primary Analyst
Matt Dustin
Analyst
+1-512-215-3727
Fitch, Inc.
111 Congress Ave, Suite 2010
Austin, TX 78801
or
Secondary Analyst
Becky Meyer
Director
+1-512-215-3733
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Matt Dustin
Analyst
+1-512-215-3727
Fitch, Inc.
111 Congress Ave, Suite 2010
Austin, TX 78801
or
Secondary Analyst
Becky Meyer
Director
+1-512-215-3733
or
Committee Chairperson
Amy Laskey
Managing Director
+1-212-908-0568
or
Media Relations
Elizabeth Fogerty
+1-212-908-0526
elizabeth.fogerty@fitchratings.com