Fitch Affirms Coppell ISD, Texas' ULT 'AA+' Underlying; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings affirms its 'AA+' underlying rating for the following Coppell Independent School District, Texas' (the district) obligations as follows:

--$147 million unlimited tax (ULT) bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are secured and payable by an unlimited property tax levy.

KEY RATING DRIVERS

SOLID FINANCIAL RESERVES: The district's conservative fiscal management practices have enabled the district to build up solid financial reserves.

LARGE AND DIVERSE TAX BASE: Fitch expects the district's diverse property tax base to grow moderately despite recent recessionary declines.

MODERATELY HIGH DEBT BURDEN WITH MANAGEABLE CAPITAL NEEDS: The district's overall debt levels are high on a per capita basis but moderate relative to the tax base. Principal amortization is above average. Near- to mid-term capital needs appear to be manageable.

STRONG REGIONAL ECONOMY: The district benefits from its location in the broad and diverse economy of the Dallas-Fort Worth (DFW) metro area. Residents have easy access to a large employment market that continues to outperform the nation in terms of population, employment, and income growth.

HIGH WEALTH LEVELS: Local wealth levels are well above state and national averages.

RATING SENSITIVITIES

PRESERVATION OF STRONG FINANCIAL PROFILE: Maintenance of its strong financial profile to contend with ongoing state funding uncertainties and wealth transfer provisions is critical to the district's strong credit rating.

CREDIT PROFILE

The city of Coppell (the city) is located approximately 18 miles northwest of downtown Dallas. The district serves the city and small portions of the cities of Dallas and Irving in northwest Dallas County with an estimated population of 45,313 in 2012. After a couple of years of enrollment declines, the district's enrollment levels resumed growth in fiscal 2010 to its current enrollment level of 11,044.

CONSERVATIVE MANAGEMENT GROWS FUND BALANCE RESERVES WHILE BALANCING WEALTH TRANSFER PROVISIONS

The district is considered property wealthy and relies almost entirely on local property taxes, but its funding is subject to the state formula and a portion of the district's operations and maintenance (O&M) levy is effectively recaptured by the state for distribution to less wealthy school districts. For fiscal 2011 and 2012, these payments totaled roughly $23 million each year, or about 25% of total general fund spending.

Financial performance and reserve levels are very strong despite the large recapture payments associated with the state funding formula. In September 2010 (effective fiscal 2011), the district received voter authorization to increase its O&M tax levy from $1.04 to the maximum of $1.17 per $100 taxable assessed value (TAV). Although some of the additional levy is transferred to poorer school districts, the approved increase enables districts to preserve a moderate portion of incremental taxing effort. The additional property tax revenue, combined with the district's conservative budgeting practices and enrollment gains, led the district to generate an $8.6 million surplus in fiscal 2011 and another $6.6 million in fiscal 2012. For fiscal 2012, the district ended the year with a substantial $43.7 million unrestricted general fund balance equivalent to 47% of spending.

For fiscal 2013, the district's budget was adopted with an estimated $4.2 million general fund deficit with the assumption that the district was required to expend roughly $20 million for wealth equalization, or recapture. However, interim results currently point to balanced operations due to higher than budgeted student enrollment. The district typically budgets conservatively and has consistently generated better than budgeted results as reflected in its substantial general fund reserve levels.

MAINTENANCE OF STRONG RESERVES TO SUPPORT RATING STABILITY

The state's school funding outlook for the fiscal 2014-2015 biennium is unclear and will not be resolved until after the district adopts its fiscal 2014 budget. The proposed budgets from the state government's house and senate only partially restore previous education cuts from the 2012-2013 fiscal biennium but will likely be amended prior to adoption of the state's budget in June. Fitch expects the district will maintain its solid financial profile given its current substantial fund balance.

DEBT LEVELS REMAIN MODERATELY HIGH BUT GROWTH PRESSURES APPEAR MANAGEABLE

The district's overall debt ratio is high on a per capita basis at nearly $6,800 but moderate as a percent of market value at 3.5%, reflective of strong commercial valuations. Approximately one-half of the district's tax base is commercial/industrial. Debt amortization is above average with 59% of debt maturing in 10 years. The district currently has $13.9 million in authorized debt to be issued for technology and facilities. Voters will consider a new bond proposal in May estimated at $65 million to $79 million for construction of new facilities, major improvements and renovations, and technology needs.

The district's most significant growth occurred in the 1990s, and until a few years ago, it was considered to be relatively built out with only small pockets of land available for residential development. In 2008, a large 350-acre tract of land around North Lake that lies within the district's property boundaries in the city of Dallas was rezoned to residential use. Development has been delayed, but the property is still planned to be developed in five phases over a term of approximately 10-15 years. Although the district estimates a potential 30% increase in student population upon full build-out, the first phase is not expected to generate a student base increase that would require additional school facilities. Given its lakeside location, proximity to downtown Dallas, and the scarcity of developable land in the area, this property is expected to be developed with high-end residences, which would add to the district's already wealthy tax base.

TAX BASE DIVERSITY

The sizable commercial presence in the district's tax base results in a high $191,000 market value per capita. After some modest dips in fiscal years 2010 through 2012, the district's diverse tax base resumed growth in fiscal 2013. Although the tax base has matured, the prospects for continued TAV growth over time continue to be strong given the ongoing commercial development along its major thoroughfares.

LOCATION IN BROAD AND DIVERSE DFW ECONOMY

The district's proximity to Dallas and location in the broader DFW metropolitan area provides residents with easy access to a large and diverse labor market. Dallas is the second largest city in the state and ninth largest in the nation, with an estimated population of 1.2 million. The city is home to numerous corporate headquarters, and prominent economic sectors include transportation, financial services, wholesale trade, manufacturing, oil/gas, and education and government.

The area employment picture is positive, with the city of Coppell and the surrounding DFW region adding jobs at a rate faster than the nation since the recession ended in 2009. Coppell's unemployment rate, at 5.2% in December 2012, compares favorably to the DFW region (5.9%), state (6.0%), and the national average (7.6%). Local wealth levels are high with median household income at almost twice that of the DFW metro area and more than double that of the state and national 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 the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, and LoanPerformance, Inc.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', dated Aug. 14 2012.

--'U.S. Local Government Tax-Supported Rating Criteria', dated 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
Gabriela Gutierrez
Director
+1-512-215-3731
Fitch Ratings, Inc.
111 Congress Ave., Suite 2010
Austin, TX 78701
or
Secondary Analyst
Rebecca 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
Gabriela Gutierrez
Director
+1-512-215-3731
Fitch Ratings, Inc.
111 Congress Ave., Suite 2010
Austin, TX 78701
or
Secondary Analyst
Rebecca 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