AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings affirms Grayson County Junior College District, Texas' (the district) outstanding general obligation (GO) bonds as follows:
--$40.7 million in outstanding GO bonds, series 2007 and 2008 at 'AA-'.
The Rating Outlook is Stable.
SECURITY:
Ad valorem tax levied on all taxable property within the district, limited to up to $0.50 per $100 taxable assessed valuation (TAV).
KEY RATING DRIVERS
STRONG FINANCIAL POSITION: The district maintains a sound financial profile despite recent state funding cuts and some enrollment loss. The profile is characterized by a relatively diverse revenue base, positive operating margins, and solid reserve levels.
BELOW AVERAGE SOCIOECONOMIC METRICS: Area population growth trends are modest, which provides a level of constraint to the locally concentrated enrollment base. County income/wealth and educational attainment levels fall below state and national averages.
RELATIVELY LIMITED ECONOMY: A sizeable portion of Grayson County remains rural/agricultural in nature. The local economy is anchored by employers and taxpayers predominately in the healthcare, government, education, and manufacturing sectors.
STABLE TAX BASE: The district's tax base is stable and moderately diverse. Healthy annual TAV increases since fiscal 2005 have dwindled to flat or merely modest gains in recent years. The district maintains a low and stable tax rate, well below the voter-approved cap.
MODERATE DEBT AND OTHER LONG-TERM LIABILITIES: The overall debt burden is moderate. Capital needs are manageable, assisted by moderating enrollment trends and solid reserves that support sizeable pay-go capital spending. Carrying costs are low.
RATING SENSITIVITIES
FINANCIAL STABILITY: The district's financial profile is a key credit strength. Material deterioration of the district's solid reserves that currently provide financial flexibility could apply downward rating pressure. The Stable Outlook reflects Fitch's near-term expectation that such shifts are unlikely.
CREDIT PROFILE
The district serves primarily Grayson County with an estimated population of 123,000. The county is located north of the Dallas-Fort Worth metropolitan statistical area (MSA) along the Texas-Oklahoma border, bisected by U.S. Highway 75.
TAX BASE, ECONOMIC STABILITY
A sizeable portion of Grayson County is agricultural in nature. Income and wealth levels fall below state and national averages by about 10% as measured by median household income. Population gains since 2000 have been relatively modest, averaging about 1% annually or roughly half of the state's rate of growth. The area's top employers, which consist primarily of health care, education, government, and manufacturing concerns, provide a fairly stable employment base of roughly 18% of total county employment. Unemployment remains comparable to historical norms at 7% in February 2013, slightly exceeding the state's rate (6.4%) but below the nation's (8.1%). Unemployment has declined on a year-over-year basis from 7.7% in February 2012, although Fitch notes that a modest 1.3% loss of labor force over the 12 months contributed to the drop.
The district's taxing jurisdiction is coterminous with Grayson County. Top taxpayer concentration is moderate at approximately 6%. Steady annual TAV gains have historically been realized, but the more recent trend is flat to modest gains. TAV grew by a modest 2% in fiscal 2013 and a similar 1% TAV gain is projected by management for fiscal 2014. Nonetheless, Fitch believes it is likely TAV growth will accelerate trend will evolve over the near-term due to an electric power plant under construction near the city of Sherman. Management expects this project will add to the district's TAV as soon as fiscal 2015 since the district did not choose to participate in a tax abatement agreement.
Most students are local and the district is favorably positioned with tuition rates that remain affordable despite recent increases. The district realized strong enrollment gains (a cumulative 37.5% over fiscals 2009-2011) during the recession, although the enrollment base remains small. Student enrollment as measured by full-time student equivalents (FTSEs) totaled 4,711 in fiscal 2012, which was down about 5% from the prior year and likely due in part to the counter-cyclic nature of enrollment trends against improving economic conditions. Year-to-date enrollment trends in fiscal 2013 reflect an additional 8.2% decline that incorporates a favorable softening of the decline in the spring semester. Nonetheless, despite these recent enrollment declines, Fitch believes the district's trend of solid annual financial performance and management's ability to right-size a portion of its spending to enrollment trends should enable the district to successfully navigate any associated financial pressure over the near term.
REVENUE DIVERSITY SUPPORTS OPERATIONS
The district benefits from a diverse revenue stream comparable to most community colleges in the state, which includes federal (largely Pell grant) revenue (the largest revenue source at about 30% in fiscal 2012), roughly equivalent levels of property taxes for operations and debt service, followed by state appropriations and tuition/fees. The district's tuition rates remain competitive despite recent increases and provide a measure of financial flexibility. Its overall tax rate has remained at a stable $0.18 per $100 TAV since fiscal 2009 despite recently sluggish TAV trends, well below the locally voted cap of $0.70 (not to exceed $0.50 for debt service).
Federal revenues have trended upwards since fiscal 2008 due largely to higher levels of Pell grants received for low-income students. The Pell funding contributed a high 86% of federal revenues or $11.2 million in fiscal 2012. Although this amount was down slightly from the prior year, it exceeded the state's appropriation of $9 million for the second fiscal year. The district remains susceptible to shifts in the level of federal support for this discretionary program, as well as possibly reduced student eligibility for these funds if increased federal academic progress and performance requirements are implemented.
State aid as a percentage of total revenues and per student funding has trended downward given cuts to state appropriations that have occurred over the last four fiscal years (fiscals 2010-2013). About 21% or $9 million of total revenues came from state funding in fiscal 2012, which was down from about 29% in fiscal 2008. Over the near term, management expects some modest improvement in appropriation levels over the next biennium (fiscal 2014-2015) given the results of the 2013 legislative session and stronger economic conditions and revenue trends in the state.
POSITIVE FINANCIAL PERFORMANCE; SOLID RESERVES MAINTAINED
District operations have consistently generated positive operating margins over the last five fiscal years despite the state funding cuts and some enrollment loss. Management's conservative fiscal practices have typically allowed the district to outperform its structurally balanced annual operating budget. For fiscal 2012, the operating margin was strongly positive at 10.1%, assisted by reduced spending, moderate tuition and fee increases, and additional property tax revenue. Liquidity levels, as measured by available funds, were a healthy 69% of total operating/non-operating expense in fiscal 2012. Reserves remained strong at $14 million in unrestricted fund balance, equivalent to approximately 56% of fiscal 2013 total unrestricted revenue, well above management's formal policy to maintain between 20% - 25% of the ensuing year's budgeted unrestricted revenues in reserve.
For fiscal 2013, the $25 million operating budget remained flat and was adopted as balanced with a 10% enrollment decline assumed. Moderate tuition and pay increases were included. Year-to-date, management expects to maintain its financial position with minimally break-even results given favorable expenditure trends and slightly better than budgeted enrollment. Preliminary planning for the fiscal 2014 budget has begun, which anticipates the adoption of a structurally balanced operating budget and a slightly higher state appropriation while sharing a moderately lower (50%) portion of the employer's cost of healthcare/pension benefits with the state as compared the last biennium (58%). The budget also includes costs associated with the opening of the new south campus tech center.
MODERATE DEBT, OTHER LONG-TERM LIABILITIES
Overall debt levels are moderate at approximately $3,232 per capita or 4.1% of market value. Principal amortization of tax-supported debt is slightly above average with about 57% repaid in 10 years. Capital needs are manageable, assisted by moderating enrollment trends and solid reserves that support sizeable pay-go capital spending. Management has no near-term debt plans. The new technology center at the district's south campus is being built and equipped with the use of about $3 million from available plant fund reserves. A $2 million federal grant will provide the remainder of the construction funding.
The college's pension and other post-employment benefit (OPEB) liabilities are limited because of its participation in the state pension plan administered by the Teachers Retirement System of Texas (TRS). TRS is a cost-sharing, multiple-employer plan in which the state rather than the college historically provided the bulk of the employer's annual pension contribution. The college's annual contribution to TRS is determined by state law as is the contribution for the state-run post-employment benefit healthcare plan. Beginning with the 2012-2013 biennium, the state did not fully fund its statutory pension obligation for community college districts, which required the districts to fund an increased portion of the total employer pension contribution, up from about 20% to nearly 60%. Carrying costs (debt service, pension, OPEB costs, net of state support) totaled a low 9% of total expenses in fiscal 2012 even after considering the increased payment for employee pension benefits.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from Creditscope, Texas Municipal Advisory Council, Case-Shiller, and IHS Global Insight.
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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=793364
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