AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns ratings to Bryan Independent School District, Texas' (the district) unlimited tax (ULT) bonds as follows:
--$9.2 million ULT school building and refunding bonds, series 2013 at 'AAA' enhanced / 'AA' underlying;
The 'AAA' long-term rating is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose bond guaranty program is rated 'AAA' by Fitch.
The bonds are scheduled for negotiated sale on the week of June 24. Proceeds from the sale of the bonds will be used for athletic facilities improvements and to refund a portion of the district's outstanding ULT debt for debt service savings.
Fitch also affirms the 'AA' underlying rating on the district's $146 million in outstanding ULT bonds (pre-refunding).
The Rating Outlook is Stable.
SECURITY
The bonds are direct obligations of the district, secured by an unlimited ad valorem tax pledge. In addition, the bonds are secured by the PSF guarantee.
KEY RATING DRIVERS
SOLID FINANCIAL RESERVES MAINTAINED: The district maintains a stable financial profile and sizeable reserve levels, despite some financial pressures stemming from state funding cuts.
DIVERSE TAX BASE: The district's tax base is diverse and continued to grow at a moderate pace even through the recession.
MODERATELY HIGH OVERALL DEBT BURDEN: Fitch expects the district's overall debt burden to remain on the high side of the moderate range. Amortization is slightly above average and future capital needs appear to be manageable.
STABLE ECONOMY: Although somewhat limited, the area's economic underpinnings remain strong and include a historically stable employment base of government, health care, and education.
RATING SENSITIVITIES
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the district's healthy financial profile.
CREDIT PROFILE
Bryan ISD encompasses a large 400 square mile area, including the city of Bryan, in the larger College Station-Bryan metropolitan statistical area (MSA). The city is about 90 miles equidistant from Houston and Austin. The flagship campus of the Texas A&M University System in College Station (50,000 enrollment) drives much of the local economy. The work force is dominated by stable government sector jobs. Area unemployment levels (5.1% in April 2013) are typically lower than state (6.1%) and national levels (7.1%). Wealth levels, as measured by median household income, are below-average primarily due to its large university student population base.
STABLE FINANCIAL PERFORMANCE
The district continues to maintain its historically stable financial profile and solid reserves, despite some financial pressure from state funding cuts and additional operating expense for recently opened facilities. Conservative budgeting and prudent fiscal monitoring enabled the district to increase reserve levels in each of the last three audited fiscal years despite the adoption of modest deficit budgets. At the close of fiscal 2012 (Aug. 30), the district's unrestricted fund balance was a solid $33.3 million, or 32% of spending, well above its policy to maintain unrestricted general fund balance reserve levels between 60 - 90 days (16% to 24%) of spending.
The fiscal 2013 budget was adopted with a modest $2.1 million use of fund balance reserves; however, interim results point to a $1 million deficit primarily due to savings generated from renegotiation of energy contracts and a deferral of budgeted capital outlays.
For fiscal 2014, the district expects state funding will increase roughly $5 million based on funds restored for education in the state budget. Preliminary budget discussions point to a structurally balanced budget, but use of fund balance for one time capital outlays will be considered.
TEXAS SCHOOL DISTRICT LITIGATION
In February a district judge ruled that the state's school finance system is unconstitutional. The ruling, which was in response to a consolidation of six lawsuits representing 75% of Texas school children, found the system 'inefficient, inequitable, and unsuitable and arbitrarily funds districts at different levels'. The judge also cited inadequate funding as a constitutional flaw in the current system.
Fitch will monitor the appeal process of the suit, which may go directly to the state supreme court. If the supreme court upholds the lower court ruling, the state legislature will be directed to make changes to the system to restore its constitutionality. Fitch would consider any changes that include additional funding for schools a positive credit consideration
MODERATE DEBT BURDEN WITH MANAGEABLE CAPITAL NEEDS
Overall debt levels are towards the higher end of the moderate range at 4.7% of market value or roughly $3,200 per capita. State assistance for debt service continues to decline and is projected to diminish for fiscal 2014 as the district's relative wealth per student level rises with healthy TAV growth. Amortization of principal is average and near-term capital needs are projected to be manageable given the district's existing capacity and relatively flat enrollment.
District management reports that the most pressing needs are for rehabilitation and maintenance on existing facilities rather than adding capacity. A facilities study is underway to prioritize needs and to determine the size for a bond election to take place in May of 2014, at the earliest.
The district contributes to the Teacher Retirement System of Texas (TRS), a cost-sharing, multiple-employer defined benefit pension plan. The district's pension contribution, which is set by state law, was $711,000, (a nominal 0.5% of governmental less capital spending) in fiscal 2012. Other post-employment benefits (OPEB) are also provided through TRS and district contributions are minimal.
TAX BASE AND ENROLLMENT
The district's diverse taxable assessed value (TAV) totaled $5.4 billion in fiscal 2012. Despite a modest dip in fiscal 2011, compound annual growth was a healthy 5% over the last five years. Recent district enrollment has been relatively flat at roughly 16,000 students. A recent demographic study indicates that enrollment is projected to grow a modest 1-2% in the next three years.
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, 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
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=794025
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