AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings affirms its 'AA' rating for the following Lockhart Independent School District, Texas' (the district) unlimited tax (ULT) bonds:
--$2.1 million ULT school building bonds, series 2011.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax, levied against all taxable property in the district and are further secured by the Texas Permanent School Fund guaranty.
KEY RATING DRIVERS
STRONG FISCAL MANAGEMENT: The district recorded five years of consecutive operating surpluses by managing costs in line with revenues despite state funding cuts.
STRONG RESERVE LEVELS: Unreserved general fund balances have been consistently strong enabling the district to cash fund one-time capital outlays while still maintaining strong reserves. A recently adopted fund balance policy formally commits sizeable reserves for cash flow purposes, maintenance, technology replacements and operational reserves.
STEADY TAX BASE GAINS: Taxable assessed valuation (TAV) continued to grow during the recession without one single year of decline.
LIMITED ECONOMY: Although the district benefits from its close proximity to the broad and diverse Austin area economy, local economic indicators are weaker.
GROWTH POTENTIAL: Lockhart's existing regional transportation network links it to the growth of greater Austin and San Antonio. The recent completion of State Highway 130 near Lockhart should bring additional traffic through the area with the potential to spur economic development over the long term.
LOW DEBT BURDEN: The district's debt burden is low and amortization is rapid. Future capital needs appear to be manageable.
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the district's healthy financial profile.
The district spans approximately 300 square miles including the city of Lockhart, the residential and retail hub of the county along the southern bounds of the Austin-Round Rock metropolitan area. While district population and enrollment grew modestly over the past several years, the completion of State Highway 130 near Lockhart brings the potential for further residential and commercial growth.
Management recorded five consecutive years of operating surpluses and a fiscal 2012 unrestricted fund balance of $14.6 million, or 44% of spending. The strong performance reflects management's ability to curtail spending within the limits set by state formula funding. Despite state funding cuts in fiscal years 2012 and 2013, officials report balanced operations for fiscal 2013, but report an estimated $2.2 million in general fund reserves will be drawn down for one-time capital outlays. The fiscal 2014 budget is balanced and includes additional state funding that was restored to school districts in the state budget.
State funding contributes nearly 70% to district revenues, with further increases reliant on enrollment growth. While the operating and maintenance tax rate is at the statutory cap of $1.04 per $100 of TAV, the district has no current plans to call a tax ratification election which could authorize up to 13 additional cents for maintenance and operations. Officials expect that future enrollment and property values will continue to produce adequate revenues in the near term.
While agriculture, farming and ranching assets contribute 40% to the district's market value, recent trends reflect an increase in manufacturing activity and land development. TAV grew by an average annual compound rate of 5.6% since fiscal 2008 without registering a single year of decline. Taxpayer concentration is moderate, with the top 10 taxpayers contributing 12% to TAV.
The district benefits from its close proximity to the broad and diverse economy of the Austin metropolitan area, but the local economy remains fairly limited. County unemployment levels at 7.7% in June 2013 remain above that of the Austin metro (5.8%) and state (6.9%), but just slightly below the nation (7.8%). The district's median household income (MHI) is roughly 78% of the Austin metro MHI.
LOW DEBT BURDEN
The overall tax burden is low at $1.18 per $100 of TAV proposed for fiscal 2014. The proposed fiscal 2014 debt service tax rate of $0.14 per $100 of TAV has declined from the $0.19 levied in fiscal 2009 and is well below the statutory cap of $0.50 per $100 of TAV for new debt issuance. The district is currently undergoing a facilities study with an external consultant and forming a committee to assess needs, prioritize, and make recommendations on size for a possible bond election as early as May 2014. Needs identified range from $12 million to $20 million for mostly major renovations of existing structures and some expansion to accommodate growth.
Debt levels are low at $1,673 per capita or 2.4% of market value. Moreover, the district receives state support for roughly 37% of total debt service requirements. Principal amortization is rapid at a rate of 83% within 10 years.
The district's pension liabilities are limited to its participation in the state pension plan (TRS). The district's annual contribution to TRS is determined by state law as is the contribution for the state-run post-employment healthcare plan. Including debt service, fixed costs for long-term liabilities are manageable at less than 10% of governmental fund spending (net of capital projects) in fiscal 2012.
Additional information is available at 'www.fitchratings.com'.
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, Zillow, IHS Global Insight, National Association of Realtors, and the Texas Municipal Advisory Council.
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
U.S. Local Government Tax-Supported Rating Criteria