Fitch Affirms Roma ISD, TX's $57.4MM ULTs at 'A+'; Outlook Stable

NEW YORK--()--Fitch Ratings affirms the following underlying rating for Roma Independent School District, Texas (the district):

--$57.4 million unlimited tax (ULT) bonds, series 2004, 2005, 2006, 2007, 2008, 2010, and 2012 at 'A+';

The Rating Outlook is Stable.

SECURITY

The bonds are secured by ad valorem taxes levied against all taxable property within the district, without limitation as to rate or amount. In addition, all series are secured by the Texas Permanent School Fund (PSF), whose bond guarantee program is rated 'AAA' by Fitch.

KEY RATING DRIVERS

STABILIZATION OF CONCENTRATED, LIMITED TAX BASE: Taxable assessed value (TAV) has leveled off after several years of declines that were prompted by a steep drop in mineral values due to the district's concentration in oil and gas production. The district has below average income indicators, including low market value per capita and weak individual income levels. Substantial state support for operations and debt service largely offsets these concerns.

POSITIVE FINANCIAL PROFILE: Conservative budgeting practices have produced a trend of operating surpluses leading to significant increases in general fund reserve levels.

MIXED DEBT PROFILE: Debt levels are high before adjusting for substantial state support and the pace of amortization is below average, although no additional borrowing is planned. Other long-term liabilities are minimal.

RATING SENSITIVITY

CONTINUED STRONG FINANCIAL POSITION: The rating is sensitive to shifts in fundamental credit characteristics, including the district's strong financial management practices. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

Roma ISD is located in south Texas in the 490-square mile Starr County along the U.S.-Mexico border. Average daily attendance (ADA) has generally mirrored population trends in the county, dipping a slight 1.5% to 6,060 students in academic year 2013-2014 from its peak in 2009. The district expects flat enrollment going forward.

WEAK SOCIOECONOMIC PROFILE

Wealth indicators of the district are very low. The district's market value per capita is $28,000, and personal income indicators (both per capita and median household income) are less than 50% of state and national averages. The unemployment rate of Starr County has historically trended much higher than the state and national rates and despite some moderate improvement after the post-recession peak in 2010, remained a high 15.7% in December 2013.

TAX BASE STABILIZATION

The district's TAV recorded a slight increase in fiscal 2014 of 1.6%, showing signs of stabilization after four consecutive years of losses. The district's tax base contraction post-recession was driven by its concentration in oil and gas, and assessed values suffered as a result of a steep decrease in mineral values, a function of weakness in the price of natural gas and lower levels of drilling activity in the area. The district anticipates flat TAV in fiscal 2015 without significant changes in area oil and gas production during the near term.

STRONG FINANCIAL OPERATIONS

Concern over weak economic indicators is mitigated by state support for both operations and debt service the district receives due to its low property wealth. Operational state support in fiscals 2014 and 2015 is $46.6 million and $49.5 million, respectively, representing approximately 80% of general fund revenues.

The district has posted sizable general fund surpluses after transfers the past five fiscal years due to conservative budgeting, adding significantly to general fund balance since 2009. Fiscal 2013 closed with an unrestricted general fund balance of $36.4 million, or a high 66.2% of expenditures. The fiscal 2014 budget is balanced and includes a $4 million increase in expenditures driven by construction and salary increases. The district reports no year-to-date fiscal 2014 variances with budget.

MIXED DEBT PROFILE

Fitch considers key debt ratios of the district to be high at $2,324 per capita and 8.4% of full market value without adjusting for state support of debt service. These numbers are significantly lower when taking into account the approximately 80% of principal and interest payments the district receives annually from the state, which brings down debt service payments for the district from 6.8% to less than 2% of government spending. The pace of amortization remains below average with 43% retired in 10 years. The district does not have plans to issue any debt in the near term as facilities are up-to-date with adequate capacity.

OTHER LONG-TERM LIABILITIES MANAGEABLE

Retiree pension and healthcare benefits are provided through the Teacher Retirement System of Texas (TRS), a cost-sharing multiple employer plan. TRS is adequately funded at 81.9% as of Aug. 31, 2012, though Fitch estimates the funded position to be lower at 73.8% when a more conservative 7% return assumption is used.

The district's annual contribution to TRS is determined by state law as is the contribution for the state-run post-employment benefit healthcare plan. The district's cost for pension and other post-employment benefits (OPEB) represented less than 1% of government spending in fiscal 2013, as plan contribution amounts are principally paid by the state and district employees.

The state's payment of district pension costs is an important credit strength as it keeps overall carrying costs manageable. Carrying costs for the district (debt service net state support, pension, and OPEB) remain very low, consuming 1.8% of governmental fund spending in fiscal 2013. Fitch will continue to monitor the level of state support for school district pension payments, noting contributions for all districts in the state will increase modestly to 1.5% of the statutory minimum portion of payroll from 0% beginning fiscal 2015.

TEXAS SCHOOL DISTRICT LITIGATION

In February 2013 a district judge ruled that the state's school finance system was 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.

The judge reopened the lawsuit in June 2013 after state legislative action that partially restored state funding levels and made other program changes. The trial began January 2014. If the state school finance system is ultimately found unconstitutional, the 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.

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, IHS Global Insight, and the National Association of Realtors.

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=826773

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Contacts

Fitch Ratings
Primary Analyst
Leslie Ann Cook, +1-212-908-0507
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Gabriela Gutierrez, +1-512-215-3731
Director
or
Committee Chairperson
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Leslie Ann Cook, +1-212-908-0507
Analyst
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Secondary Analyst
Gabriela Gutierrez, +1-512-215-3731
Director
or
Committee Chairperson
Amy Laskey, +1-212-908-0568
Managing Director
or
Media Relations
Elizabeth Fogerty, New York, +1-212-908-0526
elizabeth.fogerty@fitchratings.com