Fitch Rates Eagle Pass ISD, Texas $22MM GOs 'AAA'/PSF 'A-'/Underlying

AUSTIN, Texas--(Business Wire)--Fitch Ratings assigns its 'AAA' rating to $22.0 million of Eagle
Pass Independent School District (the district), Texas Unlimited Tax
School Building Bonds, Series 2008, which are scheduled to be sold via
negotiation on Jan. 22. The 'AAA' rating is based on the guaranty by
the Texas Permanent School Fund whose financial strength is rated
'AAA' by Fitch. Fitch also assigns an 'A-' rating to the series 2008
bonds and affirms the 'A-' rating on the district's $27.1 million in
outstanding unlimited tax bonds. The Rating Outlook is Stable.

Payment for the bonds is secured by an unlimited property tax
pledge on all taxable property within the district. Bond proceeds will
be used to construct a student activity center comprised of athletic
facilities plus a fine art center and music auditorium.

The 'A-' underlying rating is based on the district's modest
financial reserves, renewed community support its capital programs,
and ongoing economic growth. Recent planned fund balance draw downs
for capital outlays and operating costs of its new high school reduced
reserves to modest levels but reserves are projected to double this
fiscal year due to the strategic use of the tax code in the aftermath
of a declared national disaster. Despite a large capital program,
historically low to moderate tax rates will be maintained due to the
district's commitment to issue its remaining authorization only in the
event that substantial state aid for debt service is secured. Income
levels remain low but are growing at a faster rate than state and
national averages, enabled by substantial economic growth that has
also lowered unemployment rates to historic low levels, although they
remain above state and national averages. Continued conservative
budgeting of enrollment growth is key to preserving the anticipated
fund balance windfall as the district faces potential growth pressures
in the medium term.

Located along the U.S. - Mexico border, the district is
coterminous with Maverick County (GO bonds rated 'BB+' by Fitch
Ratings). The county seat, Eagle Pass (GO bonds rated BBB+ by Fitch
Ratings), serves as the port of entry into Mexico at Piedras Negras,
Coahuila and benefits substantially from tourism and trade with
northern Mexico. The district's 2008 population is estimated at over
53,000, an 11% increase over 2000 levels. District average daily
attendance (ADA) has grown moderately by an annual average of about
1%, totaling over 13,000 in fiscal 2008.

The district's tax base has exhibited solid annual taxable
assessed valuation (TAV) growth averaging almost 8% over the last five
fiscal years. Now at over $1.3 billion, composition of the district's
tax base has shifted notably as undeveloped land values have increased
dramatically due to residential developer driven acquisitions. Income
levels remain low at less than two-thirds of state and national
averages, but are growing much faster than both indicators. Notably,
substantial economic growth has lowered unemployment rates to historic
lows at single-digit levels. The planned construction of a very large
beverage plant in the area is expected to spur additional economic and
enrollment growth.

The current offering was approved by a large margin of voters in
Nov. 2007 despite the prospect of a large tax rate impact that would
more than double the district's modest debt service tax rate to a
still moderate level. Greater than budgeted growth over the
conservatively projected assumptions of TAV growth and tax collection
rates is likely to lower the actual tax rate impact. Prior to this,
voters also approved a $30 million authorization in Nov. 2006 for two
elementary schools, classroom additions, and major renovations. By
resolution of the board of trustees, the district will not issue this
authorization unless it has secured approval of state aid, estimated
to support about 70% of annual debt service. Such support would limit
the tax rate impact to a modest $0.05 per $100 TAV.

Financial reserves thinned in fiscal 2006 after posting a planned
$2.2 million reduction of fund balance due to the additional operating
costs of a new high school and employee pay hikes, reducing reserves
to a modest 7.0% of spending. In anticipation of these cost pressures,
in its fiscal 2006 budget, the district strategically opted to
redirect its entire tax levy for operations, suspending its debt
service tax levy for one year and using accumulated reserves for its
debt service payment in fiscal 2006. For fiscal 2007, the district
posted break-even results.

In April 2007, the district's service area was declared a national
disaster due to tornado damage that destroyed two campuses. Under
state law, such an event allowed the district to adopt a higher
maintenance and operations tax rate without seeking voter approval for
fiscal year 2008 only. As a result, the district is projecting a $7
million surplus for fiscal 2008, more than doubling its fiscal 2007
reserves. Fitch expects the district to continue its practice to
budget ADA growth conservatively, due to its impact on state aid for
operations, in order to preclude any further structural imbalances.

Fitch's rating definitions and the terms of use of such ratings
are available on the agency's public site, www.fitchratings.com.
Published ratings, criteria and methodologies are available from this
site, at all times. Fitch's code of conduct, confidentiality,
conflicts of interest, affiliate firewall, compliance and other
relevant policies and procedures are also available from the 'Code of
Conduct' section of this site.

Fitch Ratings, Austin
Jose Acosta, 512-215-3726
Rebecca Moses, 512-215-3739
or
Media Relations:
Cindy Stoller, 212-908-0526, New York

Copyright Business Wire 2008