TEXT-Fitch affirms Wylie ISD, Texas' GOs at 'AA-'
Sept 28 - Fitch Ratings affirms its 'AA-' rating on the following Wylie Independent School District, Texas' (the district) unlimited tax (ULT) bonds: --Approximately $174.7 million in outstanding ULT bonds (excluding Series 2012B and Series 2012C). The Rating Outlook is Stable. SECURITY The bonds are payable and secured from an unlimited property tax levy against all taxable property within the district. The bonds are also insured as to principal and interest repayment from a guaranty provided by the Texas Permanent School Fund (guaranty rated 'AAA' Stable Outlook by Fitch). KEY RATING DRIVERS SOUND FINANCIAL POSITION DESPITE STATE CUTS: Solid reserves and healthy liquidity characterize the district's sound financial position. State funding cuts for fiscal 2012 and 2013 were proactively addressed by district management with significant spending cuts. As a result, another operating surplus is projected by the close of fiscal 2012, assisted by management's conservative budgeting practices. ECONOMY BENEFITS FROM METRO AREA: The district is favorably positioned in the diverse Dallas-Fort Worth (DFW) metro economy and employment base near major transportation routes. At 6.8% as of July 2012, Collin County unemployment remains below the metro (7.4%) and state (7.5%), respectively, in line with historical trends. BETTER THAN AVERAGE SOCIOECONOMIC METRICS: Area income and wealth levels are generally above state and national averages. SLOWED TAX BASE AND ENROLLMENT GROWTH: Taxable assessed valuation (TAV) growth has been modest to flat in the last four fiscal years (fiscals 2010 - 2013) due largely to the recession and subsequent effect on the housing market. Enrollment gains also have moderated but remain healthy at 3% - 4% annually. This is in contrast to prior years' rapid TAV and enrollment gains realized as the district evolved into an affordable suburb. Looking ahead, recent demographic studies anticipate a moderate, stable pace of enrollment growth through build-out with a reduced level of total students based on current development trends. HIGH DEBT LEVELS AND LIMITED CAPACITY: Typical of rapid growth Texas school districts, the overall debt burden is high and the debt service tax rate, although unlimited, is above average as well. Fitch expects the debt burden to remain high over the near-term and the capacity to issue new debt under the state's test of $0.50 per $100 TAV strained under conservative TAV growth scenarios and within the district's current debt profile. Nonetheless, Fitch takes some comfort from recent demographic studies that anticipate full build-out of the district at a reduced number of total students, which should alleviate some of the district's facility needs going forward. CREDIT PROFILE DALLAS-FORT WORTH METRO DISTRICT The district is located in Collin County, 23 miles northeast of Dallas and within commuting distance of the cities of Plano, Garland, and Richardson, as well as downtown Dallas. Rapid population and student enrollment increases have occurred over the past decade given the northern expansion of the DFW metro area. Improvement of nearby transportation corridors as well as the growing saturation of the larger neighboring communities of Plano, Richardson, and Garland has enhanced the district's attractiveness as a suburb. The local economy has largely shifted from an agricultural area to one with an emphasis primarily on residential with some commercial and light manufacturing. County income and wealth metrics typically better those of the metro, state, and U.S. MODERATED TAV AND ENROLLMENT GAINS SUSTAINED District TAV expanded rapidly in recent years given the aforementioned development trends, nearly quadrupling to the $3 billion reached in fiscal 2009 from just $865.4 million in fiscal 2001. During this period, TAV grew at double digit rates annually. However, the subsequent impact of the recession and housing market collapse saw a much reduced TAV gain of 2.5% in fiscal 2010, which began a trend of modest to flat TAV annual growth that has continued since. Management anticipates a 1% gain in fiscal 2013. Similar to TAV gains, enrollment also grew rapidly, up to roughly 12,000 students in fiscal 2010 from only 4,600 in fiscal 2001. Since 2010, the pace of annual enrollment growth has remained slowed to a more sustainable 3% - 4% in light of the lingering housing slowdown. Management anticipates a fairly comparable, steady pace of annual enrollment expansion through build-out (around 2020) to a total of roughly 17,000 students, down from prior estimates of 25,000 students. This notable change is attributed to current development trends captured in the most recent demographic study that include a shift towards larger, higher-end homes in the district. SOUND FINANCIAL POSITION A CREDIT STRENGTH State aid provides the largest portion of the district's operating revenues at roughly 57% in fiscal 2011. Most of the district's remaining revenues are derived from local property taxes with the operating tax rate of $1.17 per $100 TAV at the maximum allowed by state statute. The district closed fiscal 2011 with a very healthy operating surplus of nearly $2.3 million, which was in line with prior years' financial performance and the ninth operating surplus over the last eleven audited fiscal years. The unrestricted general fund balance increased to nearly $16 million or approximately 18% of spending. Since fiscal 2009, reserves have remained comfortably above and in compliance with district's 12% (1.5 months) minimum fund balance policy. Liquidity improved as well in fiscal 2011 and cash/investments rose from $20.3 million to $25.6 million, representing about 3.5 months of general operational spending. Management has proactively addressed proposed state funding cuts for the biennium (fiscals 2012 and 2013) under a worst case funding loss scenario of $8 million per year. Significant spending cuts were implemented for fiscal 2012 that included reduction of workforce through attrition and a 20% cut to departmental budgets. Actual state funding cuts have not been as steep at $5.7 million in fiscal 2012 ($6.2 million in cuts are expected for fiscal 2013). The district also received about $2 million in EduJobs funds in fiscal 2012 that provided a modest offset to general fund spending. In conjunction with conservative budgeting practices, management expects to close fiscal 2012 with the addition of approximately $5.3 million to general fund reserves, bringing the total balance up to slightly over $21 million or about 23.5% of spending. For fiscal 2013, a modest surplus is also expected. Spending is budgeted to rise to $92.8 million or about 4% over the prior year due largely to a one-time, across the board 3% pay increase. Management reports operations remain in line with budgeted projections and higher than budgeted actual enrollment trends realized to date should generate additional state revenue. The district's current five-year financial forecast projects balanced operations through fiscal 2016 with the expectation of reserve maintenance at the district's 12% policy. HIGH DEBT BURDEN REMAINS; SOME REDUCTION OF CAPITAL PRESSURES EXPECTED The district's debt position remains weak. Overall debt ratios are high and approximate $5,620 per capita or 8.3% of market value even after adjusting for state aid equal to nearly 30% of outstanding debt. Amortization is average at 52% of principal repaid in ten years. The district's direct debt burden is expected to remain high for the foreseeable future as outstanding district debt includes a sizeable amount of capital appreciation bonds, which minimize near-term tax rate impacts and shift the debt burden to future taxpayers. However, Fitch takes some comfort that future capital pressures should lessen given the reduced number of total students now projected at build-out. Included in the district's outstanding debt are bonds issued from a $21 million bond authorization recently approved to fully complete the second high school's interior; these bonds are not rated by Fitch. Fitch views the passage of the bond authorization favorably as prior bond elections for this project had failed, which could have led to the possibility of a large, impaired asset for the district. The district's debt service tax rate is a high $0.47 per $100 TAV and slightly below the state cap for new debt issuance. The debt service schedule rises somewhat gradually from $19 million in fiscal 2013 to maximum annual debt service of $26 million in 2026. Over the near-term, management does not expect to seek further GO authorization for at least the next two years given current capacity in existing schools and reduced enrollment projections. Fitch will monitor the district's debt and tax rate position for additional stress, noting that management's ability to provide sufficient classroom capacity with shrinking debt flexibility will be a key credit consideration. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. 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' (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