TEXT-Fitch affirms Edcouch-Elsa ISD, Texas ULTs at 'A-'
Nov 13 - Fitch Ratings affirms its underlying 'A-' rating on Edcouch-Elsa Independent School District, Texas' (Edcouch-Elsa ISD or the district) outstanding unlimited tax (ULT) bonds as follows: --Approximately $46.2 million in outstanding ULT bonds. The Rating Outlook is Stable. SECURITY The bonds are secured by an unlimited ad valorem tax pledge of 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 STABLE FINANCIAL POSITION: Management projects maintaining healthy reserves at year-end fiscal 2012 despite the year's state funding cut and a $1.2 million drawdown. District officials target maintaining no less than two months of spending in reserves (around $7 million). The fiscal 2013 operating budget is balanced. LOCAL CONTROL FULLY RESTORED: The recent end of state conservatorship demonstrates confidence in district management and the state's expectation of adherence to improved, conservative financial practices. SUB-PAR LOCAL ECONOMY, TAX BASE: The local economy and tax base are limited in scope, tax collections are very weak and area wealth levels are well below average. MODEST ENROLLMENT DECLINES: Annual enrollment has averaged a 2% decline since 2008. MODEST LONG-TERM LIABILITIES: Debt levels are modest, assisted by substantial state support. Capital needs appear manageable. Management reports no immediate debt plans, although a future GO bond election is under consideration. WHAT COULD TRIGGER A RATING CHANGE As state conservatorship has recently ended, Fitch believes it is likely local management will be challenged to maintain the fiscal discipline and conservative budgeting practices necessary to sustain healthy liquidity and reserve levels. Evidence of a return to materially weaker financial operations and position would likely lead to negative rating action. Conversely, a consistent trend of improved performance would be viewed favorably by Fitch. CREDIT PROFILE IMPROVED, STABLE FINANCIAL POSITION The district receives the majority of its operating revenue (83%) from state aid. Fiscal years 2010 and 2011 results reflected a stable and improved financial position, built upon the modestly positive results realized in fiscal 2009. The district regained its financial footing under a new management team that was required to work in collaboration with the state conservator appointed by the Texas Education Agency (TEA) in 2008 after a multi-year period of weak financial performance. Improved financial management practices (such as Board-approved staffing ratios and more conservative budgeting) allowed district management to right-size revenue estimates and realize expenditure savings after a mid-year workforce reduction in fiscal 2009. In addition, the district benefitted from the receipt of nearly $3 million in federal ARRA and EduJobs funds in fiscal 2010 that served to offset some of the year's general fund spending and better prior year-end projections. Fitch notes that the district's improved general fund balance position over fiscals 2009-2011 was also augmented by the total of approximately $5.7 million in one-time revenue received from lawsuit settlements on construction deficiencies in various school facilities.U.S. Local Government Tax-Supported Rating Criteria
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