Fitch Affirms Beeville ISD, Texas' ULTs at 'AA-' Underlying; Outlook Stable

Thu Jan 17, 2013 5:51pm EST

* Reuters is not responsible for the content in this press release.

http://pdf.reuters.com/htmlnews/8knews.asp?i=43059c3bf0e37541&u=urn:newsml:reuters.com:20130117:nBw176533a

AUSTIN, Texas--(Business Wire)--
Fitch Ratings affirms its underlying 'AA-' rating on Beeville Independent School
District (ISD), Texas' (Beeville ISD or the district) outstanding unlimited tax
(ULT) bonds as follows: 

--Approximately $22.9 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 

STRONG FINANCIAL POSITION MAINTAINED: General fund reserves have strengthened in
the last two fiscal years from previously solid levels due largely to
conservative budgeting and spending practices. 

DEBT AND OTHER LONG-TERM LIABILITIES MODERATE: The debt profile remains
moderate, characterized by modest debt levels, average principal amortization,
and manageable future capital needs. 

LIMITED ECONOMY; LOW WEALTH LEVELS: The local economy is fairly narrow in this
predominately rural area; income/wealth levels are well below state and national
averages. 

GROWTH, CONCENTRATION IN TAX BASE: The district has realized recent taxable
assessed valuation (TAV) gains mainly due to increased economic activity
surrounding the Eagle-Ford Shale oil/natural gas formation. Tax base
concentration is moderately high at 15%; a majority of top taxpayers are in the
energy sector. 

STAGNANT ENROLLMENT TRENDS: The small enrollment base typically reflects flat to
very modest declines annually. 

CREDIT PROFILE 

Beeville Independent School District is located approximately 50 miles northwest
of Corpus Christi, the closest metropolitan area. Characteristic of an
agricultural area, district population (estimated at approximately 27,000) has
remained relatively flat since 2000 with median household income roughly 20%
below the state and U.S. averages. Annual enrollment trends as measured by
average daily attendance (ADA) are comparably flat to modestly declining; a 1%
enrollment decline was realized over the last five fiscal years. 

RECENT ECONOMIC AND TAX BASE EXPANSION IN RURAL SOUTH TEXAS COMMUNITY 

The area economy is limited but generally stable, based on agriculture, oil and
gas production, and related commercial activities. Government and retail trade
are the largest non-agricultural employment sectors. County unemployment levels
have historically been above those of the state since 2003, but reflect a
decline on a year-over-year basis from a high 8.1% in October 2011 to 6.5% in
October 2012. This was despite a healthy growth in labor force over the same
period. 

Since 2007, the district has typically realized solid annual TAV gains. Recent
improvement in employment levels and strong, cumulative TAV gains of about 20%
over fiscal years 2012 and 2013 that brought TAV up to approximately $692
million are due largely to the expanded economic activity spurred by the
Eagle-Ford Shale, a portion of which underlies the county. 

Nonetheless, despite this growth, about one-third of the district's TAV comes
from residential values, with the next largest portion (roughly 30%) consisting
of acreage. Tax base concentration is moderately high at 15% with a majority of
the top taxpayers in the energy sector. At a minimum, Fitch expects that ongoing
activity surrounding this relatively newly discovered oil and natural gas
formation should allow for continued, modest expansion of the tax base over the
near term. 

ENHANCED RESERVES IN FISCAL YEARS 2011 AND 2012 

The district receives substantial state support for operations (about 70% in
fiscal 2012) as a property-poor district. Historically solid financial reserves
that totaled no less than 26% of spending have characterized the district's
financial position since fiscal 2006, enhancing the district's financial
flexibility. The district typically maintains reserves well above its informal
floor of $6 million-$7 million or about three months of spending. Management's
conservative budgeting and spending practices historically have generated
healthy annual operating surpluses and that trend continued in fiscals 2011 and
2012. 

The district implemented various cost-saving measures in preparation for
preliminarily announced state funding cuts over the biennium (fiscals 2012 and
2013). These measures in large part relied on salary savings from reducing or
eliminating some of its more highly paid positions. In addition, the district
benefitted from the receipt of a total of $1.1 million in nonrecurring federal
ARRA funds in fiscal 2011 that served to offset some of the year's general fund
spending and better prior year-end projections. Unrestricted general fund
reserves rose to $12.7 million or almost 60% of spending in fiscal 2011, up from
the prior year's solid unreserved balance of $9.9 million or about 43% of
spending. 

State funding cuts were not as severe as originally expected and the district
received about $625,000 in nonrecurring federal EduJobs funds in fiscal 2012.
While total operating revenue held fairly flat at $24 million, previously
implemented cost savings and management's continued conservative financial
practices saw the district generate approximately $2.2 million in operating
surplus, increasing the unrestricted general fund balance to $14.8 million or
nearly 68% of spending at year's end. 

The $24.7 million fiscal 2013 operating budget was adopted as balanced and
includes a one-time, 4%, cost of living salary increase of about $800,000.
Year-to-date operations are running in line with budget according to management,
although Fitch believes a less sizeable operating surplus is likely given
reduced cost savings opportunities in the year's budget. 

MODEST LONG-TERM LIABILITIES 

Overall debt levels are modest at about $800 per capita and 2% of market value.
The debt burden is assisted by a sizeable amount (just under 50%) of state
support for the district's debt service, given its comparatively low property
wealth per student. Amortization is slightly above average with 58% of principal
repaid in 10 years. In addition to its outstanding ULT bonds, the district has
previously issued $1.6 million in maintenance tax notes (not rated by Fitch)
that do not receive state support primarily for equipment and stadium
renovations. 

Capital needs are manageable; the district may pursue pay-go capital spending
for the construction of a baseball field with the use of $1.5 million from
general fund reserves. Annual debt service for the outstanding ULTs and
maintenance tax notes rises slightly to reach maximum annual debt service of
$2.7 million in fiscal 2015 and declines thereafter, holding steady at roughly
$1.7 million from fiscal 2016 through fiscal 2027. The district's debt profile
consists of current interest bonds and some capital appreciation bonds with no
exposure to variable-rate debt or derivatives. 

The district's pension and other post-employment benefit (OPEB) liabilities are
limited to its participation in the state pension plan administered by the
Teachers Retirement System of Texas (TRS). TRS is a cost-sharing,
multiple-employer plan in which the state rather than the district provides the
bulk of the employer's annual pension contribution as a pass-through revenue to
the district. 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 consistently funds its annual required contributions.
Carrying costs for the district (debt service, pension, OPEB costs, net of state
support) totaled a low 6% of governmental fund spending in fiscal 2012. 

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 Fitch's Tax-Supported
Rating Criteria, this action was additionally informed by information from
Creditscope, University Financial Associates, LoanPerformance, Inc., and IHS
Global Insight. 

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

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE '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
Primary Analyst:
Rebecca C. Moses, +1-512-215-3739
Director
Fitch, Inc.,
111 Congress Ave., Suite 2010, Austin, TX 78701
or
Secondary Analyst:
Blake Roberts, +1-512-215-3741
Associate Director
or
Committee Chairperson:
Arlene Bohner, +1-212-908-0554
Director
or
Elizabeth Fogerty, +1-212-908-0526
New York, Media Relations
elizabeth.fogerty@fitchratings.com

Copyright Business Wire 2013

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.