TEXT - Fitch affirms Ennis ISD, Texas bonds
Jan 23 - Fitch Ratings has taken the following rating actions on outstanding Ennis Independent School District, Texas (the district's) bonds: --$147 million unlimited tax (ULT) bonds affirmed at 'AA-'. The Rating Outlook is Stable. SECURITY The bonds are direct and general obligations of the district payable from a continuing direct annual ad valorem tax levied by the district without limit as to rate or amount. Additionally, the bonds are secured by the Texas Permanent School Fund (bond guarantee program rated 'AAA' by Fitch). KEY RATING DRIVERS CONSISTENT FINANCIAL PERFORMANCE: The district's financial performance is a credit positive, characterized by consecutive years of operating surpluses and healthy reserves. HIGH OVERALL DEBT: Above-average overall debt reflects previous levels of healthy enrollment growth culminating in a recently completed construction program. The district's interest & sinking fund (I&S) tax rate is at the statutory cap for new debt issuance, with no new debt plans on the horizon. MANAGEABLE GROWTH: Enrollment is expected to remain flat for several years, reducing pressure on the district's capital program and debt burden. Mid-term projections indicate that existing facilities should provide adequate capacity for 10 years. SLOWED TAX BASE GROWTH: Flat taxable assessed valuation (TAV) since fiscal 2009 mirrors a slow-down in the local economy and housing market, although recent economic activity should generate modest tax base gains in the near term. Top taxpayer concentration remains above average, but Fitch derives some comfort from the diversity of companies comprising the list. CREDIT PROFILE Ennis ISD, with a population of approximately 27,200 is located approximately 35 miles south of Dallas. The district is located primarily in Ellis County (rated 'AA'/Outlook Stable by Fitch) and includes the city of Ennis, a commercial and industrial center at the intersection of Interstate 45 and Highway 287. MANUFACTURING CENTRIC ECONOMY The manufacturing sector increasingly drives the regional economy; approximately 55 diverse manufacturing plants are located within Ennis. The district's top 10 taxpayers comprise a sizable 27% of TAV representing a mix of energy, utility and manufacturing facilities (plastics, chemicals, automotive parts, envelopes, furniture, and construction products). The top two taxpayers, CVS Distributing and Ennis-Tractabel/Suez Power Company account for a combined 11% of TAV and have remained among the top taxpayers for over a decade. Product/sector diversity among the top taxpayers alleviates some of the credit concern associated with concentration risk. The district's fiscal 2013 market value of $2.4 billion consists of commercial/industrial (40%), residential (26%), agricultural/ranch (19%), and other property. TAV leveled out in fiscal 2010 following four years of 7.5% average growth through fiscal 2009. However, officials report new residential, commercial and industrial construction, indicating a pick-up in the pace of local economic development which should be reflected in the tax base by fiscal 2014 and contribute to a strengthening of the local job market. County unemployment of 6.4% as of October 2012 is improved from a year earlier and on par with state levels for the same period. Top employers include an array of manufacturers, energy, distribution and retail. Median household income in the district lags, but has risen more rapidly over the past five years than state and national levels. SOUND FINANCIAL PERFORMANCE The district has registered consecutive operating surpluses (after transfers) since fiscal 2001. A fiscal 2012 operating surplus of $899,500 (2.3% of spending and transfers out) resulted from attrition based cost savings, a salary freeze and other budget reductions which mitigated revenue losses of $1 million from state funding cuts, and loss of $1.9 million in ARRA monies which subsidized fiscal 2011 operating costs. The fiscal 2012 cost savings were adequate to also fund $218,000 of technology and vehicle purchases and further strengthen the unrestricted general fund balance to $15.7 million, or a strong 38.7% of expenditures and transfers out. Officials anticipate break-even fiscal 2013 results based on continued cost management. The district also expects to fund approximately $550,000 of HVAC and roof improvements during the year. Similarly to many districts having undergone a period of rapid growth, Ennis ISD's M&O tax rate is at the cap of $1.04 per $100, although the district does not report plans to seek a tax ratification election at this time. HIGH DEBT BURDEN Overall debt levels are high at 7.6% of market value and $6,595 per capita. Amortization is moderate with 54% of debt maturing in 10 years. Debt service costs are also high at 19.9% of governmental expenditures. The district's debt service tax rate of $0.50 per $100 of valuation represents the statutory maximum rate under the state Attorney General's test for new debt issuance. Although with the recent completion of major facilities projects, officials report the district will have no facility needs requiring debt issuance for up to 10 years. Infrastructure maintenance and vehicles are manageable at this time from a combination of general fund and grant monies. Fitch expects I&S tax rate pressure to ease over the medium term as tax base growth resumes. The district contributes to the Teacher Retirement System of Texas (TRS), a cost-sharing, multiple employer defined benefit pension plan. Additionally, the district contributes to the Teacher Employee Recruitment and Retention Program (TERRP), a defined contribution plan completely funded by the district. Carrying costs, including debt service, combined pension and TERRP contributions represent a manageable 21.2% of governmental expenditures.
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