NEW YORK--(Business Wire)--
As part of ongoing surveillance, Fitch Ratings has affirmed its 'AA-' rating on
approximately $190 million of outstanding unlimited tax school building bonds
(the bonds) issued by Brownsville Independent School District (ISD), Texas (the
district). The Rating Outlook is Stable.
The 'AA-' rating reflects the district's strong reserve levels and flexibility
within the maintenance and operation (M&O) tax levy and low direct debt burden
due to substantial state support for debt service. The rating further reflects
the district's continued tax base and economic growth (though slowed during the
recession) tempered by the structurally high unemployment and low wealth common
among border communities. To date, the district has balanced the preservation of
financial resources against spending pressures resulting from capital needs,
growing enrollment, and the constraints of the state's school funding program. A
recent trend of net deficits, if continued, may dissolve those resources and
pressure the rating.
The district is expecting a net deficit of approximately $10 million in fiscal
2009, which would mark the third year out of the previous four in which a
deficit was recorded. The deficits have largely been driven by the district's
substantial pay-go spending, which has averaged over $20 million per year since
fiscal 2006 and exceeded $30 million in fiscal 2009. The fiscal 2010 budget
spends over $10 million in current reserves; however, additional state aid
related to enrollment growth and a variety of cost-saving measures are expected
to trim the deficit to $4 million to $5 million.
Reserves will remain quite healthy through fiscal 2010 in light of the recent
deficits. The unreserved fund balance will approximate 25% to 30% of spending,
which is in-line with the district's fund balance target of 75 to 90 days of
operating expenses. Further, the district can levy an additional $0.02 per $100
in assessed value (AV) in its M&O levy without voter approval, which would
generate approximately $920,000 in additional local revenue. The district has a
low property-tax wealth and a high proportion of special needs students;
therefore, the state funds approximately 74% of the general fund budget. The
district's average daily attendance (ADA) has increased at a rate of 1.5% per
year since 2004 and has continued to support growth in the district's revenue
base.
The state currently supports approximately 76% of the district's debt service
obligations. These funds are subject to change and are recalculated each year.
As a result of the level of state support received, the district's direct debt
burden remains low at 1% and $244 per capita, while the overlapping debt burden
trends somewhat higher. The district has no voter-authorized but unissued debt;
however, it may issue approximately $16 million in debt through the Qualified
School Construction Bond (QSCB) program prior to year end to fund the
construction of a new elementary school.
Brownsville is the population and economic center of the rapidly expanding lower
Rio Grande Valley. The area economy is largely driven by manufacturing
reflecting its location across from Matamoros, Mexico and extensive
transportation network. Job gains have slowed but remained positive during the
12 months ending September 2009, an impressive trend given the contraction of
the state and national economy. Low cost of living and doing business support
continued economic growth, and a growing health care and education sector
including a branch of the University of Texas contributes stability to the
region. Unemployment rates are high (11% as of September 2009), which is typical
of the border area given the sizeable increases in labor force. The potential
for prolonged manufacturing stress coupled with the shortcomings of a relatively
low-skilled labor force and vulnerabilities in Mexico's economic outlook are
concerns inherent to the local economy.
Additional information is available at 'www.fitchratings.com'.
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
Michael Rinaldi, 212-908-0833, New York
Jose Acosta, 512-215-3726, Austin
or
Media Relations:
Cindy Stoller, 212-908-0526, New York
Email: cindy.stoller@fitchratings.com
Copyright Business Wire 2009
