NEW YORK--(Business Wire)--
As part of ongoing surveillance, Fitch Ratings affirms the ratings on DeSoto
Independent School District, Texas' (DeSoto ISD) approximately $150 million
outstanding unlimited tax general obligation bonds at 'A+'. The Rating Outlook
is revised to Negative from Stable.
The 'A+' rating reflects DeSoto ISD's adequate but declining financial reserves,
large and mostly residential tax base, and favorable location next to major
transportation corridors within the Dallas-Fort Worth metroplex, balanced
against a high overall debt burden offset by limited capital needs. The bonds
are secured by unlimited ad valorem taxes on all property within the district.
The Negative Rating Outlook is based on a recent structural imbalance that is
projected to significantly reduce the district's financial flexibility. Solid
reserves remained after a large planned drawdown in fiscal 2009 (unaudited);
however, another large budgeted drawdown in the fiscal 2010 budget, due mainly
to teacher salary increases given in 2008 and flat enrollment (which drive state
aid revenues), may notably alter the district's financial profile. Despite a
rapid decline in enrollment growth, resulting from an abrupt fall-off in
residential building, the district has not taken significant action to realign
revenues and expenditures. Fitch will monitor the district's financial
performance for fiscal 2010 and beyond; if structural deficits are not met with
additional sizeable budget cuts, further erosion of general fund reserves, and
possible downward rating pressure, could result.
After several consecutive years of general fund (GF) operating surpluses and
increasing fund balances, the district's finances have been pressured by slowing
enrollment growth and growing instructional costs. Although modest, fiscal 2008
posted an operating deficit of $1.8 million, due mostly to large salary
increases designed to retain personnel, and the opening of a new school during
the fiscal year. Fiscal 2008's reserves still totaled a strong $14.7 million or
23.5% of spending. Fiscal 2009's unaudited results point to a large, planned
$4.7 million drawdown, reducing reserves to a still solid $10 million or 15% of
spending. However, the fiscal 2010 budget projects another large operating
deficit of $3.6 million, reducing reserves to about $6.5 million or a
satisfactory 10% of spending. While management has made some cuts to
miscellaneous operations for 2009 and 2010, more significant budget cuts will be
necessary to fix the structural deficits in fiscal 2010 and beyond.
The district's mostly residential tax base is large and diverse. Strong
development trends allowed the district's taxable assessed values to expand
annually until fiscal 2009 in which it contracted by 4.5%. More importantly, the
related slowdown in building activity caused enrollment growth to slow to only
1% in fiscal 2009. The district has budgeted only 1% enrollment growth in fiscal
2010. The district's debt burden is a moderate $3,750 per capita, but remains
high at 9.6% of net taxable value. With taxable values growth rates tempered,
and limited additional capital needs, Fitch expects debt levels to remain on the
high side. Additionally, the district's principal payout rate is below average
at 42% in 10 years.
DeSoto ISD is located approximately 15 miles southwest of downtown Dallas in a
suburban residential area covering 23 square miles. Serving primarily the cities
of DeSoto and Glenn Heights, enrollment is currently estimated to be around
9,000 students. Most residents commute to work throughout the Dallas-Fort Worth
metroplex. Median income levels remain slightly above the national average.
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
Andrew DeStefano, +1-212-908-0284 (New York)
Rebecca Moses, +1-512-215-3739 (Austin)
or
Cindy Stoller, +1-212-908-0526
(Media Relations, New York)
cindy.stoller@fitchratings.com
Copyright Business Wire 2009
