Dec 10 - Fitch Ratings takes the following rating action on Azle Independent
School District, Texas (the district) unlimited tax (ULT) bonds:
--$20.7 million ULT bonds, series 1997 and 2005 affirmed at 'AA-'.
The Rating Outlook is Stable.
The bonds are direct obligations of the district, secured by an unlimited ad
valorem tax pledge levied against all taxable property within its boundaries.
KEY RATING DRIVERS:
GOOD FINANCIAL FLEXIBILITY: The district's financial position is sound,
characterized by solid operating reserves and liquidity that have supported
pay-as-you-go spending on facility repairs and renovations.
STABLE BUT MODEST RESOURCE BASE: Proximity to the larger Dallas-Fort Worth
metropolitan statistical area (MSA) economy and employment base offsets concerns
related to the limited nature of the district's population, economy, and tax
TOP TAXPAYER CONCENTRATION: Concentration in the oil and gas industry persists,
particularly to XTO Energy and Barnett Gathering LP which combine to represent
almost 9% of the district's tax base.
LOW DEBT BURDEN: The district's debt profile is a credit positive with low debt
ratios, affordable carrying cost, and rapid amortization. Capital needs remain
but the low tax rate preserves debt affordability.
Azle ISD is a 5,500 enrollment district located about 17 miles northwest of
downtown Fort Worth, situated primarily in Tarrant County with portions
extending into Parker and Wise Counties. The primary population center is the
city of Azle with a 2010 census population of nearly 11,000.
SMALL RESIDENTIAL SUBURB OF FORT WORTH
The district has transitioned into a bedroom community of Fort Worth from its
historically agricultural economy over the past decade. Area population growth
is up 20% from the 2000 census, though accompanying enrollment growth has been
comparatively modest due to population growth from retirees. District officials
forecast flat to 1% growth in enrollment over the near term.
Wealth and income metrics for the district are about average. Per capita income
of Azle residents is 101% of the national average and the district's per capita
market value is $74,000. Employment figures are not available at the local
level, though Tarrant County continues to register job growth. A 2.6% climb in
the employment count for the 12-month period ending Sept. 2012 improved the
unemployment rate to 6.2% from 7.9%, which is approximate to the state and below
the nationwide 7.6% rate.
TAX BASE EXPOSURE TO OIL AND GAS SECTOR
The district's tax base is primarily residential, with portions situated over
workable areas of the Barnett Shale formation, one of the largest natural gas
fields in the U.S. Significant growth in both the housing and natural gas
sectors spurred double-digit TAV growth from fiscal years 2007-2010. TAV trends
have been flat to modestly lower since reflecting flat residential prices, a
decreased level of home building activity, and a decline in oil and gas
valuations due to increased drilling activity and supply. Fitch notes
importantly that budget exposure to TAV weakness is mitigated by the state's
target revenue funding system that subsidizes declines in local revenue with
additional state aid.
Top taxpayer concentration in the oil and gas sector remains a negative credit
factor with six of the top 10 payers oil and gas related companies. XTO Energy
(a subsidiary of ExxonMobil; not rated by Fitch) is the district's top payer and
comprised a high 7.4% of fiscal 2012 TAV.
FINANCIAL MANAGEMENT A CREDIT POSITIVE
The district concluded fiscal 2011 with a strong $18.3 million unrestricted
general fund balance (the sum of committed, assigned, and unassigned per GASB
54) equal to 47% of spending. Liquidity remained ample with $20.1 million of
cash and investments covering current liabilities 8.5x.
Reserves remain robust despite the planned use of cash-on-hand for facility
repairs and improvements in fiscal years 2009 and 2010. More modest capital
outlays occurred in fiscal 2011, while significant under-spending of the budget
and use of excess reserves in an external self-insurance fund yielded a $3
million operating surplus after transfers (7.7% of expenditures).
Statewide budget cuts to school districts resulted in a $2.4 million revenue
loss in fiscal 2012 and additional $1.2 million revenue loss in fiscal 2013.
District officials offset the bulk of the revenue cuts with attrition savings,
absorbing a reported 100 positions (12.5% of total FTEs) since fiscal 2011.
Other discretionary spending reductions, including a pay freeze, and the receipt
of $930,000 in non-recurring federal aid have allowed the district to add
between $1 million and $1.2 million to the fiscal 2012 unrestricted fund balance
(unaudited; Aug. 31 fiscal year).
The fiscal 2013 $40.2 million operating budget is also balanced but relies on a
transfer in of $700,000 from a self-insurance fund to offset the second round of
state budget cuts and cessation of one-time federal aid. The self-insurance fund
will retain a positive balance net of the transfer out of approximately $1.3
million and is a self-sufficient fund. On the spending side, recurring pay
increases were appropriated for the first time in two years. Management may
reduce the amount of external fund resources used in the general fund if
enrollment-driven revenues continue to track above the budget.
Fitch expects stability in the district's financial profile will continue given
the prudent management of state budget cuts thus far. While additional use of
fund balance is possible for capital outlays beyond fiscal 2013, Fitch also
views positively the district's formal commitment to maintain an unassigned
general fund balance of at least 25% of spending.
AFFORDABLE LONG-TERM LIABILITIES AND CARRYING COSTS
The district's current debt profile is a credit positive. The district last
issued new money debt in fiscal 2005 and consequently, overall debt levels are
low at $1,289 per capita and 1.8% of full market value. This debt ratio
calculation includes the currently accreted value of outstanding capital
appreciation bonds (CABs) as well as debt from overlapping entities.
Amortization is rapid with the district repaying all outstanding debt in fiscal
2022. Annual debt service is level, totaling approximately $3.2 million or a low
7% of spending.
Debt levels may rise but remain moderate over the near term due to new facility
needs, though the district does not presently have ULT debt authorization and
does not plan to seek debt authorization until fiscal 2015. Fitch notes the
district's low debt service tax rate of $0.15 per $100 of TAV provides
significant debt capacity below the state's statutory $0.50 new money debt cap
to support future debt issuance.
The district fully-funds it's statutorily required contributions for pension and
other post-employment benefits (OPEB), both of which are provided through the
Teacher Retirement System of Texas (TRS), a cost-sharing multiple employer plan.
Audited pension and OPEB contributions in fiscal 2011 totaled $617,000 or a
modest 1.4% of general fund spending.
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
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
U.S. Local Government Tax-Supported Rating Criteria