Nov 15 - Fitch Ratings has affirmed its ‘AA-’ rating for the following Valley View Independent School District, Texas (the district) bonds: --$52.2 million unlimited tax bonds outstanding. The Rating Outlook is Stable. SECURITY The bonds are secured by an unlimited ad valorem tax levied against all taxable property in the district, and are secured further by the Texas Permanent School Fund guarantee. KEY RATING DRIVERS STABLE FINANCIAL PERFORMANCE: The district’s financial profile is sound, characterized by healthy operating reserves and conservative budgeting and financial management practices. The district has managed this performance despite recent state funding cutbacks as evidenced by management’s ability to cut spending over the last two fiscal years. MINIMAL GROWTH PRESSURES: The district is largely residential and maintains manageable student enrollment growth with minimal growth pressures and ample capacity in existing facilities. Capital needs are minimal, as district facilities are relatively new; ongoing repair and replacement to plant components will be done using available resources. WEAK ECONOMIC ENVIRONMENT: While improving from last year, county unemployment levels are stubbornly high and wealth indicators are well below state and national averages. AVERAGE DEBT BURDEN: Debt levels are affordable (after adjusting for state support), but the pace of debt repayment is very slow due in part to issuance of capital appreciation and term bonds. CREDIT SUMMARY Valley View ISD is located in Hidalgo County along the Mexican border and within the large and growing McAllen-Edinburg-Mission metro area. The district serves primarily the city of Pharr and a portion of the city of Hidalgo. District enrollment has slowed to a moderate 1%-2% growth over the last few years; previously, rapid enrollment gains averaged 9% over the past decade. The slowed enrollment growth provides a measure of relief for capital needs. District enrollment in fiscal 2012 was approximately 4,700. Facilities include five elementary schools, one middle school, and two senior high schools. Tax base growth has also subsided to around 3% since 2009, a substantial decline from the 19% annual gains generated from 2002-2008. Fiscal 2012 taxable assessed value (TAV) registered a 3.7% increase to $423 million. Tax base and sector concentration is low, with the top 10 taxpayers at about 7.6% of TAV in fiscal 2012. Tax collections remain stable in the region. Area wealth levels are well below state and national averages with county median household income less than 55% the national level. County unemployment levels are stubbornly high at 12.3%. While the rate has dropped from 13% during the same period last year, it has remained above 10% for over four years. The poverty rate is also high, with approximately 34% of county residents below the poverty line. STABLE FINANCIAL POSITION A MITIGATING FACTOR The district continues to maintain a sound financial profile despite operating pressures associated with state funding cuts. A trend of annual operating surpluses has contributed to growing reserve levels, including an unrestricted fund balance (committed, assigned and unassigned per GASB 54) that reached $13.8 million or 34% of spending in fiscal 2011. Liquidity is also favorable, with fiscal 2011 cash and investments representing more than 49% of operating expenditures. State support for district operations is significant, accounting for 78% of general fund revenues in 2011. State funding cuts totaled approximately $1.4 million (3% of general fund revenue in fiscal 2012) and the district balanced the fiscal 2012 budget with cost savings from staffing reductions in both support services and professional positions. Current projections for year-end operating results indicate a modest $500,000 surplus which appears reasonable given management’s track record of budgeting conservatively. The adopted 2013 budget is balanced, closing another expected gap associated with state and federal funding cuts totaling $1.875 million. AFFORDABLE TAX AND DEBT BURDEN The operating tax rate is currently at the statutory cap of $1.04 per $100 of TAV, which can be increased by an additional $0.13 only with voter approval. District officials report no plans to approach voters for a tax rate increase. The total tax rate for fiscal 2012 is $1.32, which compares favorably with many other central Texas districts. District debt levels are average, with overall debt at $1,548 per capita and 4.4% of fiscal 2012 market value. These ratios are net of state debt service support that totals 74% of annual debt payments. The pace of debt retirement is very slow at 26% repaid in 10 years, attributable in part to issuance of capital appreciation bonds. Annual debt service is level till maturity in 2038. Management reports that district facilities are in good condition, and as a result there are no large capital needs anticipated in the near term. They note that available funds will be used for any repair and upkeep capital projects at district campuses. District employees participate in the Teachers Retirement System of Texas (TRS), a cost-sharing multiple employer pension system. Contributions are made by plan members and the state on behalf of the district, eliminating any liability for the district. The district’s debt service pension and other post-employment benefit (OPEB) contributions represent an affordable 11% of fiscal 2011 general government expenditures.