January 17, 2013 / 10:07 PM / 5 years ago

TEXT - Fitch affirms Beeville ISD, Texas

Jan 17 - Fitch Ratings affirms its underlying 'AA-' rating on Beeville
Independent School District (ISD), Texas' (Beeville ISD or the district)
outstanding unlimited tax (ULT) bonds as follows:

--Approximately $22.9 million in outstanding ULT bonds.

The Rating Outlook is Stable.

SECURITY 

The bonds are secured by an unlimited ad valorem tax pledge of the district. The
bonds are also insured as to principal and interest repayment from a guaranty 
provided by the Texas Permanent School Fund (guaranty rated 'AAA', Stable 
Outlook by Fitch)

KEY RATING DRIVERS

STRONG FINANCIAL POSITION MAINTAINED:  General fund reserves have strengthened 
in the last two fiscal years from previously solid levels due largely to 
conservative budgeting and spending practices.  

DEBT AND OTHER LONG-TERM LIABILITIES MODERATE:  The debt profile remains 
moderate, characterized by modest debt levels, average principal amortization, 
and manageable future capital needs.

LIMITED ECONOMY; LOW WEALTH LEVELS:  The local economy is fairly narrow in this 
predominately rural area; income/wealth levels are well below state and national
averages.

GROWTH, CONCENTRATION IN TAX BASE:  The district has realized recent taxable 
assessed valuation (TAV) gains mainly due to increased economic activity 
surrounding the Eagle-Ford Shale oil/natural gas formation.  Tax base 
concentration is moderately high at 15%; a majority of top taxpayers are in the 
energy sector.

STAGNANT ENROLLMENT TRENDS:  The small enrollment base typically reflects flat 
to very modest declines annually.

CREDIT PROFILE

Beeville Independent School District is located approximately 50 miles northwest
of Corpus Christi, the closest metropolitan area.  Characteristic of an 
agricultural area, district population (estimated at approximately 27,000) has 
remained relatively flat since 2000 with median household income roughly 20% 
below the state and U.S. averages.  Annual enrollment trends as measured by 
average daily attendance (ADA) are comparably flat to modestly declining; a 1% 
enrollment decline was realized over the last five fiscal years.

RECENT ECONOMIC AND TAX BASE EXPANSION IN RURAL SOUTH TEXAS COMMUNITY

The area economy is limited but generally stable, based on agriculture, oil and 
gas production, and related commercial activities. Government and retail trade 
are the largest non-agricultural employment sectors.  County unemployment levels
have historically been above those of the state since 2003, but reflect a 
decline on a year-over-year basis from a high 8.1% in October 2011 to 6.5% in 
October 2012.  This was despite a healthy growth in labor force over the same 
period.  

Since 2007, the district has typically realized solid annual TAV gains.  Recent 
improvement in employment levels and strong, cumulative TAV gains of about 20% 
over fiscal years 2012 and 2013 that brought TAV up to approximately $692 
million are due largely to the expanded economic activity spurred by the 
Eagle-Ford Shale, a portion of which underlies the county.  

Nonetheless, despite this growth, about one-third of the district's TAV comes 
from residential values, with the next largest portion (roughly 30%) consisting 
of acreage.  Tax base concentration is moderately high at 15% with a majority of
the top taxpayers in the energy sector.  At a minimum, Fitch expects that 
ongoing activity surrounding this relatively newly discovered oil and natural 
gas formation should allow for continued, modest expansion of the tax base over 
the near term.

ENHANCED RESERVES IN FISCAL YEARS 2011 AND 2012

The district receives substantial state support for operations (about 70% in 
fiscal 2012) as a property-poor district.  Historically solid financial reserves
that totaled no less than 26% of spending have characterized the district's 
financial position since fiscal 2006, enhancing the district's financial 
flexibility.  The district typically maintains reserves well above its informal 
floor of $6 million-$7 million or about three months of spending. Management's 
conservative budgeting and spending practices historically have generated 
healthy annual operating surpluses and that trend continued in fiscals 2011 and 
2012. 

The district implemented various cost-saving measures in preparation for 
preliminarily announced state funding cuts over the biennium (fiscals 2012 and 
2013). These measures in large part relied on salary savings from reducing or 
eliminating some of its more highly paid positions.   In addition, the district 
benefitted from the receipt of a total of $1.1 million in nonrecurring federal 
ARRA funds in fiscal 2011 that served to offset some of the year's general fund 
spending and better prior year-end projections.  Unrestricted general fund 
reserves rose to $12.7 million or almost 60% of spending in fiscal 2011, up from
the prior year's solid unreserved balance of $9.9 million or about 43% of 
spending.

State funding cuts were not as severe as originally expected and the district 
received about $625,000 in nonrecurring federal EduJobs funds in fiscal 2012.  
While total operating revenue held fairly flat at $24 million, previously 
implemented cost savings and management's continued conservative financial 
practices saw the district generate approximately $2.2 million in operating 
surplus, increasing the unrestricted general fund balance to $14.8 million or 
nearly 68% of spending at year's end.

The $24.7 million fiscal 2013 operating budget was adopted as balanced and 
includes a one-time, 4%, cost of living salary increase of about $800,000.  
Year-to-date operations are running in line with budget according to management,
although Fitch believes a less sizeable operating surplus is likely given 
reduced cost savings opportunities in the year's budget.

MODEST LONG-TERM LIABILITIES 

Overall debt levels are modest at about $800 per capita and 2% of market value. 
The debt burden is assisted by a sizeable amount (just under 50%) of state 
support for the district's debt service, given its comparatively low property 
wealth per student. Amortization is slightly above average with 58% of principal
repaid in 10 years. In addition to its outstanding ULT bonds, the district has 
previously issued $1.6 million in maintenance tax notes (not rated by Fitch) 
that do not receive state support primarily for equipment and stadium 
renovations. 

Capital needs are manageable; the district may pursue pay-go capital spending 
for the construction of a baseball field with the use of $1.5 million from 
general fund reserves. Annual debt service for the outstanding ULTs and 
maintenance tax notes rises slightly to reach maximum annual debt service of 
$2.7 million in fiscal 2015 and declines thereafter, holding steady at roughly 
$1.7 million from fiscal 2016 through fiscal 2027.  The district's debt profile 
consists of current interest bonds and some capital appreciation bonds with no 
exposure to variable-rate debt or derivatives.  

The district's pension and other post-employment benefit (OPEB) liabilities are 
limited to its participation in the state pension plan administered by the 
Teachers Retirement System of Texas (TRS).  TRS is a cost-sharing, 
multiple-employer plan in which the state rather than the district provides the 
bulk of the employer's annual pension contribution as a pass-through revenue to 
the district.  The district's annual contribution to TRS is determined by state 
law as is the contribution for the state-run post-employment benefit healthcare 
plan; the district consistently funds its annual required contributions.  
Carrying costs for the district (debt service, pension, OPEB costs, net of state
support) totaled a low 6% of governmental fund spending in fiscal 2012.

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