January 30, 2013 / 7:01 PM / 5 years ago

TEXT - Fitch affirms South San Antonio ISD, Texas bonds

Jan 30 - Fitch Ratings takes the following rating action on South San
Antonio Independent School District, Texas' (the district) unlimited tax (ULT)

--$117.5 million ULT bonds affirmed at 'AA-'.

The Rating Outlook remains Negative. 


The bonds are direct obligations of the district, secured by an unlimited tax 
pledge levied against all taxable property within its boundaries.


NEGATIVE OUTLOOK: Operating reserves have declined due to recurring general fund
deficits. Management restored current-year budget balance through spending cuts,
and adequate fiscal cushion remains, but Fitch is concerned about the district's
ability and political willingness to eliminate out-year deficits that are 
presently forecast. 

STRONG REGIONAL ECONOMY: The district's central location in the diverse economy 
and broad employment base of the San Antonio metropolitan area is a credit 
strength. The district's taxable assessed value (TAV) trend is positive and 
long-term economic prospects are favorable. 

LIMITED LOCAL RESOURCE BASE: Residents' income levels are below average and 
poverty rates are elevated. The local tax base is concentrated and has a low 
per-capita valuation.  

WEAK DEBT PROFILE: The debt to market value (MV) ratio is high, reflecting the 
limited tax base. Debt levels will likely remain elevated given the slow debt 
amortization and future capital needs. 



FUND BALANCE DECLINE: Fitch expects to resolve the Outlook within the next 12 
months and views the district's ability to maintain balanced operations in the 
short term and make structural adjustments to eliminate projected out-year 
deficits as key to rating stability.



This primarily residential district comprises 21 square miles in in the 
southwest part of San Antonio (GO bonds rated 'AAA' with a Stable Outlook by 
Fitch). Annual enrollment has fluctuated slightly in recent years and 2013 
enrollment is up 1% from last year to 9,840.



Recurring operating deficits from fiscal years 2009-2012 resulted from 
structural budget imbalance that was caused primarily by increases to staffing 
levels in prior years that outpaced enrollment growth. The annual deficits 
(2%-3% of spending) have typically been lower than the originally budgeted 
deficits, but they have produced a cumulative 23% decline in operating reserves 
during this four-year period.

In recognition of the negative fiscal trend, management commissioned an external
staffing study and local cost-savings committee and began implementing the 
respective recommendations in fiscal 2011 to curb spending. Budget savings have 
included a reduced FTE count (6%) through attrition and a hiring freeze, as well
as discretionary reductions to department and administrative budgets, 
summer-school, overtime, and substitute usage.

Significant under-spending of the 2012 budget offset lost revenue from state 
budget cuts and narrowed the operating deficit to $2.4 million (from $4.8 
million budgeted). The unrestricted general fund balance declined to $18.3 
million or a sound 24% of expenditures, just below the district's working fund 
balance target of 25% of spending.


The district accelerated spending reductions for fiscal 2013 to adopt a balanced
budget, reducing appropriations by 3.3% ($2.6 million) from the prior-year 
budget. Officials offered an early resignation stipend that yielded additional 
personnel savings and were able to provide a non-recurring stipend for 
employees. Interim results were not yet available but attendance is up 1%. 

Fitch views positively the return to current-year budget balance, particularly 
amid lower state funding levels, but remains concerned about the baseline 
financial forecasts for continuing deficits (1%-2% of expenditures) through 
fiscal 2016. The district does retain some budget flexibility, but Fitch  
believes that some of the budget mechanisms on the table, including furlough 
days, layoffs, and a voter-approved tax rate increase, will be politically 
difficult to implement or altogether unlikely to occur. 

The district's solid fund balances have historically been the key mitigant to 
credit pressures from the below-average resource base and high debt levels. 
Further budget imbalance and declines in reserves would likely cause a rating 


District wealth indicators are well below average, with per capita income at 46%
of the national average, per-capita market value at a low $33,000, and a poverty
rate (20%) that exceeds the national average (14%). The district's tax base is 
also concentrated, with the top 10 payers comprising an above-average 21% of 
fiscal 2013 TAV. The top payer is Boeing Aerospace (long-term Issuer Default 
Rating of 'A' with Stable Outlook) which alone comprises 6% of TAV.

The district's recent TAV trend has been positive, with stabilized housing 
prices, positive re-appraisals, and development activity producing a nearly 12% 
cumulative TAV gain since fiscal 2010. Prospects for further gains are favorable
given anticipated development adjacent to a Texas A&M University satellite 
campus and regional growth prospects.


The district's location in the broad and diverse San Antonio economy is also a 
credit positive. San Antonio is the second largest city in the state and eighth 
largest in the nation, with an estimated population of 1.8 million. Prominent 
sectors include military and government, domestic and international trade, 
convention and tourism, medical and health care, financial services, and 

The San Antonio market shed jobs in 2010 as a result of the national recession 
but has since recovered most of the job losses. Considerable growth in the 
hospitality and energy sectors, the latter being driven by drilling activity in 
the expansive Eagle Ford shale gas formation south of the city, improved the 
unemployment rate to 5.9% from 7.2% for the 12-month period ending October 2012.


Overall district debt is high at 8.5% of market value even after adjusting for 
annual state debt service aid of about 60% of debt, reflecting the district's 
low property wealth. The overall debt calculation includes the currently 
accreted interest of outstanding capital appreciation bonds. Debt per capita is 
moderate and the annual carrying cost is affordable at 5% of governmental 
spending (excluding capital projects fund spending). 

Debt levels will likely remain elevated due to slow principal amortization (34% 
retired in 10 years) and future capital needs. Officials plan to seek debt 
authorization from voters in the range of $30 million-$50 million as early as 
November 2013. The proposed bond program would fund construction of a new 
elementary school and major renovations to aging facilities. Management notes 
that the debt issuance would be done in conjunction with approval of state debt 
service aid. The current tax rate of $0.42 provides adequate capacity below the 
state's $0.50 statutory tax ceiling for new debt issuance, but continued growth 
in the tax base will be critical to supporting debt plans and mitigating any 
impact to the tax rate.


Pension and other post-employment benefits (OPEB) for retiree healthcare are 
provided through the state's Teacher Retirement System, a cost-sharing multiple 
employer plan. State subsidies pay the bulk of the required contributions on 
behalf of school districts for both pension and OPEBs, resulting in an 
affordable $1.1 million annual required contribution for the district in fiscal 
2012 that equaled 1.1% of governmental spending. Combined debt service, pension,
and OPEB costs totaled an affordable 6.1% of governmental spending for the year.

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