Fitch Ratings takes the following rating action on Hays
Consolidated Independent School District, Texas' (the district)
unlimited tax (ULT) bonds:
--$8.12 million ULT refunding bonds, series 2012 rated 'AAA'
enhanced rating/'AA-' underlying rating.
The 'AAA' long-term rating on the series 2012 bonds is based on
a guaranty provided by the Texas Permanent School Fund (PSF), whose
bond guaranty program is rated 'AAA' by Fitch.
The bonds are scheduled for negotiated sale the week of March
26. Proceeds from the sale will be used to refund a portion of the
district's outstanding ULT debt for debt service savings.
Fitch also affirms the 'AA-' underlying rating on the district's
$318.2 million in outstanding ULT bonds (pre-refunding).
The Rating Outlook is Stable.
SECURITY:
An unlimited ad valorem tax pledge levied against all taxable
property within the district and further secured by the PSF
guaranty.
KEY RATING DRIVERS
HIGH DEBT PROFILE: Debt levels are high and debt amortization is
slow, reflective of the district's rapid infrastructure growth. The
district's debt levels are expected to remain high given the
prospects for continued growth.
SOLID FUND BALANCE RESERVES: Financial performance has been
favorable in recent years, with the district maintaining healthy
fund balance levels and good liquidity.
SOUND SOCIO-ECONOMIC BASE: The district's diverse tax base
continues to expand, with future potential growth tied to continued
development along the IH-35 corridor and the district's proximity
to Austin (north of the district) and San Marcos (to the south).
Population has more than doubled in the past 10 years and
commercial development promptly followed. Wealth and employment
indicators are strong.
CREDIT SUMMARY:
CONSISTENT POSITIVE FINANCIAL MARGINS YIELD SOLID RESERVES
Hays CISD reported an operating surplus in each of the past five
fiscal years reflecting the district's ability to manage expenses
in line with revenue growth. With an additional fiscal 2011
contribution of $6.1 million to fund balance, the district reported
an unrestricted general fund balance of $29 million, or 26.6% of
spending. School officials expect to add another $3 million to
general fund balance for fiscal 2012.
The fiscal 2013 budget process is in the beginning stages.
Management preliminarily estimates adoption of a balanced to modest
$1 million surplus budget. Additionally, the board will consider
formalizing a minimum general fund balance policy at the current
target of 25% of spending. Fitch views favorably the board's formal
commitment to maintaining healthy financial reserves.
School officials have mitigated fiscal years 2012 and 2013 state
funding reductions with a combination of cost savings and the
expectation of continued enrollment growth. Compound annual average
enrollment growth has been about 8% over the last 10 years, with a
more moderate pace of 4% to 5% in the past two years. Commensurate
with enrollment growth, state funding has increased rapidly and
comprised 65% of the district's fiscal 2011 revenues.
HIGH DEBT BURDEN EXPECTED TO REMAIN HIGH DUE TO RAPID GROWTH
PRESSURES
Overall debt ratios remain high at $6,657 per capita, or 10.1%
of market value, even after accounting for about 24% state support
for debt service. Not uncommon for a fast growth district, debt
amortization is slower than average with 39% of principal repaid in
10 years. Rising debt service costs, coupled with relatively flat
taxable assessed valuation (TAV) growth for fiscal 2011, resulted
in the need for the district to transfer funds for debt service
from the general fund. The district has no remaining voter-approved
debt and has delayed seeking additional authorization, given the
recent slowdown in economic development. Facilities provide at
least three years of capacity based on the district's enrollment
projections. The district expects to fund near-term capital needs
with remaining bond proceeds and internally generated funds.
Another election may be necessary as early as May 2014 given the
ongoing enrollment growth pressures to construct another elementary
and middle school.
The district's pension liabilities are limited to its
participation in the state pension plan administered by the
Teachers Retirement System of Texas (TRS). 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. Including debt service, fixed costs for long-term liabilities
are high at 18.3% of fiscal 2011 spending. With an ascending debt
service schedule and additional capital needs, the fixed cost
burden is of primary concern to Fitch. Maintenance of strong fund
balance reserves somewhat mitigate these concerns.
STABLE ECONOMY IN GROWTH CORRIDOR
The district's service area consists of about 221 square miles
in Hays County along the IH-35 corridor between Austin and San
Antonio. This area is populated by more than two million people and
is the state's third largest region of economic activity. As one of
the fastest growing school districts in Texas, the district has
seen enrollment grow rapidly, more than doubling its student
population over the past decade to 15,875 in fiscal 2012.
Employment also has grown steadily in the district at a 10-year
compound rate of 3%. The December 2011 unemployment rate of 6.3% is
up slightly from a year ago, but commensurate with the region's
rate and lower than the state's and nation's rates. Median
household income exceeds that of the state by 42% and the nation by
33%.
The composition of the district's tax base is being quickly
transformed from rural to urban. Residential construction increased
very rapidly before the recession as Austin housing pressures
quickly expanded development southward, while growth in San Marcos
pushed development northward. Commercial development promptly
followed the population growth with significant corporate
investment in the community spanning from retail centers to health
care, including a new hospital and medical offices.
Notably, the commercial developments that were announced prior
to the downturn were completed as planned despite the economic
recession, offsetting negative revaluation of residential
properties. As a result, the district's TAV at $3.7 billion for
fiscal 2012 is solid, having grown at a compound average rate of
10% annually since fiscal 2006, although recent growth has been
much more modest.
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 the
Tax-Supported Rating Criteria, this action was additionally
informed by information from Creditscope, IHS Global Insight, and
Texas Municipal Advisory Council.
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria', dated Aug. 15, 2011;
--'U.S. Local Government Tax-Supported Rating Criteria', dated
Aug. 15, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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