Fitch Ratings assigns the following ratings to the Goose Creek
Consolidated Independent School District (CISD), Texas (the
district) unlimited tax (ULT) refunding bonds:
--$42.725 million ULT refunding bonds, series 2012 'AAA'.
The 'AAA' long-term rating reflects the guarantee provided by
the Texas Permanent School Fund (PSF), whose bond guarantee program
is rated 'AAA' by Fitch.
Fitch also assigns an 'AA' underlying rating to the series 2012
bonds.
The bonds are expected to price via negotiation the week of
March 19, 2012. Proceeds will be used to refund a portion of the
district's outstanding obligations.
Fitch also assigns the underlying rating on $306.7 million of
outstanding district ULT bonds at 'AA'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by ad valorem taxes levied against all
taxable property within the district, without limitation as to rate
or amount. In addition, the bonds are secured by the Texas PSF
guarantee.
KEY RATING DRIVERS
HIGHLY INDUSTRIAL ECONOMY: The district is home to the largest
petroleum refinery and among the largest petrochemical plants in
the U.S., residing in the Houston-Sugar Land-Baytown metropolitan
area with a population of nearly 6 million. With port access and a
rich multimodal transportation network, the area also serves as a
regional distribution hub.
CONCENTRATED BUT LONGSTANDING TAX BASE: Fitch expects the
district's tax base concentration to remain substantially high due
to expansions underway by top taxpayers, but notes the essentiality
of the petrochemical processing and refinery business in the U.S.
Additionally, the presence of some diversity between upstream and
downstream petroleum usage within the district's tax base helps
mitigate the impact of oil price volatility.
STRONG FINANCES WITH ABUNDANT RESERVES: The district
historically outperforms the budget and maintains sizable general
fund reserves of more than 40% of spending, a key credit factor to
help the district manage potential revenue fluctuations associated
with its concentrated industrial tax base. In anticipation of
school funding cuts, officials achieved cost savings in fiscal
2011, which when combined with enrollment growth, offset the state
funding reductions. Management expects fiscal year 2012 results to
further supplement reserves and projects a balanced fiscal 2013
budget.
MANAGEABLE DEBT BURDEN: The district's direct debt burden is
modest. Overall debt is above average, but is somewhat mitigated by
a strong local economy, expanding tax base, and adequate wealth
levels. The district does not receive state aid in support of debt
service given its wealthy industrial tax base. Additional planned
borrowings are likely to keep the overall debt levels elevated, but
manageable.
CREDIT PROFILE
HIGHLY INDUSTRIALIZED ECONOMY
Goose Creek CISD serves a population of almost 100,000,
primarily in the southeastern portion of Harris County, the 6th
largest manufacturing county in the U.S., and partially in Chambers
County. Bordered by the San Jacinto River on the west and the
Houston Ship Channel to the south, the area provides waterway
access for industrial and recreational uses.
The district's enrollment has increased steadily over the past
10 years to over 21,000 in fiscal 2011. Officials conservatively
project enrollment gains of 1.5% to 2.0% over the next several
years, which Fitch considers reasonable based on recent trends.
Population, employment, income and average wage growth of the
Houston-Sugar Land-Baytown metro area has outstripped U.S. averages
over the past three years.
The district's tax base is represented by petrochemical, oil
refinery, distribution, electric utility and manufacturing
concerns, led by ExxonMobil (Issuer Default Rating of 'AAA' by
Fitch), which comprised a high 27% of the fiscal 2011 tax base.
ExxonMobil's Baytown plant is the largest petrochemical refinery in
the U.S. While the concentration represents a credit risk, Fitch
notes the key role of oil refining and petrochemical processing in
the national economy. The balance of upstream refining activity and
downstream chemical and manufacturing processing use of oil also
helps to mitigate the impact of oil price volatility.
Fiscal 2012 taxable assessed valuation (TAV) of $8.5 billion is
sizeable and expected by management to grow over the next several
years, which Fitch considers reasonable based on reported estimates
from the county assessor's office projecting greater than 2% growth
overall, led by 6% growth in the industrial sector. Additionally,
the top three taxpayers have all announced plant expansions over
the next several years, which augurs well for the district's tax
revenues, employment and local housing market.
SOUND FINANCIAL MANAGEMENT
The district completed fiscal 2011 with a $16.9 million
operating surplus net of transfers, bolstering its unrestricted
general fund balance (consisting of committed, assigned and
unassigned funds) to a sizeable $77 million (46% of spending). The
fiscal 2011 net margin benefited from approximately $8 million in
Texas Education Association (TEA) revenues which compensated the
district for fiscal 2007 through 2010 underpayments, as well as
$5.7 million in cost subsidies from federal stabilization
funds.
Management proactively reduced fiscal 2011 costs through
attrition and school consolidations, which combined with ongoing
growth, mitigate the state funding reductions totaling $10 million
applicable to fiscal years 2012 and 2013. Officials expect to add
$4 million to $5 million to fiscal 2012 fund balance and report a
balanced budget in fiscal 2013. The district's conservative
financial management is characterized by results which typically
exceed the budget and a policy targeting unrestricted fund balance
to 40% of spending. Fitch considers the maintenance of sizeable
fund balances a key to credit quality given the highly concentrated
tax base.
ABOVE-AVERAGE, BUT MANAGEABLE DEBT
The impact of direct debt service on the budget is manageable at
13.4% of fiscal 2011 general fund expenditures. Overall debt is
above average as measured by debt per capita of $6,321, or 6.2% of
market value. Planned issuances of debt in the next several years
are expected to keep the district's debt level elevated, but
manageable, considering ongoing population and tax base growth.
The district provides pension and other post employment benefits
(OPEB) through the Texas Retirement Association (TRS), with annual
required contributions for fiscal 2011 of $1.6 million and
$702,000, respectively. The district also provides qualified
employees with a money purchase plan, contributing $4.1 million in
fiscal 2011, funded from the general fund and special revenue
funds. The district's fixed costs, including debt service, pension
and OPEB comprised a manageable 16.2% of total general fund
expenditures in fiscal 2011.
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, S&P/Case-Shiller Home Price Index, IHS Global
Insight, Zillow.com, National Association of Realtors
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (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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