Fitch Ratings has assigned an 'AA+' rating to the following
Tyler Independent School District (TISD or the district), Texas'
bonds:
--$15.4 million unlimited tax (ULT) refunding bonds, series
2012.
The bonds are scheduled to sell March 21 via negotiation.
Proceeds will be used to refund certain outstanding obligations for
savings and to pay related costs of issuance.
Fitch also affirms the 'AA+' rating on the district's $198
million in outstanding ULTs.
The Rating Outlook is Stable.
SECURITY:
The bonds are secured by an unlimited ad valorem tax pledge
levied against all taxable property within the district. The series
2012 ULT refunding bonds will not carry the Texas Permanent School
Fund (PSF) Guaranty as the bonds it will refund do not have such a
guaranty.
KEY RATING DRIVERS:
FINANCIAL FLEXIBILITY MAINTAINED: Conservative financial
management practices that include proactive expenditure reductions
which largely offset state funding reductions, and the maintenance
of substantial reserve levels have allowed for continued financial
flexibility in the district's operations. Liquidity remains strong
at nearly three months of spending.
RELATIVELY STABLE ECONOMIC BASE: The district is part of a large
East Texas regional economy, anchored by health care and higher
education. Employment and labor force growth remain strong, and the
rate of unemployment is improved and below the national average.
The tax base exhibits good stability and diversity.
MODERATE DEBT LOAD: Current debt levels are moderate but Fitch
expects future bond authorizations will elevate the overall burden.
The impact to the debt service tax rate will be relatively modest
under conservative tax base growth estimates. Fitch also notes
favorably the district's commitment to financing short-term capital
needs with annual pay-go spending.
CREDIT PROFILE:
STABILITY IN ENROLLMENT, ECONOMY AND TAX BASE
TISD is located in Smith County in the eastern portion of Texas,
along Interstate 20 between the cities of Dallas, TX and
Shreveport, LA. Totaling about 18,400 students in fiscal 2012,
district enrollment has remained relatively stable, averaging very
modest growth of under 1% annually since fiscal 2007. The district
is part of the larger Tyler metropolitan statistical area (MSA)
that serves as a regional hub particularly for health care and
higher education and is estimated to total approximately 210,000 in
population. MSA unemployment levels are typically slightly lower
than those of the state, at 7.3% as of December 2011; unemployment
hovered just above the state level of 7.2% but remained below the
U.S. level of 8.3% for the same time period.
Wealth levels are mixed. As measured by per capita income, local
wealth levels equal or exceed the state; however, they fall
slightly below those of the state once median household income and
individual poverty metrics are considered. Nonetheless, this is
somewhat mitigated by the relatively lower cost of living in the
region.
The district's taxable assessed valuation (TAV) has remained
relatively flat in fiscal years 2010 through fiscal 2012 at $7.5
billion in large part from generally weak economic conditions.
Preliminary estimates provided by management from the appraisal
district again project flat TAV growth for fiscal 2013. Top
taxpayer concentration is moderate at 9%.
Fitch believes the relatively moderate negative impact to the
district's tax and employment base assumed by management in light
of the recently announced closure of the local Carrier
manufacturing plant is warranted given the reduced, net level of
employment loss expected from new employment opportunities provided
by an incoming business to the area. In addition, the facility
contributed less than 1% of the district's TAV in fiscal 2012.
SOLID FINANCIAL POSITION
Financial performance has been solid with the district recording
an operating surplus (net of transfers) in three of the last five
fiscal years. Deficits have been modest and typically in line with
capital outlays from the general fund, although one-time incentive
pay for the district's top-performing schools has been a modest
portion of the drawdown when applicable.
In fiscal 2011 the district recorded a sizeable operating
surplus (net of transfers) of $6.3 million (equivalent to 5% of
total spending). The surplus was due largely to the receipt of $3
million in federal stimulus funding that offset a portion of
general fund spending. In addition, improved average daily
attendance (ADA) levels and conservative budgeting of other, modest
sources of supplemental state revenues boosted the year's surplus.
The district's unrestricted fund balance (the sum of the committed,
assigned, and unassigned balances under GASB 54) was $36.6 million
or nearly 29% of spending. A formal fund balance policy was adopted
in light of GASB 54; the district will maintain no less than two
months of spending in the unassigned general fund balance ($21.6
million in fiscal 2011). Fitch notes as a credit strength the
consistent manner in which the district has maintained reserve
levels as unreserved balances have been no less than 19% since
fiscal 2007.
For fiscal 2012, the $129.9 million general operating budget was
balanced, inclusive of a nearly $2 million transfer out for
preventative maintenance purposes. In preparation of state funding
cuts over the biennium (fiscal years 2012 and 2013) and to offset
the loss of federal stimulus funding, management proactively
identified a large $9 million in expenditure reductions, of which
$7 million in cost saving measures were implemented in fiscal 2012.
Management expects fiscal 2012 operating results to provide a
modest surplus and projects a balanced fiscal 2013 operating budget
that will continue to direct a portion of the district's operating
tax levy towards capital renewal. Modest drawdowns in these fiscal
years on fund balance may occur given the possible use of assigned
fund balance for one-time capital spending on technology needs and
a one-time, across-the-board pay stipend in fiscal 2013 (estimated
at maximum of $3.1 million).
FAVORABLE DEBT PROFILE
Overall debt levels are moderate at nearly $2,500 on a per
capita basis and 2.8% of market value despite a recent issuance in
2009 that nearly doubled the district's debt. Principal
amortization of the district's direct debt is average at
approximately 50% within ten years.
The district's capital program is moderated by historically
manageable enrollment trends. Facility needs are largely related to
renewal and replacement. Shorter-term capital needs such as buses
and technology are typically met through annual pay-go spending;
notably, the district has cash funded about $2 million annually in
capital outlays over the past five fiscal years. Construction
savings from bond projects recently completed has also provided
funding for additional projects.
An $89 million bond election failed by a slim margin in November
2010 due reportedly to the district's modest outreach and voter
education efforts and the proposed bond projects serving a narrow
portion of the district. Management indicates plans to approach
voters this November for up to $230 million in bond authority that
will primarily focus on the district's secondary facilities and
includes relocating one of the district's two existing high schools
to the area's growth corridor. Based on fairly conservative TAV
assumptions, the issuance of the full authorization is expected to
double existing debt ratios but increase the debt service tax rate
only moderately.
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
report 'Tax-Supported Rating Criteria', this action was
additionally informed by information from Creditscope,
LoanPerformance, Inc, and IHS Global Insight.
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
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY
FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,
RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM
THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY,
CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER
RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE
OF CONDUCT' SECTION OF THIS SITE.