Fitch Ratings affirms the underlying rating on the following
outstanding obligations of Fort Bend Independent School District,
Texas (the district) as part of its continuous surveillance
efforts:
--$963.4 million unlimited tax (ULT) bonds at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The bonds are secured by an unlimited ad valorem tax pledge of
the district. In addition, the bonds are secured by the Texas
Permanent School Fund (PSF), whose bond guarantee program is rated
'AAA' by Fitch.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The district's financial profile is a
positive credit factor, characterized by large reserve levels and a
consistent record of conservative budget practices.
STABLE AND DIVERSE ECONOMY: The local economic climate is
favorable and continues to demonstrate low unemployment, high
wealth levels, and a healthy local housing market despite the
national recession.
HEALTHY GROWTH CONTINUES: Steady growth has been exhibited in
both the district's tax base and student enrollment, and housing
construction continues in the area. Growth in taxable assessed
valuation (TAV) has slowed somewhat due to recessionary pressures
but has still maintained a positive trend. A recent study by the
district's external demographer projects that the district's
enrollment growth will continue at an annual rate of 1%-2%, which
is in line with historical growth.
ELEVATED DEBT BURDEN: The district's overall debt burden is
high, but Fitch believes the debt load currently is manageable due
to the district's high wealth levels, relatively low carrying
costs, ample new issuance tax rate cap margin, and reasonable
prospects for continued growth of the tax base.
CREDIT SUMMARY
STABLE FINANCIAL PERFORMANCE
The district's financial position is strong, as evidenced by an
audited fiscal 2011 unrestricted general fund balance (committed,
assigned and unassigned balances per GASB 54) of $137 million (30%
of spending). Fund balances have exceeded 20% of spending for each
of the past 10 fiscal years, maintaining a high degree of financial
flexibility through two national recessions. Recessionary pressures
and state funding reductions led the district in fiscals 2010 and
2011 to proactively declare financial exigency, a Texas Education
Agency prerequisite for terminating contracted employees. This
action allowed the school district to eliminate nearly 1,000
positions (approximately 10% of its workforce) to close a $22
million budget gap. Following the cuts, the district continues to
operate below state-recommended student-teacher ratio limits.
Historically, the district's proactive administrators have
prudently managed resources to sustain a healthy financial profile;
this track record largely mitigates concerns over the recent
budgetary challenges. The district's increased fund balance reserve
policy - to three months from 20%, or about 2.5 months - indicates
management's commitment to maintain its historically strong
financial profile. Break-even results or a modest drawdown are
expected for the close of fiscal 2012. Preliminary plans for the
fiscal 2013 budget include a return to formula funding which is
anticipated to allow continued growth to the district's revenue
base, resulting in balanced operations and maintenance of the
strong fund balance.
DESIRABLE RESIDENTIAL COMMUNITY
Located in northeastern Fort Bend County, the district is in a
rapidly growing residential and commercial sector of the Houston
metropolitan statistical area (MSA). Fort Bend County's population,
estimated at 585,375 in 2010, has grown by 65% since the 2000
census population count of 354,452. Despite the slowdown in home
sales, the median home price in the Houston MSA has held steady at
about $150,000 and experienced very modest swings in prices since
2005. The county's unemployment rate of 7.0% in November 2011 is
well below the state (7.5%) and national averages (8.2%) for the
same period. In addition, the labor force grew 1.9% year-over-year
in November. Wealth levels of the county's population are notably
higher than those for the Houston MSA, state, and nation.
Enrollment and the tax base have expanded in recent years, and
continued growth is anticipated. Student enrollment has grown at a
rate of 1%-2% over the past five years, and the district's external
demographer has recently forecast that trend to continue at the
same rate over the next 10 years. The district's fall 2011
enrollment was approximately 69,200 students. Given recent history
and the comparatively strong regional economy, Fitch believes this
forecast is reasonable.
The district's TAV has expanded at a compound annual rate of
6.4% over the past five fiscal years; growth has been more modest
in recent years due to the impact of the recession on homebuilding
and property values. Total market value for fiscal 2012 is $27.3
billion, and TAV totals $23.9 billion (a 0.5% increase from fiscal
2011). Fitch housing data indicate that the Fort Bend County
housing market is performing well relative to other markets in
terms of new starts and housing prices.
ELEVATED DEBT BURDEN
The district's overall net debt burden is high at over 10% of
fiscal 2012 market value and $7,800 per capita. The high overall
debt load includes a large number of special districts in the area.
Payout is relatively slow at 37% repaid in 10 years, though not
uncommon among high-growth Texas school districts. The district has
maintained a very low debt-service tax rate (currently $0.30 per
$100 of TAV), well below the attorney general's tax rate cap for
new debt issuance of $0.50 per $100. The debt burden is expected to
remain manageable given the flat amortization schedule of existing
debt, the below-average carrying costs (13% of General Fund
spending), anticipated population and tax base growth, and moderate
near term capital needs.
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, and the
Municipal Advisory Council of Texas.
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:
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
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