Fitch Ratings assigns an 'AAA' rating to Edinburg Consolidated Independent School District (CISD), Texas' approximately $112 million unlimited tax school building bonds, series 2008B, based on a guaranty provided by the Texas Permanent School Fund (PSF), whose insurer financial strength is rated 'AAA' by Fitch. Fitch also assigns an underlying 'A' rating to the series 2008B bonds and affirms the underlying 'A' rating on the district's approximately $124 million unlimited tax bonds outstanding and $22.4 million of maintenance tax notes outstanding series 2001, 2002, and 2003. The bonds are scheduled to sell via negotiation as early as Aug. 25, 2008 pending award notification of Instructional Facilities Allotment (IFA) funds from the Texas Education Agency (TEA). The Rating Outlook is Positive.
The bonds are direct obligations of the district, payable from a property tax levy on all taxable property located in the district. Proceeds will be used to construct new instructional facilities and to pay issuance costs.
The 'A' underlying rating reflects the district's expanding tax base, moderate debt burden substantially supported by the state, and healthy financial condition despite enrollment growth pressures and capacity constraints. The Outlook was recently revised to Positive reflecting the service area's expanding and diversifying economy, the district's solid voter confidence as reflected by the recent election results, and additional maintenance tax capacity created by refunding the district's lease revenue bonds with voter-approved general obligation (GO) bonds. Continued economic expansion and an increase in general fund balance reserves may have a positive impact on the rating.
Over the last five fiscal years, the district's financial position has been healthy and remained stable despite the pressures of ongoing growth and capital constraints stemming from the district's lack of voter support for a prior bond program. Tight budgetary controls have been the norm for school district administrators, due to the difficulty posed by having to utilize funds from general operations to provide for capital outlays. For the fiscal year ended Aug. 31, 2007, the district recorded an operating surplus of $8.2 million, above the $7.2 million average surplus recorded in the last five fiscal years. The fiscal 2007 unreserved general fund balance was $24 million, or 10.1% of spending, slightly below the prior year. As a result of this refunding, a $5.2 million reserve that was required by the legal covenant of the lease purchase revenue bonds will be released for capital projects.
District officials expect to end the current fiscal year (2008) with an estimated $4.3 million increase to total fund balance. For fiscal 2009, financial management staff expects to recommend a $2 million to $3 million increase to the general fund reserves. With the operating capacity created by this refunding (estimated at $4.5 million annually) and management's conservative budgetary practices, Fitch believes the district is capable of increasing its fund balance reserves in the near term to a level commensurate with a higher rating.
Currently at $4.9 billion, the district's taxable assessed value (TAV) has grown at a compound average annual rate of 11.6% since fiscal 2003, outpacing annual enrollment gains of 3% to 4%. In fiscal 2007, TAV jumped 20% in large part due to increased mineral valuations and is estimated to increase at about the same pace for next year. For fiscal 2008, the top 10 taxpayers comprise a concentrated but more diverse 22% of the tax base, compared with 31% in fiscal 2003. Eight of the top 10 taxpayers are in the oil & gas sector, and the single largest taxpayer, Shell Western E&P, represents 8.2% of TAV.
The district's debt ratios, after factoring in state support, are moderate. Repayment of district debt is better than average reflecting the district's lack of GO issuance over the last decade due to a failed bond election. However, the district received overwhelming voter support in an election held in May 2008. More than 70% of district voters approved two bond propositions - one to refund lease revenue bonds with GO bonds and the other to sell this $111.9 million in new money bonds. The district is awaiting notification of IFA funding from the TEA to issue series 2008 bonds, anticipating state support for about 51.5% of the total annual debt service.
Serving an estimated 133,000 residents, the district is located in fast-growing Hidalgo County, adjacent to the U.S.-Mexico border and near the southern tip of Texas. The district's service area includes primarily the City of Edinburg (GO bonds rated 'A+' by Fitch), a small portion of the City of McAllen (GO bonds rated 'AA') and unincorporated areas of Hidalgo County (GO bonds rated 'A'). The district economy is anchored by distribution of agricultural products and goods shipped from Mexico, as well as oil and gas exploration. The county unemployment rate, historically in the double digits, and hovering close to 10% from 2000-2004, began to decline in 2005 upon passage of the North American Free Trade Agreement. Hidalgo County's unemployment rate has improved over the past five years, reporting 7.2% in June 2008 (compared to more than 10% the prior year), but remains above the state and national levels of 4.8% and 5.7%, respectively. County per capita personal income lags far behind those of the state and nation at 54% and 48%, respectively.
Fitch issued an exposure draft on July 31, 2008 proposing a recalibration of tax-supported and water/sewer revenue bond ratings, which, if adopted, may result in an upward revision of this underlying rating (see Fitch Research on 'Exposure Draft: Reassessment of the Municipal Ratings Framework').
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 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.
Contacts:
Gabriela Quiroga, +1-512-215-3731 (Austin)
Jose
Acosta, +1-512-215-3726 (Austin)
Cindy Stoller, +1-212-908-0526
(Media
Relations, New York)
