AUSTIN, Texas - (Business Wire) Fitch assigns an 'F1+' rating to Cypress-Fairbanks Independent School District (ISD), TX's (the district) $41 million tax anticipation notes (TANs), series 2008. The notes are scheduled to sell on a competitive basis on July 17, 2008.
Revenues pledged for note repayment consist of ad valorem taxes levied in fiscal 2009 for operations & maintenance (O&M) purposes by the district, local non-tax income, interest and other income, and state appropriations to the district (excluding state appropriations to assist in paying the district's GO bonds). Note proceeds will be used to finance deficits in the district's operating fund cash flow during the fiscal year ending June 30, 2009 which occur due to the uneven nature of cash receipts from state appropriations and property taxes. This is the third time in 13 years that the district has issued TANs; the district issued $20 million and $35 million for fiscal years 2006 and 2007, respectively.
The 'F1+' rating, which represents the highest short-term credit quality, reflects adequate coverage by diverse and stable pledged revenue sources. The district's cash balance is projected at 1.4 times the note principal when it matures. The $34.6 million maximum projected cash flow deficit is expected to occur in mid-December 2008 and be cured by the end of January 2009 when the district expects to receive the bulk of state appropriations.
The district adopted a balanced budget for fiscal 2009 last month, but does not adopt the operations and maintenance (O&M) tax rate until September or October. As adopted, the budgeted revenue is based on a $1.04 per $100 of taxable assessed valuation (TAV) levy and revised enrollment projections to reflect a slowdown in the growth rate. In order to balance the fiscal 2009 budget, after adjusting for lower enrollment growth and local funding, the district made significant adjustments to the operating expenditure budget. These adjustments include no pay increases and elimination of about 400 positions by increasing class sizes and cutting support positions. The district maintains among the lowest cost per pupil in the state, reflective of management's prudent fiscal stewardship and tight budgetary measures. Having adopted less than the entire four discretionary pennies in its O&M tax levy for fiscals 2007 and 2008, the district is one of few school districts that maintained some operating tax margin. Moreover, unlike many districts, Cypress-Fairbanks maintains a 20% homestead exemption, which, if eliminated, would provide significant additional taxing margin.
The underlying 'AA-' rating reflects the district's solid and growing tax base, sound management practices, historically healthy financial position, and operating and capital pressures associated with rapid enrollment growth. Ongoing residential development is expected to continue, although at a slower pace. The district's debt burden is high and is expected to remain high due to the district's substantial capital needs and slow principal amortization. Considering the district's rapid growth, its financial position has remained stable over time, but the district has experienced significant operating pressures despite implementation of cost containment efforts. For the current fiscal year, the district expects to generate a large deficit for general operations; however, general fund balance reserves remain adequate. Fitch will continue to monitor the district's financial performance. Further significant declines in the district's fund balance reserves could put downward pressure on the underlying long-term rating.
The district is the third largest in the state in terms of student population. It is located in west and northwest Harris County and covers 186 square miles, including the unincorporated communities of Cypress and Fairbanks, as well as the City of Jersey Village. Enrollment has grown at a rapid clip, averaging 6.3% over the last five fiscal years. The slowdown of single-family home construction in the last year resulted in a lower enrollment growth rate of 4% for fiscal 2008; this change still represents a large increase of nearly 4,000 students. District officials have revised estimates for the next three years to reflect the slower growth expected in the near term. Although the district's tax base is primarily residential, the commercial component represents almost one-fourth of the value. Tax base growth has averaged 10% per year for the past five years, including a $2.8 billion increase in fiscal 2008 to $27.9 billion.
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.
Fitch Ratings, Austin
Gabriela Quiroga, 512-215-3731
Jose Acosta, 512-215-3726
or
Media Relations:
Christopher Kimble, 212-908-0226, New York
