AUSTIN, Texas - (Business Wire) Fitch Ratings assigns its 'AA-' rating to $12.1 million of El Paso Independent School District (the district), TX' unlimited tax (ULT)refunding bonds, series 2009, which are expected to sell as early as the week of June 29 via negotiated sale. Also, Fitch upgrades the district's approximately $505.7 million in outstanding ULT bonds to 'AA-' from 'A+'. The Rating Outlook is revised to Stable from Positive. The bonds are payable from an unlimited property tax levy on all taxable property located within the district. Bond proceeds will be used to refund outstanding debt for interest cost savings.
The upgrade reflects the district's consistently stable financial profile, relatively low debt levels, and a sound regional economy with good near-term growth prospects. Offsetting risks include the operating and capital pressures associated with a projected surge in enrollment.
Substantial troop additions to Ft. Bliss will add significantly to the district's historically stable enrollment base and is spurring residential and commercial development in the northeastern part of El Paso (the city). The district will be challenged in providing sufficient instructional space for military and civilian dependents, facilitated by the passage of two major bond authorizations in 2003 and 2007. Despite these large authorizations, state debt support will keep debt levels manageable at a moderate tax rate due to the district's expansive tax base. The accurate timing of enrollment increases has proven difficult, leading management to rely mostly on existing staffing levels to operate four new schools opening this fall 2009 despite ongoing normal growth of its enrollment base. Notably, a large shortfall of anticipated troop dependents in the current fiscal year did not result in an operating deficit due to improved attention to district-wide staffing patterns. The maintenance of solid reserve levels through the impending enrollment boost will be a key factor in maintaining credit quality.
The district, the seventh largest school district in the state, encompasses over 250 square miles and serves the majority of the City of El Paso. The area's economy is based on international trade and manufacturing, copper mining, and ore smelting. Stability is also provided by the large military presence (Fort Bliss and Biggs Army Airfield) and educational concerns (the University of Texas at El Paso and Texas Tech University Medical School). As a result of base realignment and overall expansion of the armed forces, Ft. Bliss is expected to receive 24,700 additional troops with the majority of school-age troop dependents enrolling in the district. By 2013, the increased troop strength is expected to boost district enrollment by about 5,000 in military and civilian personnel dependents, down from previous estimates due to troop arrival delays.
The district's tax base is diverse with taxable values increasing again after years of stagnant growth. Taxable assessed valuation (TAV) grew by a notable 16% and 13% in fiscal years 2007 and 2008, respectively, increasing by $3.1 billion over that period. For fiscal 2009, TAV growth moderated to a still strong 6.7% increase over the prior year, or nearly $900 million. The ongoing $5 billion expansion of Ft. Bliss has spurred the development of off-base housing as about 65% of the additional troops are expected to live off-base. Furthermore, the relocation of air cavalry and armored aviation units to Ft. Bliss is expected to attract high-technology companies for both services and research and development. The city's unemployment rate has trended downward to record lows in recent years but has trended up during the current recession. For April 2009, the city's 6.9% unemployment rate was higher than the state's 6.4% but below the national unemployment rate.
The current offering is a refunding with a projected 2.0% net present value savings. The district has exhausted its $230 million bond program approved by 53% of voters in May 2007, mostly for new schools and classroom additions. This was the second key authorization approved by voters since 2003, allowing the district to address the majority of its total capital needs, including its most pressing deferred maintenance needs. The tax rate impact from this authorization has been modest and less than projected due to reasonable TAV growth assumptions.
The district's direct debt profile remains modest at $1,005 per capita and 2.5% of TAV after adjusting for state support. Overall debt ratios are now moderately high as a percentage of TAV at 6.6% but moderate on a per capita basis at $2,612. The district's principal amortization rate was previously rapid but has trended down to a below average rate of 40% in 10 years. Because of the slower pace of enrollment growth of Ft. Bliss dependents, the district does not expect to seek another bond election for about three years.
The district's financial performance has improved notably since a new board and administration implemented improved cost controls and budget cuts, leading to operating surpluses in fiscal years 2006 and 2007. However, fiscal 2008 posted a large operating deficit due mostly to a sizeable differential between projected and actual average daily attendance (ADA) associated with shifting deployment patterns at Ft. Bliss. As a result, available reserves declined to a still adequate $50 million or 11% of spending in fiscal 2008. Similarly, the fiscal 2009 budget was based on an ADA surge of 1,300 or 2.4%, due mostly to the arrival of military troop dependents, plus natural growth and new attendance initiatives. However, ADA grew by only about half of the projected increase. Notably, projected fiscal 2009 results do not point to an operating deficit due to flat staffing patterns. The projected modest drawdown of reserves, totaling $6 million in fiscal 2009, is attributed to the expenditure of maintenance tax note proceeds and the settlement of disputed retirement contribution rate increases.
The proposed fiscal 2010 budget, based on an ADA increase of 985, also projects a modest drawdown of $4.2 million due to the district's decision to shore up its self-funded health insurance fund and the impact of state-mandated teacher pay hikes. Increased attention to sustainable staffing patterns is evident in the budget's addition of only 30 new teachers despite the opening of four new schools, two of which will serve to reduce overcrowding in existing schools. Apart from normal growth, the projected ADA increase includes only 300 additional troop dependents.
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Fitch Ratings
Jose Acosta, +1-512-215-3726, Austin
Gabriela Gutierrez, +1-512-215-3731, Austin
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