AUSTIN, Texas - (Business Wire) Fitch Ratings assigns an 'AA' underlying rating to Northside Independent School District (ISD, or the district), TX's $80 million unlimited tax school building bonds, series 2008A. The series 2008A bonds are expected to sell the week of Nov. 17 via negotiation. In addition, Fitch affirms its 'AA' rating on the district's $1.3 billion in outstanding parity debt. The district has applied for a guaranty from the Texas Permanent School Fund (PSF). Upon their approval, the 'AAA' rating will be assigned to the current offering based on the financial strength of the PSF, which is rated 'AAA' by Fitch. The Rating Outlook is Stable.
The rating reflects the district's consistently strong financial management and performance within a rapid enrollment growth environment, continued strong taxable assessed valuation (TAV) growth, and its large and diverse employment base, balanced by the district's above-average debt levels. The district's rising debt burden is due to very large growth-related capital needs, with voters consistently supporting the district's bond programs.
Serving the rapidly growing northwest portion of Bexar County and surrounding areas, the district continues to record sizeable gains in TAV, rising by a compound average annual rate of over 13% over the last five fiscal years, including a nearly 13% increase in fiscal 2009. To accommodate its rapid enrollment growth, averaging 3,000 students per year, an impressive 70% of voters approved the largest bond election in district history for $693 million in May 2007. The favorable prospect for continued, albeit more moderate, tax base growth and the strong voter support for the bonds moderate the credit impact to the district's debt profile.
Annual enrollment growth has averaged almost 5% per year over the last five years although growth has moderated in the current year. The district's fiscal 2009 enrollment grew by over 2,700 or 3.2% for a total enrollment base of 88,314 students, making it the state's fourth largest district. This high-growth mode caused the district to seek and obtain nearly $1.8 billion in bond authorizations since 1998. The May 2007 authorization funds growth-related needs that include nine elementary schools, two middle schools, and one high school plus classroom additions, campus renovations, science labs, and technology and transportation needs.
The current offering represents the third installment of the aforementioned authorization. The district's current direct debt burden has risen substantially and now totals over $3,000 per capita and 4.3% of TAV, due in part to declining amounts of state support for outstanding debt. Overall debt ratios are also above average at over $4,800 per capita and 6.9% of TAV. The district's principal amortization rate is slow at 31% in 10 years, but is not unusual for rapidly growing districts. The May 2007 bond authorization is projected to increase the district's debt service tax rate by a modest $0.045 per $100 TAV.
Despite pressures associated with consistent enrollment growth, financial performance has been solid as evidenced by undesignated fund balances of 10% or better of expenditures since fiscal 1995, which exceed management's goal of one month of expenditures. For fiscal 2007, the district posted a large $22 million general fund operating surplus due to lower than budgeted expenditures. The district's growing financial cushion is impressive, comprised a $48.6 million undesignated fund balance and $56 million in additional reserves, totaling $104 million or 19% of spending in fiscal 2007. Notably, the district has set aside $52 million in additional reserves for the opening of new schools, to purchase furniture, equipment, and for pre-design costs which it will draw down over the next three years.
Fiscal 2008 is projected to use $18 million of the designated general fund reserves for the opening of three new schools but the district's financial cushion remains solid at $97 million. The fiscal 2009 budget projects a modest operating surplus and includes the adoption of the optional $0.04 per $100 TAV maintenance tax levy allowed by law without voter approval. These 'super pennies' are projected to generate $22 million in additional local and state revenues and will help offset over $19 million in new growth expenditures, including the opening of three new schools, plus 4.4% teacher pay hikes. Aided by year-end budget sweeps and the use of new school designations, the district projects it will maintain strong year-end reserves through fiscal 2010.
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Fitch Ratings, Austin
Jose Acosta, +1-512-215-3726
Rebecca Moses, +1-512-215-3739
Media Relations, New York
Cindy Stoller, +1-212-908-0526
cindy.stoller@fitchratings.com.
