AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings affirms its 'A' rating on Crystal City Independent School District, Texas's (the district's) $20.9 million in outstanding unlimited tax (ULT) bonds.
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
STABLE FINANCIAL PERFORMANCE: The district's financial profile is sound, characterized by healthy operating reserves and conservative budgeting. The district has managed this performance despite recent state funding cutbacks over the last two years. The district is highly dependent on state funding for operations.
LIMITED ECONOMY: The area's economic base is generally rural and agricultural, characterized by below-average wealth indicators. Oil and gas exploration and food production provide a significant share of local employment.
MINIMAL GROWTH PRESSURES: Declining student enrollment causes some concern about continued stability of financial operations but the district has ample capacity in relatively new facilities. Capital needs are therefore minimal; ongoing repair and replacement to plant components will be done using available resources.
MANAGEABLE DEBT BURDEN: Debt levels are midrange (before adjusting for state support), and the pace of debt repayment is slightly below average. Carrying costs are very low due to heavy state support for debt service and pensions.
RATING SENSITIVITIES
CONTINUED STRONG FINANCIAL POSITION: The rating is sensitive to shifts in fundamental credit characteristics including the district's strong financial performance and historical tax base volatility. If continued, the district's stable financial performance and upward trend in the tax base may result in rating improvement over time.
CREDIT PROFILE
Crystal City ISD serves a large and sparsely populated area in Zavala County (estimated population of 11,200), which is 100 miles southwest of San Antonio and includes the commercial center and county seat of Crystal City.
Enrollment is low at approximately 2,000 students for fiscal 2013, trending downward by roughly 2% annually. Flat to declining enrollment is expected in the near term. District facilities include two elementary schools, one junior high and one senior high school.
LIMITED RURAL ECONOMY; EXPOSURE TO OIL & GAS VALUATIONS
The area economy is limited, with a traditionally high unemployment rate. The district's tax base is primarily composed of undeveloped land values (farming and ranching) with some oil and gas production. Zavala County's unemployment rate was a high 12.7% in December 2012, down from 14% the prior year.
Wealth levels are well below state and national averages; both per capita money income and median household income are roughly 40% of the Texas and U.S. averages. Poverty levels are very high at nearly 40%, driven primarily by the large presence of migrant workers.
Taxable assessed values (TAV) registered 7.6% growth in fiscal 2012 and a large 26% in fiscal 2013, driven largely by increased oil and gas mineral values. Officials also note increased oil and gas exploration and drilling activity within the nearby Eagle Ford shale formation.
Top taxpayer concentration remains high, with the top 10 taxpayers representing 32% of fiscal 2013 TAV. CML Exploration (minerals extraction) and Del Monte Foods (cannery) are the two largest payers at 8% and 7%, respectively.
STABLE FINANCIAL POSITION A MITIGATING FACTOR
The district's financial condition is sound, with solid operating reserve levels. The general fund added to fund balance three of the past six fiscal years, including a $2.6 million gain in fiscal 2012. The unrestricted general fund balance at fiscal 2012 year-end totaled $7.8 million or nearly 55% of spending and transfers out.
The district continues to maintain a sound financial profile despite operating pressures associated with state funding cuts. Liquidity is also favorable, with fiscal 2012 cash and investments representing more than 51% of operating expenditures.
State funding cuts in fiscal 2013 of approximately $700,000 (5% of general fund revenue) were largely offset by increased property tax revenue due to large TAV growth for the year. Management also trimmed spending modestly in 2013 through staffing vacancy attrition in both support services and professional positions. Current projections for year-end operating results indicate a modest surplus which appears reasonable given management's recent track record of budgeting conservatively.
State aid is the district's most prominent revenue source, comprising 78% of general fund revenues in fiscal 2012, with property taxes comprising 21%. The district also benefits from additional state support for its annual debt service (ADS) requirements given its comparatively low property wealth per student levels; this state support covered approximately 73% of the district's ADS in FY12.
The district currently levies at the maximum O&M tax rate of $1.17 per $100 of valuation. While this shows strong voter support for district operations, it also effectively limits financial flexibility. The state's target revenue system effectively ties additional revenue to enrollment growth, thereby limiting district's revenue generating ability. Management's willingness to budget conservatively and make necessary spending adjustments in light of potential future revenue reductions will therefore be integral to long-term credit quality. Further reductions in financial flexibility would likely cause negative rating pressure given the district's revenue limitations, dependence on state aid and tax base concentration.
MANAGEABLE DEBT PROFILE
The district's debt profile is manageable, characterized by a moderate debt to market value of 3.1% and debt per capita of $2,981. Principal amortization is below average with 44% retired in 10 years due in part to some issuance of capital appreciation bonds. All of the district's four campuses were improved with the proceeds from the series 2006 bonds, leading management to expect a 10-15-year horizon before additional debt will be necessary.
The district participates in the Teachers Retirement System of Texas (TRS), which provides pension benefits to its members as well as other post-employment benefits (OPEB). Contributions are set by statute according to actuarial analysis and for Crystal City are funded entirely by employees and the state. In fiscal 2012, the district's carrying costs for its bonds and TRS contributions totaled a very low 2% of fiscal 2012 total governmental expenditures.
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, National Association of Realtors, and Estrada Hinojosa (Underwriter).
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
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