Rio Grande City CISD

The large and sparsely populated district is located in Starr County and includes the county seat of Rio Grande City. Both the city and county experienced rapid population growth in the 1990-2000 period. Average daily attendance has modestly increased at annual average rate of approximately 1% since 2002. Starr County's economy is based on agriculture and mineral production, including oil and natural gas, whose previously growing valuations in recent years have resulted in considerable concentration among the district's top 10 taxpayers. Characterized by very low wealth, portions of Starr County have been designated an economic empowerment zone in an attempt to bring private sector jobs to the community, whose unemployment rate equaled 15.2% in December 2008, an increase over the 12.4% in December 2007.

Because of very low wealth per average daily attendance, the district receives substantial state aid for operations, equal to about 77% of general fund revenues in fiscal 2008. Sound financial management is evidenced by the district's adequate reserve levels. In fiscal 2007, the district gained voter-approval for a 13-cent tax rollback that generated approximately $5 million in additional revenues in fiscal 2008. The revenue increase contributed to the district's $2.3 million operating surplus, increasing the unreserved, undesignated general fund balance to about $14.2 million or roughly 17% of expenditures, transfers out, and other uses. The adopted fiscal 2009 budget is balanced.

State support for outstanding debt is equal to about 69% of debt service. Despite this support, the district's overall debt burden is moderate at $1,140 per capita and 4% of taxable assessed value. Pending approval by the state legislature for Instructional Facilities Allotment (IFA) funding, the district plans to undertake a $37 million bond issuance approved by 84% of voters in November 2008.

Principal amortization of lease revenue bonds and unlimited tax debt is well below average at 34% in 10 years.

Clint ISD

Clint Independent School District is located approximately 18 miles southeast of El Paso and encompasses the rapidly growing Horizon City, the City of Clint, and the unincorporated area of East Montana within its 380 square miles. Recent completion of Loop 375 has facilitated access to the City of El Paso and the Fort Bliss Air Defense Training Center, making the district's affordable housing the primary growth driver in this historically agricultural area. Taxable assessed valuation (TAV) has increased by an average of roughly 15% annually since fiscal 2005, and the 12% gain for fiscal 2009 was consistent with this pattern.

Enrollment totaled almost 10,900 students in fiscal 2009, a nearly 5% increase over the previous year; this gain was consistent with the average annual increases registered over the past five fiscal years. Earlier demographic studies had projected dramatic enrollment growth over the near term, due primarily to expected additional troop deployments at nearby Fort Bliss. However, actual enrollment gains have been more reasonable and the district currently anticipates a continuation of 5% annual enrollment growth over this period. Given the uncertainty surrounding military actions, the district recognizes the need to carefully gauge its capital needs and to size and time bond authorization elections accordingly.

A substantial 81% of annual debt service on outstanding debt is supported by state funds. As a result, per capita debt ratios are manageable, both on a direct and overall basis. However, debt as a percentage of taxable value is high, due to the relatively low wealth levels in the district. A recently completed bond authorization will generate additional capacity for more than 6,000 students. Coupled with its existing capacity, the district reports it is well positioned for the next three to five years in terms of classroom space. The debt service tax rate impact of the entire $90 million bonds authorized was projected at $0.11 per $100 TAV, based on conservative tax base growth assumptions; the district now expects to come in slightly below that projection.

The district's financial performance has been notable, posting general fund operating surpluses annually since fiscal 2002. Fiscal 2008 results included $1 million in net income and an unreserved general fund balance of $18.3 million, or nearly 25% of spending; this result was in compliance with management's goal to maintain 2 1/2 to 3 months of payroll expenses in undesignated reserves. The fiscal 2009 operating results are expected to include a modest decline of roughly $2 million in reserves due to planned one-time outlays.

Typical of border communities, area unemployment rates are above state and national averages; the December 2008 unemployment figure for El Paso County of 7.0% was up sharply from the prior year period and was only slightly less than the 7.2% U.S. average for the month. Wealth indicators, while lower than state and national levels, are growing at a faster pace.

Denton ISD

Denton Independent School District is located approximately 35 miles north of Dallas and Fort Worth in Denton County. The district has witnessed significant population and enrollment gains, as well as double-digit TAV growth since fiscal 2000. The current enrollment is approximately 22,000 up 5.8% from the prior year's level and has been growing at a rapid pace of about 6.7% annually since fiscal 2005. In fiscal 2008, TAV increased 5.4%. Despite a moderate slowdown of new home starts in recent months, the district expects continued growth in residential and commercial development in the near term, resulting in continued, although slower, enrollment growth and TAV gains.

Debt levels are very high, and principal amortization is slow. This is representative of the district's fast-growth environment and its need to meet facility demands while limiting the effect to existing taxpayers. With the current bonds, direct debt is 6.8% of TAV and $4,455 per capita. Including overlapping debt, these levels rise to 10.7% of TAV and $7,001 per capita. Overall debt ratios include overlapping debt of approximately $366 million, composed mostly of the debt of the city of Denton and various fresh water supply districts.

In order to maintain some flexibility in its debt service tax rate and reduce debt service costs and amortization rates, the district's debt management policy authorizes the use of variable rate debt. The current debt portfolio comprises about 22% variable rate obligations of which almost 70% is synthetically fixed via swap agreements. With this refunding, variable rate debt will decline to 12% of total outstanding debt, and the remaining variable rate debt will all be hedged. In November 2007, the district approved an authorization for $282 million in bonds for school construction and renovation. The first installment of $158 million was sold in fiscal 2008. The remaining authorized obligations were expected to be sold in the summer of 2009, but due to enrollment growth declines may be delayed for one year.

Despite the capital and operating challenges associated with enrollment growth, financial performance remains favorable. Fund balances and liquidity levels are healthy and the district has experienced operating surpluses since fiscal 2000. Fiscal 2008 results were better than anticipated due to a utility audit which brought savings of $1 million, strong extended stay program results, and additional revenues due to timing difference between the state and district regarding foundation payments. The district recorded an ending unreserved general fund balance of $54.7 million, or a very solid 33.3% of spending, in fiscal 2008.

In fiscal 2009, the district expects to use $2.2 million in general fund balances. Historically, the district has budget conservatively and Fitch expects the district to either break-even or record a modest draw-down for the year.

Harlandale ISD

Harlandale Independent School District is located approximately 3 miles south of downtown San Antonio, encompassing 13.7 square miles. The district is primarily residential, with accompanying commercial development comprising mainly retail business establishments. Wealth levels in the district, as measured by taxable value per resident, are very low at roughly $18,000. Taxable assessed valuation (TAV) growth has been steady, averaging nearly 8% annual gains since fiscal 2005, and the 5% increase for fiscal 2009 to $1.23 billion was only moderately below this level. Enrollment totals about 14,500 students in fiscal 2009, and the student count has seen little change over the past five years.

The district's financial performance over the past several years has been weak, with the general fund posting net losses in fiscal 2007 and fiscal 2008 that produced a decline in the unreserved fund balance from $11.8 million in fiscal 2006 to $3 million in fiscal 2008 (or less than 3% of spending). District staff noted several contributing factors for the losses, including payroll pressures, the impact of low income levels on state funding, and no enrollment growth. The influx of property tax revenues for the current year as a result of the November 2008 O&M tax election is expected to stabilize operations and begin a restoration of general fund reserves. District officials anticipate a total general fund balance of around $10.5 million for fiscal 2009, up from $6.4 million the prior year. The O&M election received solid support, with 65% of voters approving the measure. The district also enacted various cost-savings measures when preparing the fiscal 2009 budget, including one school closure, a freeze of staffing levels, and a reorganization of custodial operations. Fitch believes these recent developments have stabilized the district's financial profile, and that further improvement is likely (particularly if voters approve a refunding ballot measure in May 2009).

A substantial 77% of annual debt service on outstanding debt is supported by state funds. As a result, per capita debt ratios are manageable, both on a direct and overall basis. However, debt as a percentage of TAV is high, due to the low wealth levels in the district. The district has no authorized but unissued bonds, but has called an election for May 2009 that, if approved, would allow the district to refund outstanding O&M supported debt and free up an estimated $1.8 million in additional tax revenues for operations. The ballot also is expected to include $12 million for non-instructional facility improvements. Given the substantial state debt service support that is likely, the debt service tax rate impact from the proposed additional borrowings is expected to be minimal; the district presently levies a debt service tax rate of just under $0.31 per $100 of TAV.

The San Antonio area economy is diverse and has witnessed strong, steady growth over the past several decades. The area is not immune to the current recession, as evidenced by higher unemployment rates and slowed residential construction. The city's December 2008 unemployment rate of 5.1% was up from 3.9% for the same period in 2007 but was still well below the national average of 7.2%. While housing starts are down, the city's residential market, as are those in most Texas metropolitan areas, has weathered the downturn better than markets in many other states due to less speculative building and much slower appreciation in values over the past 5-7 years.

Frisco ISD

Frisco Independent School District's underlying rating has been upgraded to 'A+' from 'A' reflecting a trend of improved financial performance and recently completed major transportation corridors that provide expanded access to the larger Dallas-Fort Worth metro area and nearby city of Plano's employment base (GO bonds rated 'AAA' by Fitch). These credit positives further add to previously cited strengths such as strong tax base growth, conservative, stable financial management, and a favorable service area. Despite ongoing operating and capital pressures associated with its position as the fastest-growing district in the state for many years, Frisco ISD continues to maintain flexibility in its tax rate. Fitch Ratings also considered that debt levels are significantly higher than many other school districts in Texas and are expected to remain elevated, given recent bond authorization and issuance plans to meet rapid growth. However, well above average wealth levels and strong community support of the district's capital plan help mitigate some of the debt level concerns. Debt amortization is slow but typical of growing school districts in Texas. Given ongoing operating pressures associated with enrollment growth, the continuance of solid reserves will be integral to maintaining credit quality.

Located primarily in western Collin County roughly 20 miles north of Dallas, the district encompasses approximately 75 square miles and includes the city of Frisco as well as portions of McKinney, Little Elm, Hackberry, and Plano. Area transportation improvements, particularly the expansion of the Dallas North Tollway and State Highway 121, along with extensive residential development have led to accelerated population and enrollment growth over the past decade, although only 50% of the district is currently built-out. The city of Frisco is reportedly a desirable location for young families in the metro area, and it is estimated that over 80% of the city of Frisco's population is under the age of 45. Area wealth levels are well above average, even when compared to surrounding peer cities.

The district's schools are recognized for their academic achievements, and enrollment (currently around 31,000 students) has grown at a very rapid pace of roughly 18% annually since fiscal 2004. Like many other Texas school districts, the district has experienced a modest enrollment slowdown in fiscal 2009, due in large part to the slowdown in housing construction. While this has reduced tax base growth for fiscal 2009 from prior years, taxable assessed valuation growth still remains rapid relative to other credits and now exceeds $16.5 billion, marking the eighth consecutive year that the district's tax base has grown by at least $1 billion with commercial/industrial concerns representing a solid 25% of the tax base. Currently, district officials report little if any slowdown in the area's major retail/commercial development projects as well as property tax collection rates that are slightly ahead of last year's.

District finances have recently trended upwards, reflecting improved financial performance by the district's proactive, conservative and stable management and despite the pressures associated with rapid enrollment growth and wealth equalization payments. Solid budget execution and healthy operating tax rate increases that still allow for additional financial flexibility have generally produced strong revenue gains and favorable year-end results. For fiscal 2008, audited results remained on track from earlier projections, and the district added its nearly $17 million operating surplus (assisted in part by a change in the district's reporting period to June 30th, which provided results on a 10 month basis) to reserves, bringing the unreserved general fund level to approximately $43 million or 22% of spending. District officials report no material variances from the fiscal 2009 budget at this time and anticipate adding another $2-$5 million to reserves by year's end.

Like many other fast-growing Texas school districts, debt levels are high, especially on a per capita basis, and principal amortization is slow at about 26% retired in 10 years. Debt ratios are anticipated to remain elevated given the May 2006 voter approval of a $798 million bond measure, one of the largest bond measures ever approved in the state. This authorization, which was approved by a strong 72% of voters, will fund the construction of 19 schools, support facilities, site acquisition, and technology and equipment purchases that will meet the district's facility needs for roughly 52,000 students. The new money portion of the current offering will be used for various school building projects indicated in the 2006 authorization. The current offering will also be used to refund certain outstanding obligations and generate a present value savings for the district. After this issuance, the district will have about $524 million in remaining bond authorization. Contingent upon actual growth in the district, management report they anticipate returning to the market with another bond sale in the next six to nine months.

Port Arthur ISD

Port Arthur Independent School District is part of the Beaumont-Port Arthur metropolitan statistical area (MSA), a three-county region whose economy in southeast Texas is supported primarily by petroleum-related industries, trade through its three public maritime ports, and timber production. The majority of the district's tax base is industrial, composed of oil refineries and chemical plants, led by the Motiva Enterprises LLC (Motiva) refinery, with 28% of fiscal 2009 total assessed valuation (TAV). Motiva is undergoing $7 billion in improvements and is co-owned by Shell Oil Company, an affiliate of Royal Dutch/Shell Group (Fitch long-term IDR of 'AA+' as of June 2008). The final proposed expansion, which has been slightly slowed from earlier projections, will make Motiva's Port Arthur facility the largest refinery in the United States by 2012. The large tax base concentration is mitigated somewhat by the essentiality of oil and gas refining assets in the U.S., making their closures unlikely even if ownership changes.

Ongoing demographic patterns have led to annual enrollment declines. Totaling about 9,300 in fiscal 2009, enrollment has declined by approximately 2% on average annually since fiscal 2004 due to an overall population decline in the region including movement to suburban areas and hence neighboring districts. However, with the large influx of workers needed for various industrial capital expansions in the area, the district views an upswing in enrollment over the near term as possible.

The district again added to its solid reserves in fiscal 2008; audited results reflect an unreserved general fund balance totaling $16 million or just over 23% of spending. A balanced budget was adopted for fiscal 2009 and revenues and expenditures remain on target according to district officials, despite outlays for capital repairs due to Hurricane Ike and arson damage at two campuses. It is anticipated that the district will drawdown a modest $2 million from general fund reserves by the close of the fiscal year.

This issuance is the second portion of a $189.4 million authorization approved in 2007 by a solid voter majority. Due to deferred capital needs, most of the authorization will be used for renovations to existing facilities. Now at 4.8% of TAV, direct debt levels have risen to more moderately high levels. Amortization is slow; in 10 years, approximately 29% of principal will be retired. While this issuance is earlier than originally planned, district officials report that various bond building and renovation projects remain on schedule and at or below anticipated costs, and the district anticipates opening its new high school in August 2009. The remaining portion of the authorization (approximately $50 million) is expected to be issued in 2010.

Ysleta ISD

Located in El Paso County, the district is split into two separate areas - one along the Texas-New Mexico border and another along the U.S.-Mexico border in the central portion of the county. Covering 66 square miles, the district's enrollment totals over 40,000 students, making it one of the state's largest urban school districts. Although portions of the district are growing in enrollment, others are declining, causing total enrollment to remain flat in recent years. Nearly built out, there is no residential development in the southern half of the district, although the sparsely populated northern half has modestly benefited from the infusion of troops to Ft. Bliss as a result of military base realignment.

The district posted moderate deficits for four fiscal years prior to fiscal 2008 due to a structural imbalance resulting from increased instructional expenses, reducing the unreserved fund balance from nearly $50 million in fiscal 2003 to approximately $21 million in fiscal 2007. In fiscal 2007, the district gained voter-approval for a 13 cent tax rollback that generated approximately $25 million in additional revenue. The revenue increase contributed to the district's $10.7 million operating surplus, increasing the unreserved fund balance to approximately $36 million or 11% of expenditures and transfers-out. The fiscal 2009 budget projects a small reduction in general fund reserves due to planned capital outlays primarily undertaken to remove a substantial amount of mold from one of the district's elementary schools.

Due to its modestly declining enrollment base (which drives state aid allocations), the district has reduced annual salary increases to 1% per year for fiscal 2009 and 2010 from substantially higher levels in previous years. Efforts are currently underway to reduce spending. Although the district does not anticipate layoffs or program reductions in the near term, it's evaluating pay scales for new employees and evaluating the consolidation or closing of some schools to gain additional efficiencies. Achieving structural balance based on recurring revenues remains a key rating consideration.

A total of $500 million in capital needs was identified by a facility needs study conducted in 2006. The prior bond election for $250 million was undertaken to respond to these needs, and has been substantially completed. Following the successful implementation of the prior bond program, the district may request additional voter authorization to complete the capital needs identified by the study sometime in the future.

Even with state support for 62% of outstanding general obligation and lease revenue debt, direct debt levels total a high 4.9% of taxable assessed valuation (TAV), although the burden on a per capita basis is low at $517. Principal amortization, including lease revenue debt and maintenance tax notes is slow at 36% in ten years.

The district's tax base growth has been moderate, increasing by a compound annual average of 6% since fiscal 2002. Tax base concentration is modest as the district's top 10 taxpayers comprise less than 5% of TAV. Taxable values per capita, totaling about $27,000, are expectedly low for a district classified as property-poor, enabling it to receive substantial state aid for both, operations and debt service.