October 2009

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El Paso ISD

El Paso Independent School District, the seventh largest school district in the state, 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 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 had trended downward to record lows in recent years but has trended up during the current recession. For July 2009, the city's 8.8% unemployment rate was higher than the state's 8.2% but below the national unemployment rate.

The district's direct debt profile remains modest at $1,011 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 $2,693. 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 $49.8 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, unaudited fiscal 2009 results do not point to an operating deficit due to flat staffing patterns. The projected modest drawdown of reserves, totaling $5.5 million in fiscal 2009, is attributed to the expenditure of maintenance tax note proceeds and the settlement of disputed retirement contribution rate increases.

The adopted fiscal 2010 budget, based on an ADA increase of 985, also projects a larger draw down or $7.5 million due to the district's decision to shore up its self-funded health insurance fund, state-mandated teacher pay hikes, opening costs of four new schools, and the spend down of $1.6 million in maintenance tax note proceeds. The resulting undesignated fund balance will remain below the district's 45-day policy but remain adequate at $43.8 million or 9.2% of spending; however, conservative estimates of 1% in lapsed appropriations may reduce the deficit to a modest $1 million - $2 million. 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. Apart from normal growth, the projected ADA increase includes only 300 additional troop dependents.

Harlandale ISD

Harlandale Independent School District, is located approximately three miles south of downtown San Antonio, encompassing 13.7 square miles. The district is primarily residential, with accompanying commercial development comprised mainly of retail business establishments. Wealth levels in the district--as measured by taxable value per resident--are very low at roughly $18,000. 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 totaled about 14,500 students in fiscal 2009, and the student count has seen little change over the past five years.

The district's finances received a major boost with the November 2008 voter approval of an optional operations and maintenance (O&M) tax levy that is projected to bring in more than $8 million in additional property tax and state aid revenues for the current fiscal year and each year going forward. Additionally, in May 2009, voters approved a key bond election that will refund all debt secured by the district's O&M tax levy with unlimited tax bonds, providing relief to the general fund. Positive adjustments to the district's allocation of state aid revenues and an expanded pre-Kindergarten program are also expected to enhance the district's revenue streams. Implementation of these numerous positive financial developments as evidenced by audited results may lead to a rating upgrade.

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. However, the district's financial profile is now poised to rebound significantly due to the November 2008 voter approval of the O&M tax levy election that is expected to increase the district's fund balance to $10.6 million or about 10% of spending in fiscal 2009. Additional revenue enhancements are expected in the fiscal 2010 budget, including $3.4 million in additional per student allotments of state aid and $1.4 million in added state aid attributed to the expansion of pre-K programs.

The current offering was authorized by voters in May 2009 to refund $16.8 million in outstanding maintenance tax notes. Concurrently, voters also approved $12 million for non-instructional improvements. The final maturity of the refunding debt will be extended substantially in order to create sufficient capacity for the $12 million new money offering scheduled for issuance in late September 2009. These new money bonds will be issued as interest-free qualified school construction bonds. Also, a substantial 77% of annual debt service on outstanding debt is supported by state funds. As a result, 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. Accordingly, 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 property wealth levels in the district. This summer's upcoming new money debt offering will further increase debt levels although the district is aggressively pursuing various options to reduce or eliminate the interest costs of the new money offering.

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 July 2009 unemployment rate of 5.1% was up from 3.6% for the same period in 2008 but was still well below the national average of 8.6%. While housing starts are down, the city's residential market, like 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 five to seven years.

Weimar ISD
Most of Weimar Independent School District located in predominately rural Colorado County. Weimar ISD encompasses approximately 173 square miles and has a population of 3,200. The district is bisected by Interstate 10 and lies about 90 miles east of Houston. Area population growth has been minimal and well below that of the state's. Since 2005, average daily attendance (ADA) has slowly declined at an average annual rate of slightly more than 2%, bringing the district's total ADA to 550 students at the close of 2009.

With an average annual growth of 3% over the past five fiscal years, the district's tax base reached $218 million in fiscal 2009; this reflects a sharper year-to-year decline of slightly more than 6%, due in large part to the repeal of a long-standing personal property tax levy still maintained by only a few districts in the state. However, preliminary taxable values in fiscal 2010 have reportedly rebounded to fiscal 2008 levels. Taxpayer concentration is above average with the top 10 taxpayers accounting for around 20% of total taxable values, led by agricultural and manufacturing. County unemployment rates are typically below those of the state and nation, and the June 2009 unemployment rate continued that trend at 6.5%.
Finances are a credit positive for the district and current management has strengthened the district's financial performance. Weimar ISD reported a very strong unreserved general fund balance of almost $2.3 million or not quite 47% of spending in fiscal 2008, which substantially exceeded its operating reserve policy of maintaining at least three months of expenditures. Liquidity has also improved to a substantial $3 million or more than seven months of cash on hand in fiscal 2008. Actual fiscal 2009 results reportedly remain on track with budget and it is projected that approximately $350,000 will be added to reserves by year's end. The fiscal 2010 budget anticipates a local 2% salary increase beyond state-mandated raises and additional spending on facility and technology needs while sustaining current reserve levels.

Overall debt levels are modest and approximate 3.3% of TAV or about $2,200 on a per capita basis. Amortization is below average; in 10 years, approximately 37% of principal will be retired. Management reports no future debt plans, as the district anticipates meeting its modest, future capital needs with pay-go spending from general fund reserves.

Bullard ISD

With most of the district located in predominately rural Smith County, Bullard ISD encompasses approximately 86 square miles and has a population of about 10,000. The district lies roughly 15 miles south of Tyler (the county seat) and benefits from its proximity to the city's larger economy and employment base that is a retail/commercial hub for other surrounding counties. At 7.9% in June 2009, unemployment rates in the county are now more comparable to those of the state but remain below those of the nation.

Approaching $720 million in fiscal 2009, growth in the district's tax base has been very strong at an average annual rate of almost 17% since fiscal 2004, fueled primarily by residential development. Growth in taxable values for fiscal 2010 has reportedly slowed, however, reflective of the overall weaker economic climate. As a result of such strong residential development, average daily attendance (ADA) has grown as well over the past four years at a strong average annual rate of approximately 5%, bringing the district's total ADA to its current 1,900 in fiscal 2010.

Finances are a credit positive for the district. Bullard ISD reported a very strong unreserved general fund balance of $4.5 million or just under 37% of spending in fiscal 2008, which exceeded its informal operating reserve policy of maintaining at least three months of expenditures. Liquidity has also improved to a solid $3.8 million or almost four months of cash on hand in fiscal 2008. District officials currently anticipate adding approximately $1 million to reserves by fiscal 2009 year-end, assisted by conservative budgeting of enrollment growth. The fiscal 2010 budget is balanced and includes the hiring of new staff, local salary increases for non-state mandated employment categories, and additional one-time, spending for capital needs while sustaining current reserve levels.

Overall debt levels are now moderately high, due primarily to the 2007 issuance of the district's last authorization (not rated by Fitch), and approximate 5.5% of TAV or about $3,900 on a per capita basis. Debt levels have increased in light of declining state support for the district's debt service as well. Amortization has further slowed and is well below average with 25% of principal retired in 10 years. Despite continued enrollment growth, capital needs appear manageable over the near-term, due in part to pay-go capital spending. District officials project that another bond authorization may be presented to voters in about five years if enrollment growth continues at current levels.

Waxahachie ISD

Located in the center of Ellis County, Waxahachie ISD benefits from its proximity to the larger metro Dallas-Fort Worth economy and employment base as well as its location along a major transportation route, which has fostered a fairly diversified manufacturing/industrial base. More recently, growth trends in the district's enrollment and tax base have been affected by affordable land which spurred residential development. Since 2005, enrollment grew somewhat erratically, but on average at about 3% annually, bringing fiscal 2010 enrollment to almost 7,000 students.

While the district has historically experienced solid levels of tax base growth, fiscal 2010 taxable assessed valuation (TAV) grew at a more modest pace of not quite 3% from the prior year, reflecting a weakened housing market as well as the stabilizing presence of the substantial commercial/industrial sector. Taxpayer concentration remains above average at approximately 21%, which is largely mitigated by the broad range of products produced by the top taxpayers. At 8.5% in July 2009, unemployment rates in the county have risen but remain comparable to those of the metro area and state, while below those of the U.S.
Finances are a credit positive for the district. Waxahachie ISD reported a very strong unreserved general fund balance of $19.6 million or roughly 43% of spending in fiscal 2008, which exceeded its informal operating reserve policy of maintaining at least three months of expenditures. The district is expecting surplus operations for fiscal 2009 and the fiscal 2010 budget is balanced and includes additional increases in reserves.

Overall debt levels have declined slightly but remain moderately high at approximately $5,200 per capita or 6.1% of TAV. The debt service burden is above average at not quite 16% of spending in fiscal 2008. Amortization is very slow with only 11% of principal retired on a non-accreted basis. District officials project that another bond authorization (primarily for additional elementary school facilities) may be needed over the near term if enrollment growth continues at current levels.