TMCnet News
Fitch Rates Weslaco ISD, TX's ULT Rfdg Bonds 'AAA' PSF/'AA-' Underlying; Outlook StableFitch Ratings has assigned a 'AAA' rating to the following Weslaco Independent School District, Texas bonds: --$19.5 million ULT refunding bonds, series 2016. The 'AAA' rating is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose bond guaranty program is rated 'AAA' by Fitch. (For more information on the Texas PSF see 'Fitch Affirms Texas PSF Rating at 'AAA'; Outlook Stable', dated Aug. 5, 2015.) The bonds are scheduled to sell September 15th via negotiation. Proceeds will be used to refund a portion of the district's outstanding ULT bonds for debt service savings. In addition, Fitch has assigned an underlying rating of 'AA-' to the series 2016 bonds and affirmed the following ratings at 'AA-': --$51.1 million in outstanding ULT bonds; --the district's Long-Term Issuer Default Rating (IDR). The Rating Outlook is Stable. SECURITY The bonds are payable from an unlimited ad valorem tax levied against all taxable property within the district. KEY RATING DRIVERS The 'AA-' IDR and ULT rating reflect the district's sound financial profile, characterized by high expenditure flexibility, expectations for stable revenue growth, and ample gap-closing capacity. Fitch anticipates that the current enrollment trend will not substantially pressure capital plans in the near term, maintaining the district's liability burden within the moderate range. Economic Resource Base Weslaco ISD is located in Hidalgo County near the U.S.-Mexico border and between the cities of McAllen and Harlingen. The district is part of the growing McAllen-Edinburg-Mission MSA, whose economy is driven by agribusiness, tourism, and international trade. Despite robust population growth in the region, district enrollment (just below 18,000 in fiscal 2016) has been stagnant in recent years due to competition from neighboring districts and charter schools. Revenue Framework: 'a' factor assessment The property taxes and state aid that support district operations are expected to continue to yield revenue growth above inflation but below U.S. GDP and factor in expectations for continued albeit more moderate enrollment growth. The district's legal ability to raise revenues is limited by state law. Expenditure Framework: 'aa' factor assessment Fitch expects the natural pace of spending growth to remain to line with or modestly above that of revenues, as both are largely driven by enrollment. Low carrying costs reflect state support for retiree benefits, bolstering spending flexibility. A workforce environment highlighted by management control over employee wages and benefits provides additional flexibility to management. Long-Term Liability Burden: 'aa' factor assessment The combined burden of overall debt and pension liabilities represents a moderate share of personal income. Fitch expects this burden to remain in the moderate range for the near term based on existing capital and issuance plans, but there is some risk that overlapping obligations could pressure this metric based on the high-growth nature of overlapping municipalities. Operating Performance: 'aaa' factor assessment The 'aaa' operating performance assessment reflects the district's very high reserve funding relative to Fitch's expectations of low revenue sensitivity, and the district has a considerable degree of spending flexibility in the event of a revenue downturn. RATING SENSITIVITIES Financial Flexibility: The rating is sensitive to the district's ability to maintain its high level of operating flexibility in light of a controlled revenue environment and recent softening of enrollment trends. Enrollment stabilization and a return to growth could enhance revenue prospects and lead to a higher rating. Shift in Liability Burden: Although not currently anticipated, a material increase in the long-term liability burden could pressure the rating. CREDIT PROFILE The regional influence of international trade is evidenced by the Rio Grande Valley's maquiladora program, where manufacturing and assembly occurs in plants located in the Mexican city of Reynosa, Tamaulipas, and warehouse and distribution are handled in the U.S. The stable government, education, and health service sectors make up approximately half of the MSA's non-farm labor force; top employers in the city of Weslaco include Weslaco ISD and a local hospital. A general trend of annual assessed valuation gains reflects a stable housing market and modest ongoing commercial investment. The county and MSA are characterized by low income metrics and high unemployment. Revenue Framework Funding for public school in Texas is provided by a combination of local (property tax), state, and federal resources. The state budgets the majority of instructional activity through the Foundation School Program (FSP), which uses a statutory formula to allocate school aid taking into account each district's property taxes, projected enrollment, and amounts appropriated by the legislature in the biennial budget process. The majority of districts are funded using a target revenue approach, whereby a combination of local and state funding for operations meets a predetermined per pupil amount (which varies from district to district). Approximately three-quarters of Weslaco ISD revenues come from state aid with the remainder generated by property taxes. General fund revenues grew at a strong compound annual rate of 4.4% during fiscal years 2004-2014 reflecting a general trend of student growth and more recent improvements in the amount of per pupil funding authorized by the state. However, district enrollment has been stagnant in recent years due to increased competition from area charter and magnet schools. As such, Fitch expects some weakening in the level of enrollment growth relative to historical levels, resulting in more moderate revenue growth prospects above the pace of inflation but below U.S. GDP. Weslaco ISD's independent legal ability to raise revenues is limited, as the current operating tax rate of $1.14 per $100 of TAV is at the statutory limit. An increase to a maximum of $1.17 would require voter approval. The district does not levy a separate tax for debt service although the debt service rate is unlimited. Weslaco ISD voters approved a tax rate restructure in fiscal 2012 that maintained the total tax rate of $1.14 per $100 of TAV while shifting the entire debt service tax rate to the general fund. The net effect was to generate an additional roughly $1 million annually under provisions in the state's funding formula that more heavily subsidize general fund taxing effort. Expenditure Framework Spending demands are largely driven by instruction costs at over 50% of fiscal 2015 general fund expenditures followed by plant maintenance (11%) and food service (7.5%). Fitch expects the natural pace of spending growth to trend at or above that of revenues absent policy action, given recent enrollment trends and accompanying capital needs. The district retains expenditure flexibility in its large degree of control over workforce spending and very affordable carrying costs for debt service, pensions, and other postemployment benefits (OPEB) at 6.5% of fiscal 2015 governmental fund spending. However, the current low carrying cost metric benefits from heavy state support for retirement benefits and is therefore susceptible to policy shifts at the state level. Additional expenditure flexibility is evident in the level of routine capital investment funded from operating resources - this amount totaled $3.4 million in fiscal 2015 or 2% of spending. Long-Term Liability Burden The district's long-term liability burden is moderate at 14% of personal income, and includes significant debt issued by overlapping cities, the county, and a community college. The majority of the district's capital needs are related to existing facility maintenance, and are expected to be financed on a pay-as-you-go basis. Fitch expects the burden to remain in this moderate range over the near term. The district participates in the Teacher Retirement System of Texas (TRS), a cost-sharing multiple employer pension system. The state assumes the majority of TRS's employer contributions and net pension liability on behalf of school districts, except for small amounts which state statute requires districts to assume. Like all Texas school districts, Weslaco ISD is vulnerable to future policy changes that shift more of the contributions and liabilities onto districts, as evidenced by a relatively modest 1.5% of salary contribution requirement, effective in fiscal 2015. The district's proportionate share of the system's net pension liability is modest at 2.3% of personal income. Operating Performance Fitch believes the district will maintain a level of reserves and expenditure flexibility that adequately addresses risk associated with a relatively low scenario-estimated change in revenue in a moderate economic downturn. Reserves have been maintained at a level consistent with a 'aaa' financial resilience assessment for an extended period despite regular pay-go capital investment and state funding cuts. Weslaco ISD's conservative budget practices demonstrate a strong commitment to enhancing financial flexibility. The general fund outperformed conservative budget assumptions in fiscal 2015 for a modest surplus of $1.6 million (1% of spending). District officials project an even larger surplus in fiscal 2016 due to conservative budget assumptions and lower than expected debt service costs from the general fund, as the state remitted $4.6 million for payment of prior years' debt service aid. Management adopted a balanced fiscal 2017 budget. Additional information is available at 'www.fitchratings.com'. In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from Lumesis, InvestorTools, and the Municipal Advisory Council of Texas. Applicable Criteria
U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016) Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON (News - Alert) THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. View source version on businesswire.com: http://www.businesswire.com/news/home/20160831006376/en/ |
