TMCnet News
Fitch Affirms Little Elm ISD, TX at 'AA-'; Outlook StableFitch Ratings has affirmed the ratings for the following Little Elm Independent School District, Texas obligations at 'AA-':
--Issuer Default Rating (IDR); The Rating Outlook is Stable.
SECURITY KEY RATING DRIVERS The 'AA-' affirmation of the IDR and ULTs and maintenance tax note ratings reflects the district's strong operating performance while successfully managing rapid enrollment growth. Long-term liabilities are expected to remain a moderate burden on resources inclusive of possible increases in the near term to expand facility capacity. Strong area residential growth is likely to continue through the medium term, providing for revenue growth via enrollment gains.
Economic Resource Base
Revenue Framework: 'a' factor assessment
Expenditure Framework: 'aa' factor assessment
Long-Term Liability Burden: 'aa' factor assessment
Operating Performance: 'aaa' factor assessment
RATING SENSITIVITIES CREDIT PROFILE The ongoing expansion of the Dallas MSA produced accelerated growth in Denton County with the district recording double-digit annual gains in TAV for over a decade until fiscal 2010. Recessionary pressures led to moderating TAV trends that quickly rebounded; fiscal 2017 TAV marked the third consecutive year of double-digit growth, bringing the tax base to $3.2 billion. Fitch believes management's expectations of additional TAV growth over the near term due to the ongoing development of high-end residential properties are reasonable. In tandem with TAV growth, district enrollment (which presently totals about 7,200 students) also experienced rapid increases over the past decade; enrollment averaged a healthy 4% annual growth rate during this period and 3% - 5% annual increases are projected in the near- to mid-term.
Revenue Framework State support is the district's largest revenue stream, comprising half of general fund monies, followed closely by property taxes at 45%. The compound annual growth rate (CAGR) of district revenues over the 10 years through 2014 was robust at 8.5%, well in excess of U.S. GDP growth. Fitch anticipates robust enrollment increases will continue to drive revenue growth that is in excess of national economic growth. The district's maintenance & operation (M&O) tax rate increased to the maximum rate of $1.17 per $100 of TAV in fiscal 2016 following a voter-approved transfer of $0.13 from the debt service fund, lowering the interest and sinking fund (I&S) rate to $0.37 per $100 TAV. The tax rate swap provides the district with approximately $1 million in additional state aid for operations, which flows to the general fund balance each fiscal year for subsequent transfer to the debt service fund. Fitch views the tax rate structure as unconventional, but notes a number of Texas school districts have instituted similar swaps. Fitch also recognizes the debt service tax rate could be raised without voter authorization to repay outstanding debt and reverse the tax rate swap if needed.
Expenditure Framework District spending has generally kept pace with revenue growth to accommodate student body growth. This trend is likely to continue barring any changes in district policy. The district's fixed-cost burden is moderate, with carrying costs for debt, pensions and OPEB equaling 17.8% of 2015 governmental expenditures and taking into account the 7% in debt service received from the state. Fitch expects the fixed-cost burden to rise slightly as the district issues debt to address capital needs, but to remain moderate given the likelihood of similar growth in the district's budget and strong state support for retiree benefits. Areas of flexibility are primarily instruction, including class sizes, staffing patterns, and teacher salaries.
Long-Term Liability Burden The district participates in the Texas Teachers Retirement System (TRS), a cost-sharing multiple employer pension system. Under GASB 67 and 68, TRS's assets cover 83.3% of liabilities as of fiscal 2015, a ratio that falls to 75% using a more conservative 7% return assumption. Like all Texas school districts, Little Elm 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 that became effective in fiscal 2015. The proportionate share of the system's net pension liability paid by the district is minimal, representing just 0.5% of personal income.
Operating Performance Conservative budgeting practices have enabled actual year-end results to typically outperform budgeted expectations. The fiscal 2017 budget was adopted as balanced and shows a 10% increase in revenues over the prior year's budget driven largely by property taxes, which take up a larger portion of district revenues as tax base growth continues. 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, the Municipal Advisory Council of Texas, and InvestorTools.
Applicable Criteria
Additional Disclosures 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/20160923005775/en/ |