Fitch Ratings has assigned an 'AAA' rating to the following Aledo
Independent School District, Texas' (the district) unlimited tax (ULT)
--$8.9 million in ULT refunding bonds, series 2013-A;
million in ULT refunding bonds, series 2013-B.
The 'AAA' long-term rating on the bonds is based on a guaranty provided
by the Texas Permanent School Fund (PSF), whose bond guaranty program is
rated 'AAA' by Fitch.
The bonds are scheduled for negotiated sale the week of April 8.
Proceeds will be used to refund a portion of the district's outstanding
ULT debt for interest savings.
Fitch also assigns an 'AA' underlying rating to the bonds and affirms
the 'AA' underlying rating on the district's $114.7 million in
outstanding ULT bonds.
In addition, the sale of the Aledo ISD ULT refunding bonds series 2005-C
was delayed. The bonds were sold as series 2006 (see the Oct. 7, 2005
rating commentary 'Fitch Rates Aledo ISD, Texas, ULT Bonds 'AAA'
PSF/'A-' Underlying'). The correct rating history is now reflected on
Fitch's web site at www.fitchratings.com.
The Rating Outlook is Stable.
An unlimited ad valorem tax levied against all taxable property within
the district's boundaries. The bonds are also secured by a guaranty of
the Texas PSF.
KEY RATING DRIVERS
STRONG FINANCIAL POSITION: A string of operating surpluses after
transfers has preserved strong reserve and liquidity levels. The
district has successfully managed pressure from state budget cuts, in
part through a tax rate restructuring.
GOOD SOCIO-ECONOMIC PROFILE: The district benefits from its proximity to
the broad employment base of Fort Worth. Area employment indicators are
positive and wealth metrics are above average.
TAX BASE CONCENTRATION & VOLATILITY: Top taxpayers are heavily
concentrated in the oil and gas industry due to the district's location
over workable portions of the Barnett Shale natural gas play. Taxable
assessed valuation (TAV) remains soft due to declining oil/gas
WEAK DEBT PROFILE: Overall debt ratios and annual
debt carrying costs are high as a result of the capital pressures from a
previously rapid pace of enrollment growth. Amortization is slow, in
part due to the use of capital appreciation bonds (CABs).
LIMITED PENSION & OPEB LIABILITIES: Employee pensions and other
post-employment benefits (OPEB) are primarily a burden of the state,
resulting in very low annual retiree costs for the district.
MATERIAL DECLINE IN FISCAL CUSHION: With regard to the 'AA' underlying
rating, Fitch views the district's strong level of operating reserves as
a key offset to the high debt levels and artificially low debt service
WORSENING DEBT PROFILE: Sustained TAV weakness and/or further debt
issuance without corresponding TAV growth could also pressure the
Aledo Independent School District (ISD) is located primarily in Parker
County and includes the city of Aledo, a small, historically
agricultural center. Aledo is located 19 miles west of Fort Worth (GOs
rated 'AA+' by Fitch) near Interstate Highway 20.
AFFLUENT RESOURCE BASE LOCATED NEAR BROAD AND STABLE FORT WORTH MSA
Aledo continues to transition from an agriculture-based economy to an
affluent bedroom community of Fort Worth. Numerous high-end residential
developments have been completed in recent years. As a result, market
value per capita is above average at $154,000 in fiscal 2013. Residents
are well-educated and affluent; the median household income in Parker
County is 125% of state and 120% of U.S. income, respectively.
Residents benefit from proximity to the broad employment base and stable
economy of Fort Worth, and area employment and wealth levels are a
credit positive. Employment growth in Parker County continues, expanding
2.7% for the 12-month period ending December 2012 and improving the
unemployment rate to a relatively low 5.4% from 6.3%. The county's
unemployment rate is lower than MSA, state, and national figures.
TAX BASE AFFECTED BY MINERAL VALUATIONS & RESIDENTIAL DEVELOPMENT
The district's tax base is primarily residential with some oil and gas
exposure due to its location over parts of the Barnett Shale natural gas
field. Recent declines in TAV have been due to weakness in oil/gas
values, which made up 19% of fiscal 2011 TAV but fell to 10% of fiscal
2013 TAV due to decreased drilling activity and weak natural gas prices.
The impact to net TAV was a 6% decline in fiscal 2012 and marginal 0.6%
contraction in fiscal 2013.
Officials expect a stable-to-positive TAV trend in the next few years,
with further oil/gas contraction expected to be offset by gains in
residential values. District residential valuations have remained
positive and area home prices according to Zillow indicate a 6.7%
year-over-year gain for Aledo in February 2013. Over the near term, TAV
growth may accelerate as construction of a very large residential
subdivision (Walsh Tarlton) commences.
Top taxpayer and
industry concentration is a concern. The top 10 taxpayers comprised an
above-average 14.7% of fiscal 2013 TAV, and nearly all of the top 10 are
oil and gas related companies. However, the large residential component
of the tax base, stable home valuations, and prospects for continuing
residential development help mitigate the concern of concentration risk.
Historical enrollment gains averaged just over 4% annually from
2005-2009 but slowed to less than 1% in recent years as housing
construction stalled. Management expects this lower level of growth to
continue before picking back up in 2015 as the housing market
strengthens; the district retains ample room for development.
POSITIVE OPERATING MARGINS BOOSTED BY CHANGE IN TAX RATE STRUCTURE
The district has generated operating surpluses in five of the last six
fiscal years. Given the relatively high property tax wealth per student,
local property taxes are the main source of general fund revenues. The
district swapped a portion of its operating and debt service tax rates
in fiscal 2011 ($0.13 or 9% of the total tax rate) with voter-approval,
increasing the operating tax rate and decreasing the debt service tax
rate by an equivalent amount to yield enhanced state and local revenues
for operations, but an annual debt service fund shortfall of just under
$3 million. To date, this shortfall has been made whole by use of debt
service fund balance.
Fitch views the use of this tax rate structure with concern but notes
the debt service tax rate can be raised as needed (without voter
approval) - thereby easing pressure on the general fund - and the tax
rate swap could be reversed, if necessary.
STRONG FISCAL CUSHION MAINTAINED DESPITE STATE FUNDING CUTS
Net fiscal 2012 results across the general and debt service funds were
essentially break-even, with the $2.8 million general fund surplus after
transfers equal to the $2.8 million deficit in the debt service fund.
Management absorbed a $2.2 million state funding cut (6% of general fund
revenues) through spending reductions and use of one-time federal aid
totaling about $700,000. The fiscal 2012 unrestricted fund balance
equaled $19.7 million or nearly 57% of operating expenditures and
year-end cash/investment balances improved to 17 times coverage of
The fiscal 2013 $36.5 million operating budget forecasts a $1.8 million
operating deficit after transfers (equal to 5% of spending) due to
additional state funding cuts, increased staffing needs, and cessation
of one-time federal aid. However Fitch notes that past budgets have been
quite conservative and believes year-end results will be better than
forecast. The deficit includes a $1 million transfer out for debt
service, which, together with $1.8 million of debt service fund balance
and $6 million of debt service property taxes, will be used to meet the
$8.8 million debt service payment in fiscal 2013. The year-end cash
balances in the debt service fund would fall to about $500,000, which is
the district's informal fund balance floor for this fund.
Going forward, the district plans to incrementally raise the tax rate
and use some general fund balance for debt service over the next few
years; the use of general fund balance will be driven by the magnitude
of the tax rate increase the board determines in fiscal 2014. The
district does not have a formal fund balance target, but Fitch views the
presence of a significant fiscal cushion as a key credit offset to the
high debt and concentrated taxpayer-base risk factors.
TEXAS SCHOOL DISTRICT LITIGATION
In February a district judge ruled that the state's school finance
system is unconstitutional. The ruling, which was in response to a
consolidation of six lawsuits representing 75% of Texas school children,
found the system 'inefficient, inequitable, and unsuitable and
arbitrarily funds districts at different levels...' The judge also cited
inadequate funding as a constitutional flaw in the current system.
Fitch will monitor the appeal process of the suit, which may go directly
to the state supreme court. If the supreme court upholds the lower court
ruling, the state legislature will be directed to make changes to the
system to restore its constitutionality. Fitch would consider any
changes that include additional funding for schools a positive credit
DEBT PROFILE A CREDIT WEAKNESS, BUT NEAR-TERM DEBT PLANS LIMITED
Overall debt levels are very high, particularly on a per capita basis,
at $9,878. This debt calculation includes the accreted interest of CABs.
The annual debt burden on the budget is also high at 18% of fiscal 2012
governmental fund spending and rises to 20% of spending in fiscal 2013.
Annual debt service is level but the pace of amortization is slow, which
also reflects use of CABs to minimize the tax rate impact on current
The district has approximately $6 million in remaining but unissued
authorization from a 2008 bond election, but has no definite plans to
issue the bonds. The recent slowdown in enrollment has provided the
district a reprieve from building pressures, which Fitch believes will
prevent increases to key debt ratios over the near term. The district's
current debt service tax rate of roughly $0.25 per $100 of TAV is well
below the $0.50 statutory cap for new issuance approval, due in large
part to the recent tax rate swap.
Pension liabilities are not
a credit pressure. The district contributes to the state's Teacher
Retirement System (TRS), a cost-sharing multiple-employer plan, and also
provides other post-employment benefits (OPEB) through TRS. Combined
pension and OPEB spending by the district was less than 1% of fiscal
2012 governmental fund spending.
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.
Applicable Criteria and Related Research:
Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported
Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research
Local Government Tax-Supported Rating Criteria
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