Fitch Ratings has assigned an 'AAA' rating to the following Judson
Independent School District, Texas' (the district) bonds:
--$18.8 million unlimited tax (ULT) refunding bonds, series 2013.
The 'AAA' long-term rating reflects the guaranty provided by the Texas
Permanent School Fund (PSF), whose bond guarantee program is rated 'AAA'
In addition, Fitch assigns an 'AA-' underlying rating to the series 2013
bonds and affirms the 'AA-' rating on the district's $376 million
(pre-refunding on a non-accreted basis) in outstanding ULTs.
The series 2013 bonds are scheduled to sell the week of February 11 via
negotiation. Proceeds will be used to refund certain outstanding
obligations for savings and to pay related costs of issuance.
The Rating Outlook is Stable.
The bonds are payable and secured by an unlimited ad valorem tax pledge
levied against all taxable property within the district. The bonds are
also insured as to principal and interest repayment from a guaranty
provided by the PSF.
KEY RATING DRIVERS
STABLE FINANCIAL POSITION: The district's financial position remains
sound, supported by conservative budgeting, largely balanced operations,
and solid general fund reserves which remain in line with historic
trends and exceed adopted policy levels.
FAVORABLE ECONOMIC, DEMOGRAPHIC PROFILE: The district is part of the
stable and diverse San Antonio metropolitan economy. Area unemployment
rates are relatively low compared to state and national averages. Income
and wealth metrics are better than average.
MODEST TAV GAIN; SOME CONCENTRATION: The recently positive TAV trend
reflects increased levels of area development and modestly reverses
stagnation during the recession. The tax base has historically
experienced healthy rates of growth. Fitch believes further moderate tax
base expansion appears reasonable given development projects underway or
planned. Taxpayer concentration is moderately high.
WEAK DEBT PROFILE; CAPITAL PRESSURES: Overall debt levels are high and
amortization of direct debt is slow, reflective of the district's prior
fast-growth years. Capital pressures have built up with a failed bond
election in 2010; the most recent election to pass was in 2006. If
successful, a smaller May 2013 bond election would allow the district to
reduce some of those needs. Fitch believes evidence of successful
management of the associated capital projects could further restore
public confidence and subsequently, provide additional capital funding
flexibility in the intermediate-term.
Material deterioration of the district's financial and/or capital
funding flexibility would be viewed negatively by Fitch.
Passage and successful implementation of the upcoming bond election and
continued evidence of community support for needed capital projects
would be a positive credit factor.
SAN ANTONIO METRO DISTRICT
Located northeast of San Antonio amidst major transportation corridors,
the district serves the suburban communities of Kirby and Converse and
portions of Universal City, Live Oak, Selma, and San Antonio that
include nearly 120,000 residents. Median household income levels exceed
those of the MSA, state, and nation by about 10%. Enrollment trends have
more recently moderated from prior fast-growth years as a result of
recessionary economic pressures and a subdued housing market. The
district has realized modest yet steady annually enrollment gains of
1%-2% over the past four fiscal years, which has increased average daily
attendance to 21,300 students in fiscal 2013.
TAX BASE, UNEMPLOYMENT LEVELS REFLECT STRENGTHENING ECONOMY
Development within the district that led to sizeable population and
solid enrollment gains before fiscal 2010 was spurred by the northern
expansion of the diverse and stable San Antonio metropolitan employment
base and housing market. Proximity to several military bases adds to the
Evidence of economic strengthening since the recession is apparent with
a year-over-year decline in unemployment. At 5.6% in November 2012,
unemployment levels were down from 6.9% in November 2011, remaining
modestly below the state (5.8%) and well below the nation's rate of
7.4%. In addition, a modest 2% TAV increase was realized in fiscal 2013
after three years (fiscals 2010 - 2012) of stanant growth. The
district's tax base is largely residential at 60%, although it also
includes sizeable distribution, warehousing, and food manufacturing
businesses, stimulated by access to Interstate 35 which runs from Mexico
to Canada. Top ten taxpayer concentration is moderately high at 16% with
the largest, HEB Grocery Company, LP at 7%. Fitch believes further
moderate tax base expansion appears reasonable over the near-term given
the residential as well as retail/commercial development projects
underway or planned.
TREND OF STABLE FINANCIAL PERFORMANCE
The district's financial position remains stable and comparable to prior
years, characterized by solid general fund reserves. The district has
generated operating surpluses in four of the last five fiscal years,
assisted by conservative budgeting practices. Implementation of various
cost-saving measures in light of state funding cuts as well as the use
of $3.6 million in one-time, federal EduJobs funding to offset some
general fund expenditures allowed the district to moderately increase
its unrestricted reserves to nearly $39 million or 26% of spending at
fiscal 2012 year-end. Fitch notes these results incorporated higher than
usual pay-go capital spending from the general fund for the purchase of
future school sites while comfortably exceeding the adopted fund balance
policy requiring a minimum of two months or roughly 17% of general fund
For fiscal 2013, additional spending cuts were made to right-size from
the loss of EduJobs funding. The year's $155.6 million adopted budget
includes a $3.5 million draw on reserves for one-time retention
incentives in order to maintain salary competitiveness given the lack of
salary adjustments in recent fiscal years. However, year-to-date
projections anticipate modestly exceeding budget by about $1 million and
an ending position of about $36 million or 23% of spending.
Preliminary budget plans for fiscal 2014 anticipate relatively flat
state aid and fewer opportunities for additional cost savings while
developing a balanced operating budget. There is reportedly some
consideration by management of further increases to salaries (totaling
about $3.7 million) and possible pay-go capital spending of up to $6
million. Although the financial impact remains uncertain, Fitch expects
a measured approach from district leadership given the district's
previous financial performance and takes some comfort from the cushion
provided by its solid reserves.
DEBT BURDEN HIGH; BUILD-UP OF CAPITAL NEEDS
Debt ratios are high, reflective of the area's previous fast-paced
expansion. Overall debt levels approximate $4,800 on a per capita basis
and 8.2% of market value on a currently accreted basis. District
principal amortization is slow at about 35% of principal maturing within
10 years. The district's debt profile is primarily comprised of
fixed-rate debt with some use of capital appreciation bonds. The current
offering will refund a portion of the district's outstanding debt for
interest savings; debt structure is not materially changed as a result
of the refunding. District debt levels benefit from state assistance for
debt service (roughly 20%) provided to less property-wealthy districts.
The fixed debt service cost to the budget is moderately high at 16% of
fiscal 2012 general and debt service spending.
Capital needs have expanded in line with steady enrollment gains since
the district's last successful bond election in 2006 despite some pay-go
capital spending. A $198.8 million bond election called in 2010 to
address capacity issues failed by a 56% to 44% margin. The district has
no remaining authorization; a bond election sized at a reduced $83
million for a portion of the district's capital needs will be presented
to voters in May 2013. The proposed bond authorization would fund two
new schools with minimal change projected to the current debt service
tax rate ($0.385 per $100 TAV) over the next 15 years. Assumptions that
support a relatively flat debt service tax rate include fairly
conservative tax base growth, state support for a portion of the new
money issuance, use of debt service fund balance,, and another refunding
opportunity in 2014.
Fitch will monitor the district's debt and operating position for
additional stress, noting that management's ability to generate
additional classroom capacity with limited resources outside a
successful bond election will be a key credit consideration. A
successful election would help to allay Fitch's concern about voter
confidence related to the failed 2010 election and publicized cost
overruns and improper procurement practices in prior bond projects.
With this issuance, debt service is structured as relatively level at
roughly $26 million annually throughout the majority of the amortization
schedule, which Fitch views positively. Inclusive of the planned new
money issuance (if approved by voters), current projections anticipate
annual debt service would rise to exceed $30 million within the next
OTHER LONG-TERM LIABILITIES MODERATE; CARRYING COSTS MANAGEABLE
The district's pension and other post-employment benefit (OPEB)
liabilities are limited because of its participation in the state
pension plan administered by the Teachers Retirement System of Texas
(TRS). TRS is a cost-sharing, multiple-employer plan in which the state
rather than the district provides the bulk of the employer's annual
pension contribution. The district's annual contribution to TRS is
determined by state law as is the contribution for the state-run
post-employment benefit healthcare plan; the district consistently funds
its annual required contributions. Carrying costs for the district (debt
service, pension, OPEB costs, net of state support) totaled a manageable
15% of governmental fund spending in fiscal 2012, reflective largely of
the district's annual debt load.
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 report
'Tax-Supported Rating Criteria', this action was additionally informed
by information from Creditscope, LoanPerformance, Inc, and IHS Global
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 14, 2012);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria
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