Fitch Ratings affirms its 'AA-' rating on the following Howard County
Junior College District, Texas' (the district) outstanding general
obligation (GO) debt:
--$16.5 million GO bonds, series 2007.
The Rating Outlook is Stable
The bonds are secured by an ad valorem tax levied against all taxable
property within the district, limited to $0.50 per $100 of taxable
assessed valuation (TAV).
KEY RATING DRIVERS
SOUND FINANCIAL POSITION: The district maintains sound and stable
finances, characterized by solid reserves and surplus operations despite
recent state funding cuts and moderate, counter-cyclic enrollment
declines. The district's financial profile is underpinned by ample
revenue-raising flexibility through available taxing margin and low
tuition rates in conjunction with moderate expenditure flexibility.
NARROW ECONOMIC PROFILE: The local economy is generally stable but rural
in nature and driven largely by the energy sector. County unemployment
is typically below that of the state and U.S. Local income/wealth levels
are generally below state and national averages.
RAPID TAV EXPANSION; HIGH CONCENTRATION: The district's tax base is well
represented by all segments of the oil & gas industry, characteristic of
the region. TAV has grown rapidly due to robust economic activity in
this sector. High taxpayer and sector concentration persists, but has
declined with recent TAV expansion.
MODERATE LONG-TERM LIABILITIES: Overall debt levels are moderate.
Near-term capital needs are limited and appear manageable given plans
for modest pay-go capital spending. Carrying costs are low.
SHIFT IN CREDIT FUNDAMENTALS: The rating is sensitive to shifts in
fundamental credit characteristics, including the district's solid
financial position and conservative fiscal practices. The Stable Outlook
reflects Fitch's expectations that such shifts are unlikely.
The district serves Howard County and 12 other primarily rural counties
in the surrounding West Texas area, although Howard County is the
district's sole taxing jurisdiction. The district has four campus
locations: Big Spring and the Southwest Collegiate Institute for the
Deaf (both located in Big Spring, the county seat of Howard County); the
Lamesa campus in Dawson County; and the San Angelo campus in Tom Green
RAPID TAV GROWTH TRENDS REFLECT ROBUST ENERGY BOOM
The local economy is generally stable but concentrated, with much of the
area's economic activity driven by the energy sector. Oil/gas business
concerns center around working the long-productive Permian Basin as well
as the more recently discovered Cline Shale. Energy activity is the
primary driver of the district's rapid TAV gains in recent years. TAV
totaled $3.4 billion in fiscal 2014, which was a modest decline from the
prior year's explosive 38% gain in fiscal 2013. TAV has grown an average
10% annually the past six fiscal years.
Tax base and sector concentration among the district's top 10 taxpayers
remains elevated at 19% of TAV in fiscal 2014. Top taxpayer
concentration is down significantly from the 33% in fiscal 2012 as a
result of the large jump in TAV in fiscal 2013. Alon USA, a
long-standing refinery, is the district's top taxpayer, providing 7% of
the total. Management anticipates flat TAV in fiscal 2015 that may
ultimately result in further TAV growth based on conservative,
preliminary assumptions provided by the appraisal district that assume a
stout buffer against possible appeals. Fitch believes these assumptions
are reasonable given recent TAV trends and significant oil/gas
exploration, and associated economic activity still underway despite the
inherent volatility of oil & gas prices.
SOUND FINANCIAL PROFILE; REVENUE-RAISING AND SPENDING FLEXIBILITY
The district's financial performance is enhanced by a diverse revenue
stream and revenue-raising capacity, comparable to all Texas community
colleges. This revenue-raising flexibility has allowed the district to
successfully offset much of the fiscal pressure associated with state
funding cuts and enrollment declines. About 33% of the district's
revenues (or $11.5 million) came from state appropriations in fiscal
2013 (which remains the district's largest revenue source), compared to
roughly43% of total revenues in fiscal 2009. Correspondingly, property
taxes for operations, debt service and tuition/fees together provided a
slightly increased portion of total fiscal 2013 revenues at 30%.
The district continues to produce solid, positive operating margins,
averaging 3.8% over fiscal years 2009-2013. Temporary and multi-year
expenditure cuts in response to state funding shortfalls and enrollment
declines drive positive results. The district, like most community
colleges, maintains inherent spending flexibility by employing largely
part-time, non-tenured faculty.
Liquidity as measured by available funds (cash and investments not
permanently restricted) to expenses remained adequate and slightly
improved at $10.9 million or 32% in fiscal 2013. The district maintained
$9.5 million in unrestricted reserves at fiscal 2013 year-end or
approximately 28% of spending, in line with its informal reserve policy
The structurally balanced $28.1 million fiscal 2014 general operating
budget includes a tuition increase and a $1 million use of reserves for
pay-go capital spending on the new San Angelo campus facilities.
Management's expectation of fiscal 2014 recurring revenues balancing
against recurring expenses appears reasonable given spending reductions
implemented to offset somewhat higher than budgeted enrollment declines.
The district is poised to maintain its reserves according to policy,
even with full utilization of the planned $1 million for new facilities
that is now not expected until fiscal 2015.
Preliminary budget plans for fiscal 2015 include the development of a
structurally balanced operating budget supported by assumptions of
stable state revenue in the current biennium (fiscals 2014-2015) and
ample revenue-raising flexibility, along with projections for added,
moderate enrollment declines. The district maintains significant
capacity under its total tax rate cap, levying roughly $0.20 of the
$0.70 per $100 TAV limit in fiscal 2014 for operations and debt service
and has approved a modest tuition increase. The district also expects to
incur additional operating expense to open its new facilities.
COUNTER-CYCLIC ENROLLMENT TRENDS
The district maintains a competitive position in its large regional
service area given partnerships with various local school districts to
provide college coursework. Continued expansion of its offerings at the
San Angelo campus has also helped grow the district's enrollment base.
Nonetheless, like most community colleges, enrollment trends have
largely followed a counter-cyclic pattern in relation to local economic
Enrollment peaked in 2011 during the recession and has since eroded with
improvement in the local economy. Student enrollment as measured by
unduplicated credit enrollment totaled 5,894 in fiscal 2013, reflecting
the effect of a cumulative 9% decline over the last two fiscal years.
Nonetheless, the district maintains some of the residual effect of
enrollment gains made over the recession; credit-hour enrollment hovers
closer to pre-2011 levels, which Fitch believes may indicate a larger
student base has developed. Management anticipates moderate enrollment
declines experienced in fiscal 2014 will likely continue over the near
term given favorable regional economic conditions. Fitch expects the
district will be able to offset much of this pressure however with use
of its expenditure flexibility.
MODERATE LONG-TERM LIABILITIES
Overall debt is moderate at $4,031 per capita and 3.6% of market value.
Fitch expects the district's direct debt to remain manageable given
capital needs largely focused on renewal and replacement. The district
is an infrequent borrower, choosing instead to offset a portion of its
capital needs with private donations and grants as well as pay-go
capital spending. Principal amortization of the district's tax-supported
debt is slightly above-average with 66% repaid in 10 years.
The college participates in the state-administered Teachers Retirement
System of Texas (TRS) for pension and other post-employment benefit
(OPEB). TRS is a cost-sharing, multiple-employer plan in which the state
has historically provided the bulk of the employer's annual pension
contribution. The college's annual contribution to TRS is determined by
state law as is the contribution for the state-run post-employment
benefit healthcare plan.
The state began shifting some of this funding burden to community
college districts in the 2012-2013 biennium, requiring districts to
contribute more (roughly 60%) of the annual cost. The employer's pension
contribution is now shared at a marginally lower 50% with the state as
of the 2014-2015 biennium. Despite the increase, carrying costs for debt
service, pension, and OPEB costs, net of state support, remained low at
6.3% of total expenses in fiscal 2013.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope, Texas Municipal Advisory Council, IHS
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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