Fitch Ratings has assigned an 'AAA' rating to the following United
Independent School District, Texas (ISD; the district) unlimited tax
--$100 million ULT school building bonds, series 2014.
The 'AAA' long-term rating reflects the guarantee provided by the Texas
Permanent School Fund (PSF), whose bond guarantee program is rated 'AAA'
The bonds are expected to price via negotiation the week of June 23,
2014. Proceeds will be used to construct school facilities and acquire
sites for school facilities.
In addition, Fitch assigns an 'AA-' underlying rating to the series 2014
bonds and affirms the 'AA-' rating on the following debt:
--$198.6 million ULT bonds;--$1.7 million limited tax public
property finance contractual obligations, series 2004 and 2005.
The Rating Outlook is Stable.
The series 2014 ULT bonds and outstanding ULTs are secured by an
unlimited ad valorem tax pledge levied against all taxable property
within the district. In addition, the bonds are secured by the Texas PSF
guarantee, whose bond guarantee program is rated 'AAA' by Fitch. The
contractual obligations are secured by a limited ad valorem tax pledge
levied on all taxable property within the district, limited to $1.04 per
$100 taxable assessed value (TAV), unless district voters approve an
increase up to the state maximum of $1.17 per $100 TAV.
KEY RATING DRIVERS
CONCENTRATED ECONOMIC GROWTH: The district's tax base has risen sharply
in recent years due to an increase in oil and gas values. Low
unemployment rates reflect increased drilling activity as well as a
stable base of governmental, educational, and health service providers.
Fitch notes that the expanding oil and gas sector drives local economic
development, but also exposes the district to increased economic
GROWING DEBT BURDEN: The district's overall debt is moderate, although
the district faces sizable capital needs resulting from projects that
were deferred subsequent to a failed 2007 bond election. Fitch expects
that debt levels will rise with the issuance of debt authorized in 2013.
FINANCIAL PRESSURES/ADEQUATE RESERVES: Current general fund reserves are
adequate but have become increasingly pressured by facility maintenance
and capital expenditures to keep up with a growing student body. The
district is dependent on state funding for operations.
NO RATING DIFFERENTIAL: Fitch currently makes no distinction between the
ULT and limited tax contractual obligation ratings due to the district's
tax rate capacity relative to the cap and adequate financial flexibility.
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental
credit characteristics, including the district's healthy financial
management practices. Maintenance of adequate reserves while addressing
ongoing capital needs is a key credit consideration.
United ISD encompasses a sizable 2,450 square miles in Webb County with
the Rio Grande River forming a portion of its western boundary. The
district serves an estimated population in excess of 160,000 which
includes a portion of Laredo (general obligation bonds rated 'AA' with a
Stable Outlook by Fitch), the third most populous city on the
GROWING CONCENTRATED ECONOMYTAV grew by a compound annual rate of
8.1% since fiscal 2008 to $12.9 billion in fiscal 2014, reflecting an
expanding oil and gas sector as well as the region's extensive
transportation network supporting international trade, warehousing and
distribution businesses. Residential values comprise 32% of the base,
followed by commercial/industrial (27%) and mineral (24%) properties.
Fiscal 2014 TAV growth of 11.2% resulted largely from the reported
addition of oil and gas wells in the Eagle Ford natural gas and oil
field located in the northern part of the district which increased the
oil and gas property values by 25%. Top 10 taxpayers comprise a high 22%
of TAV, represented by oil and gas, refinery, and utility companies. The
district reports an estimated preliminary TAV gain of 15% for fiscal
2015, due largely to ongoing oil and gas asset appreciation, with the
expectation of further strengthening in fiscal 2016. Fitch recognizes
that the tax base gains are above average, but consistent with other
municipalities in Texas currently benefiting from the upside swing of
oil-rich mineral properties.
The city of Laredo's unemployment rate of 4.9% (down from 6.2% in 2013)
as of April 2014 is on par with the state and compares favorably to the
national rate. A growing employment base is supported by drilling, oil
field support services, and a stable base of top employers representing
government, education, medical, and retail sectors of the economy.
The district's income and wealth levels are steadily improving but
continue to lag state and national averages. The region's lower cost of
living mitigates low wealth levels as a credit concern. As a
property-poor district under Chapter 42 of the Texas Education Code, the
district currently receives state support for both operations (58% of
general fund revenues in fiscal 2013) and debt service (19%). Increasing
property values have led to reductions in annual aid under the state's
school funding formula.
OPERATING FUND PRESSURESThe district typically generates favorable
results despite enrollment-based and capital funding pressures. However,
state funding cuts, one-time lump-sum salary payments, capital
expenditures, and transfers to the debt service fund resulted in a
fiscal 2012 net deficit of $11.9 million (3.5% of spending and transfers
out), the first in six years. Subsequent to a failed bond election in
2007, operations have funded more than $60 million of capital
expenditures to support infrastructure improvement and growth needs.
Fiscal 2013 operating results were modestly positive due to strong
revenue performance offset by $10 million in science lab improvements.
Management's projections for a modest surplus in fiscal 2014 appear
reasonable, reflecting further revenue growth along with $10 million
funding of a transportation compound and facility improvements.
Fitch expects that some general fund flexibility will be afforded by the
current issuance and a planned increase in the property tax rate, which
will allow for reductions in pay-as-you-go capital spending and
transfers for debt service. The balanced budget for fiscal 2015 includes
a $19 million payroll increase for deferred staffing needs from the past
MODERATE DEBT; SIZABLE NEEDSModerate overall debt of about $3,500
per capita or 3.7% of market value reflects the district's history of
pay-as-you-go financing for capital needs. The amortization rate is
average with about 43% of principal scheduled for repayment within 10
The current issuance is the first from the district's successful $408
million bond election in November 2013. The program includes planned
borrowing in each of the next three years to fund land acquisition for
and construction of four ninth grade campuses, three middle schools,
five elementary schools, and two elementary school replacements.
Proceeds will also fund security and technology purchases and other
Fitch expects the debt burden to remain manageable based on the
district's tax base growth trend. The district anticipates an increase
of $0.028 per $100 in the debt service tax rate for this bond issue, but
the district retains flexibility given their current low rate of $0.155
per $100 TAV in relation to the state's statutory cap of $0.50 per $100
for new debt issuance.
The district contributes to the Teacher Retirement System of Texas
(TRS), a cost-sharing, multiple employer defined benefit pension plan.
Other post-employment benefits (OPEB) are also provided through TRS. The
combined pension and OPEB contributions, which are set by state law,
totaled $2.4 million or a low 0.6% of spending in fiscal 2013. The
district's total carrying costs for debt service and retirement benefits
comprised a low 7% of governmental spending, net of state aid for debt.
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, University Financial Associates,
S&P/Case-Shiller Home Price Index, IHS Global Insight, the National
Association of Realtors, and the Municipal Advisory Council of Texas.
Applicable Criteria and Related Research:--'Tax-Supported Rating
Criteria' (Aug. 14, 2012);--'U.S. Local Government Tax-Supported
Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:Tax-Supported Rating
Local Government Tax-Supported Rating Criteriahttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional DisclosureSolicitation Statushttp://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=835728ALL
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