Sept 13 - Fitch Ratings takes the following rating action on the Round Rock Independent School District (ISD), TX bonds: --Approximately $705 million unlimited tax bonds affirmed at ‘AA+'. The Rating Outlook is Stable. SECURITY The bonds are secured by revenues from an unlimited tax levied against all taxable property within the district. Series 2005, 2007, 2010 and 2010D are additionally secured by the Texas Permanent School Fund, whose bond guarantee program is rated ‘AAA’ by Fitch. KEY RATING DRIVERS PRUDENT FINANCIAL MANAGEMENT: A history of strong financial performance has contributed to substantial general fund reserves which aid in managing enrollment and state funding uncertainties. The district covered the loss of state funding in the fiscal 2012/2013 biennium with operational cost savings.
HEALTHY TAX BASE: The large tax base is anchored in technology manufacturing, but well diversified and without taxpayer concentration. New construction activity generated a small tax base gain in fiscal 2013 for the second consecutive year on the heels of a modest decline, the first in eight years. Education, government and health care mitigate the district’s exposure to a technology downturn. ABOVE-AVERAGE DEBT: Overall debt levels are relatively high but are not atypical for a fast-growth Texas school district. School officials have not over-built, relying on portable structures to supplement permanent facilities until long-term growth patterns are ascertained. A moderate debt amortization rate and debt service tax rate provide ample capacity to support the district’s near- and medium-term growth needs.
STABLE LOCAL ECONOMY: A highly educated workforce and population gains have fueled strong regional economic growth; unemployment rates are low, while income and wealth levels are above average. CREDIT PROFILE AUSTIN AREA GROWTH The district is located eight miles north of Austin (rated ‘AAA’ with a Stable Outlook by Fitch) within Travis County and Williamson County (rated ‘AAA’ with a Stable Outlook). Enrollment increased 2.7% on average between fiscal 2008 and 2013, a still robust but more manageable pace than the 3.8% average rate of the preceding 10 years. The district’s taxable assessed value (TAV) grew by more than 7% on average over the past 15 years to a sizable $21 billion in fiscal 2013; single-family residences comprise about 58% of the total. Top 10 taxpayers include computer, semiconductor, pharmaceutical and healthcare concerns. Fitch believes management expectations for 2% TAV growth over the next several years are reasonable based on apparent recovery of the local housing market and commercial/industrial expansions underway. OPERATING FLEXIBILITY Conservative budgeting and strong operating performance have enabled the district to build general fund balances to $218 million, or 68.5% of spending as of June 30, 2011. A fiscal 2011 net operating surplus of $20.6 million (6.5% of spending) includes $12.4 million in non-recurring grant monies. While addressing fiscal 2012/2013 state funding cuts largely with cost savings, the board set aside $30 million of reserves for potential budget shortfalls in 2014/2015 and $13 million for technology purchases over the next several years. The M&O tax rate is at the statutory cap of $1.04 per $100 of TAV, which can be increased by an additional $0.13 with voter approval. District officials report no plans to approach voters for a rate increase. FAVORABLE RESULTS DESPITE LOSS OF STATE FUNDING The district lost $30 million in state funding for fiscal 2012 ($20 million) and 2013 ($10 million), about 4.5% of total spending for the biennium. Management expects a $15 million operating surplus for fiscal 2012, which includes cost savings (elimination of support staff, various program reductions and a small increase in class sizes) and $7 million in nonrecurring grants. The board adopted a fiscal 2013 budget with a $6.9 million (2.1% of spending) deficit despite some softening of historically conservative staffing assumptions. Fitch believes management expectations to end the year closer to break-even appear achievable given active interim budget monitoring and strong historical performance yielding surplus operations in years budgeted as break-even. AMPLE DEBT CAPACITY Overall debt (including overlapping debt) of $5,869 per capita or 6.6% of market value is above average. A moderate 10-year amortization rate of 55.4% reflects descending debt service over 23 years. Based on the results of a planned demographic study, the district may seek bond authorization in 2013 to fund new facilities and improvements. Portable facilities currently supplement the district’s permanent facilities across 49 campuses. A fiscal 2012 interest and sinking (I&S) fund tax rate of $.295 per $100 of TAV provides the district with ample capacity below the statutory rate of $.50 for new debt issuance. MODERATE FIXED COSTS The district’s pension liabilities are limited to its participation in the state pension plan administered by the Teachers Retirement System of Texas (TRS). 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. Including debt service, pension and other post-employment benefit contributions, payments on long-term liabilities are moderate at 20% of fiscal 2011 general fund expenditures and transfers out. HEALTHY LOCAL ECONOMY A stable and diverse employer base supports a low unemployment rate of 5.8% (May 2012). Median household income exceeds state and national averages by 141% and 135%, respectively. IHS Global Insights projects that Austin will continue to perform over the next five years as one of the top-growth metros in the country based on its well-educated work force, world class research facilities, high quality of life, and low cost of living. The fastest growing employment sectors are expected to be professional/business services and education/health services, which Fitch notes is consistent with current trends.