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TEXT-Fitch affirms Beaumont ISD, Texas ULT bonds 'AA'
January 25, 2013 / 8:27 PM / 5 years ago

TEXT-Fitch affirms Beaumont ISD, Texas ULT bonds 'AA'

Jan 25 - Fitch Ratings affirms the following rating on Beaumont Independent
School District (the district), Texas' unlimited tax (ULT) bonds:

--$410 million various series ULT School Building Bonds - 'AA' underlying 
rating.

The bonds are additionally secured by a guarantee provided by the Texas 
Permanent School Fund (PSF), whose Insurer Financial Strength is rated 'AAA' by 
Fitch.

The Rating Outlook is Stable.

SECURITY

The bonds are secured by an unlimited ad valorem tax pledge of the district and 
are secured further by the PSF guarantee.

SENSITIVITY/RATING DRIVERS

STRONG RESERVE LEVELS MAINTAINED: Consecutive years of operating surpluses have 
resulted in a build-up of strong financial reserve levels. The rating assumes 
the district will maintain high reserve levels given economic concentration, 
potential revenue volatility and high debt levels.

CONCENTRATED TAX BASE: The district's tax base is heavily concentrated in the 
petrochemical industry. This concern is mitigated to a degree by industry 
diversification in both production and end users as well as the key role oil 
refineries play in the national economy. Leading taxpayers comprise a high 26% 
of the 2011 tax base. 

STABLE VALUATIONS: Taxable assessed values (TAV) are stable with small increases
in 2011 and 2012 following a modest contraction in fiscal 2010. 

HIGH BUT MANAGEABLE DEBT: Overall debt levels are high with below average 
amortization. Debt levels are expected to remain high even with modest 
additional borrowings planned over the next few years. However, debt service is 
a moderate burden on the budget.

STEADY ENROLLMENT TRENDS: Student enrollment has stabilized over the past decade
and is expected to remain constant.

CREDIT PROFILE

The district serves an estimated population of about 124,000 primarily in the 
city of Beaumont, TX. The city is a major commercial and industrial center in 
the 'Golden Triangle' of southeast Texas along the gulf that also includes the 
cities of Port Arthur and Orange. 

STABLE ECONOMY WITH BELOW AVERAGE INDICATORS

The area economy is heavily concentrated in the petrochemical, oil and gas 
sectors complemented by retail, government and healthcare employment. City 
wealth levels are generally below state and national averages and unemployment 
levels, which have historically trended above state and national levels, have 
increased during the recent economic downturn evidencing cyclicality. Fitch 
expects the district economy to remain concentrated with elevated economic 
cyclicality over the long term.

The district's estimated 2013 enrollment is just below 20,000, which reflects 
modest growth and a return to 2005 levels. Enrollment has modestly increased 
since 2008 following some volatility from 2005 - 2007 as a result of hurricanes 
Katrina and Rita. Officials expect continued modest enrollment gains driven by 
current housing development and refinery expansion projects. Fitch expects 
enrollments to remain manageable.

CONCENTRATED TAX BASE

The district's concentrated tax base is led by ExxonMobil (senior unsecured debt
rated 'AAA' by Fitch Ratings), which comprised a high 16.5% of the district's 
tax based for 2011 (down from 23% in 2008 given overall tax base growth). 
However, there is some diversity between upstream (oil exploration and refining)
and downstream users (chemical and manufacturing) that helps stabilize the 
impact of swings in oil prices. Additionally, the oil refineries' key role in 
the national economy mitigates some credit concerns over the long-term prospects
of the district's tax base. Fitch expects the district's tax base to remain 
concentrated.

Until fiscal 2010, TAV grew at between 6% ? 10% annually over the three previous
years. After registering a moderate 4% dip in fiscal 2010, TAV expanded by a 
total of 5.6% in 2011 and 20122. Officials expect flat to modest TAV gains in 
the next few years due to strengthening of industrial values but continued 
weakness in residential values. Fitch believes this projection is reasonable 
given the recent return to growth. 

STRONG FINANCIAL PERFORMANCE AND RESERVES

Financial performance remains very strong, evidenced by consecutive years of 
general fund surpluses which have enabled a build-up of solid reserve levels. 
Fitch expects management to continue to meet budgetary challenges and maintain 
strong reserves. The district registered a sizable $1.5 million surplus in 
fiscal 2011, ending with an unreserved general fund balance of $42.8 million or 
a solid 24% of spending. Management adopted a balanced budget for fiscal 2012 
with conservative revenue assumptions and expects a small surplus and continued 
strong reserves. The district expects to maintain budgetary balance by 
offsetting reduced state funding with conservative budgeting of nonrecurring 
federal EduJobs funds and expenditure savings from some school consolidation and
lower maintenance costs as a result of facility renovations and improvements. 

The 2013 budget incorporates continued state funding declines and is expected to
be balanced largely due to conservative revenue assumptions. Management 
anticipates potential further state funding reductions in the 2014 and 2015 
budgets and is evaluating various actions including a combination of expenditure
reductions from a salary freeze, increased class sizes and modest use of fund 
balance. Additionally, district tax rates remain competitive with margin to 
increase with voter approval, although voters have already approved steep debt 
service rate increases over the past five years. 

HIGH BUT MANAGEABLE DEBT WITH MODERATE NEEDS

Total debt levels are high at $5,741 per capita and 7.6% of market value (MV). 
With the recent completion of a $388 million bond program, the district's future
capital needs are moderate. The district capital improvement program includes 
the possible construction of three new elementary schools and renovations to an 
existing middle school, which may be proposed to voters for authorization within
the next 5 years. Debt amortization is below average with a low 28% retired in 
10 years. Additional debt would not materially change district debt 
characteristics. The districts total tax rate increased from 1.095 in 2008 to a 
peak of 1.325 in 2011 due to the voter-approved debt issuances. The rate for 
2012 fell modestly to 1.315 and is expected to remain stable as AV growth 
continues to rebound.

The district contributes to the Teacher Retirement System of Texas (TRS), a 
public employee retirement system that is a cost-sharing, multiple employer 
defined benefit pension plan. The district contributes 100% of its annually 
required contribution which has remained stable over the last few years. The 
plan is funded at an estimated 75%, using a Fitch-adjusted funding ratio at a 7%
discount rate. Other post-employment benefits are also provided through TRS. 
Overall carrying costs for debt service, pensions and OPEB are moderate at 14% 
of GF expenditures.
    
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 and IHS Global Insight

Applicable Criteria and

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