Fitch IBCA Rates Canutillo ISD, TX Pub Fac Corp Lease Bnds

Business Wire, Dec 2, 1999

NEW YORK--(BUSINESS WIRE)--Dec. 2, 1999--

Fitch IBCA assigns its `BBB' rating to the approximately $3,835,000 lease revenue bonds, series 1999 of Canutillo Independent School District (ISD), TX Public Facility Corporation. The bonds are expected to sell Dec. 2 through negotiation by a syndicate led by Morgan Keegan & Company, Inc. The bonds are dated Dec. 1, 1999 and due Aug. 15, 2000-2007. The bonds are subject to optional redemption beginning Aug. 15, 2004 at par plus accrued interest to date of redemption.

The `BBB' rating reflects the short amortization of the debt, growing economy, moderate debt burden, and district's sound fiscal management that supports the lease payments. Also incorporated in the rating assignment are appropriation risks, as the lease payments are a current operating expense of the district's general fund. Available revenues include basic state educational allotment, which is subject to annual state appropriation, and any unintended surplus of the district. The district anticipates that three-quarters of debt service on the bonds will be supported from the state instructional facilities allotment program.

The lease revenue bonds are issued by the corporation and are payable from the trust estate including mortgage on facilities and security interest in equipment purchased with bond proceeds. The source of trust estate revenues are semi-annual lease payments of the Canutillo ISD. The lease is an operating expense of the district general fund. The district intends to make lease payments from the formula-based state education aid and any unintended surplus in the maintenance fund.

The bonds are payable from Tier One (basic aid) education funds and instructional facilities allotment Chapter 46 funds. The projects have received preliminary approval for state instructional facilities allotment, 75% of anticipated debt service is expected from the state and 25% from the district. State education funds are subject to annual appropriation by the state legislature. The school district appropriates both state funds and local monies through the annual district budget in order to pay lease payments to the corporation. State instructional facilities allotment funds are received by the district and segregated in October of the fiscal year preceeding lease payments. Lease payments are due semi-annually Feb. 15 and Aug. 15 and investment income is credited against the district's local share. The district also includes any unintended surplus in the maintenance fund as available revenues. Bond proceeds will finance and equip 23 classroom additions to the elementary school.

The Canutillo ISD is experiencing rapid growth. The district covers 67 square miles in El Paso County and includes portions of the city of El Paso and neighboring rural areas. The district benefits from the El Paso metropolitan area's strategic location and extensive transportation network, serving as a major port of entry linking Mexico, Texas, and New Mexico. Education initatives promoted by the new management have stimulated partnerships with the community, with the benefit of increasing enrollment and formula-based state education aid. As a result, growth trends in enrollment and market valuation of property are favorable.

Taxable values within the district are dominated by the industrial sector, which represents nearly 40% of total assessed valuation (AV). The Hoover Co. is the largest taxpayer, representing 9% of total taxable AV, with the 10 leading taxpayers representing nearly 25%. However, growth in the residential component of the tax base is expected to outpace the industrial sector with the increase in housing development. Economic growth is projected to continue, led by the construction of the Artcraft Highway -- a six-lane commercial throughfare that will connect the new port of entry from Mexico and feed into I-10.

Fiscal operations are sound with unaudited fiscal year 1999 fund balances around 12% of expenditures and transfers out. State education funds are the largest source of district revenue, totaling $18 million in 1999. Because the district's AV growth has exceeded its enrollment growth, the rate of growth of the district's local share has exceeded the rate of growth in state funding. The state's basic allotment in fiscal 2000 is $8.3 million, up 6% from fiscal 1996; the district's local effort of $3.2 million is up 29% during the same period. Overall Tier I allotment in fiscal 2000 is $16.7 million, up 18% since fiscal 1996. Combined general and debt service fund expenditures in 1999 amounted to $23.2 million. The maintenance tax rate was increased to avoid any loss of program revenues as a result of the local share of the lease payment. District tax rates are well within allowable limits. Direct and overlapping debt ratios are moderate and amortization is slightly above average. These lease revenue bonds have the shortest maturity required under state instructional facilities allotment program, and are expected to be repaid by 2007. Overall debt per capita, including the lease bonds, is $1,283 and 4.7% of market valuation. Including prospective issuance of general obligation bonds, ratios are expected to remain satisfactory, with the district intending to seek state instructional facilities funds for debt service assistance. Debt service expenses as a percent of total expenditures are manageable, about 9%.