Fitch Rates Corpus Christi ISD, TX GOs 'AAA'/'AA' Und

Business Wire, Feb 24, 2003

Business Editors

NEW YORK--(BUSINESS WIRE)--Feb. 24, 2003

Corpus Christi Independent School District (the district), TX's $25,549,999 unlimited tax refunding bonds, series 2003 are rated 'AAA' by Fitch Ratings. The rating is based on a guarantee provided by the Texas Permanent School Fund (PSF) whose insurer financial strength is rated 'AAA' by Fitch. In addition, Fitch assigns an underlying rating of 'AA' to the series 2003 bonds and affirms the 'AA' rating on the district's outstanding $85.8 million unlimited tax bonds. The bonds are expected to price Feb. 24 via a syndicate led by A.G. Edwards and Sons, Inc. The bonds are direct obligations of the district payable from ad valorem taxes levied annually, without limitation as to rate or amount, on all taxable property within the district as well as the guarantee of the PSF. Bond proceeds will be used to refund portions of outstanding series 1992-A and series 1995 bonds and pay costs of issuance. Currently, the refunding is projected to provide a net present value benefit of about 6.4%. The Rating Outlook is Stable.

The 'AA' underlying rating reflects the district's positive financial performance, low direct debt ratios aided by significant state support, and modestly growing tax base. Although the district does maintain a formal long-term capital improvement plan (CIP), the relatively new administration is currently studying the district's facility needs, particularly in light of shifting enrollment and aging facilities. Given the state's own financial difficulties and the district's effort to maximize state aid, the district will likely be at the state-wide operating tax cap next year.

Historically, the district has maintained sufficient reserves in the general fund, ranging from 14.6% of expenditures and transfers out in fiscal 1999 to 21.9% in fiscal 2002. In addition, the majority of the general fund balance has historically been undesignated. For fiscal 2002, the general fund undesignated fund balance stood at 18.8% of operating expenditures and transfers out. For the close of the current fiscal year, officials conservatively project a general fund balance of $35 million or $12 million less than in fiscal 2002, partly due to capital related expenses. However, the reduced fund balance projection still represents about 15% of the operating budget, which is in line with the district's informal 15% fund balance target. Further, actual financial results have generally outperformed the budget, particularly on the expenditure side. As in the case of most school districts in Texas, financial pressures will likely grow in fiscal 2004 with no additional state funding expected; as a result, the district will likely increase its operating tax (which is currently at $1.47) to the state-wide cap of $1.50.

Debt ratios are favorable, benefiting from significant debt service support from the state. Adjusting for state support, the direct and overall debt per capita (PC) figures are modest at $207 and $704, respectively. Direct and overall debt to taxable assessed values (TAV) are also low at 0.9% and 2.9%, respectively. Without consideration of state support, overall debt ratios are still moderate at $909 debt PC and 3.8% debt to TAV. Approximately 75% of the district's debt is repaid over the next 10 years, with all bonds repaid by 2016. The district has historically made sizable transfers from the general fund to the capital projects, ranging from $6.1 million in fiscal 1999 to $1.2 million in fiscal 2002 to meet maintenance and emergency needs. Additional pay-as-you-go financing is planned, with the district setting aside available reserves as well as proceeds from the sale of property to fund the construction of a replacement elementary school.

Given the older age of district facilities and shifts in enrollment from the northern and western portions of the district to the growing southern sector, the absence of a formal CIP is of some concern. However, the new administration is updating its facility review study, originally conducted in 2001. That study recommended the closing of an elementary school and consolidating operations with existing facilities. The closure resulted in a $300,000 cost savings. Although uncertainty remains regarding future borrowing needs, comfort is provided by the district's past conservative approach to debt issuance as well as an accommodating debt service schedule.

The district is the 17th largest in the state and serves a population of approximately 280,000. The district includes a significant portion of the city of Corpus Christi (rated 'AA-' by Fitch). TAV gains have averaged 2.9% annually since 1998, with officials projecting continued growth, particularly in the southern sector of the district. Corpus Christi is the eighth largest city in Texas. The area economic base consists primarily of petrochemical and shipping, tourism, agriculture, and the military. The Port of Corpus Christi ranks as the fifth largest in the nation from a tonnage standpoint and one of the top 20 in the world. Padre Island national seashore, with 68 miles of beach, and Mustang Island state park are leading tourism attractions. The Corpus Christi Army Depot is the largest industrial employer in south Texas and there are three U.S. Navy installations in the area. Wealth levels are below state and national norms, although this is somewhat offset by the area's lower cost of living. The latest monthly unemployment rate for the city is 5.4%, below the state and national average.