Fitch Rates Hays CISD, Texas $47.9MM Rfdg Bonds 'AAA/A'; Upgrades Outstanding to 'A'

Business Wire, Dec 1, 2004

AUSTIN, Texas -- Hays Consolidated Independent School District, Texas' (the district) approximately $47.9 million unlimited tax school building and refunding bonds, series 2004, are rated 'AAA' by Fitch Ratings. The rating is based on the guarantee provided by the Texas Permanent School Fund, whose insurer financial strength is rated 'AAA' by Fitch. In addition, an underlying rating of 'A' has been assigned to the current offering. The underlying rating of the district's outstanding $130,735,000 in unlimited tax school bonds has been upgraded from 'A-' to 'A' by Fitch. The bonds are scheduled to sell via negotiation to a syndicate led by Southwest Securities, Inc. on Dec. 1. The Rating Outlook is Stable.

The bonds are payable from an unlimited ad valorem tax levied against all taxable property within the district. Bond proceeds will be used to construct and equip school facilities, purchase school sites and buses, and advance refund a portion of the district's outstanding debt.

The upgrade to 'A' reflects the district's continued healthy financial position despite growth pressures, a substantial operations and maintenance tax rate margin, and diversifying tax base and robust tax base growth buoyed by its proximity to the large and diverse Austin-San Marcos area economy. The urbanization trend south of Austin along Interstate Highway 35 (IH-35) continues to accelerate, and the availability of new housing is still projected to remain affordable through the near term. The district's rating also reflects high debt levels and slow principal amortization as the district grows into its debt; however, demonstrated and anticipated growth mitigate some debt burden concerns.

The district is centrally located along the IH-35 corridor between Austin and San Antonio, a region populated by more than two million people and the state's third largest region of economic activity. As one of the fastest growing school districts in the state, Hays CISD has seen enrollment grow steadily. Since 1996, enrollment has increased an average of about 7% annually, and current district projections anticipate student enrollment totaling more than 20,000 by 2013. Currently, more than 9,700 students attend the district's 14 campuses.

The composition of the county tax base is rapidly changing from rural to urban. Residential construction has increased rapidly in recent years, coupled with additional commercial and retail franchises, as housing pressures in Austin have expanded development southward and growth in San Marcos has expanded development northward. One of the largest factory outlet malls in the nation is located in San Marcos and generates several million dollars annually in sales tax revenues for nearby communities, and tourism has been one of Hays County's most productive industries. Within district boundaries, four major developments, including Home Depot, the largest HEB Grocery store in the state, Cabela's, and the City of Kyle Tax Increment Financing District, have been announced within the past 12 months.

Overall, population in the district has increased as rapidly as enrollment, averaging 7% annually since 1995. However, the district's tax base has expanded well above its population growth, recording five consecutive years of double-digit growth and averaging nearly 17% annually over the same period, nearing $2 billion for fiscal 2005. The four major commercial developments recently announced in the district are projected to add almost $93 million in taxable assessed valuation (TAV) by fiscal 2006.

Debt ratios are high and are reflective of enrollment growth pressures that necessitate construction of new facilities. Including receipt of state funding, overall debt totals more than $3,400 per capita, or 6.8% of TAV. The district's amortization is below average. In September 2004, district voters approved a bond package totaling nearly $87 million. The debt service tax rate impact of the entire authorization is projected to be $0.09 in fiscal 2009, assuming two bond sales, with the first in December 2004 and the second in April 2006, no additional state support for debt service, and conservative tax base growth. Technology and buses will be financed over the first seven to 10 years of the 25-year program. District officials anticipate the need for additional voter authorization within two to three years to build additional elementary schools.

District financial operations are sound. While the district reported a slight operating deficit of $770,000 in fiscal 2003, the total general fund balance remained acceptable at 8.7% of expenditures and transfers out. Fiscal 2004 is projected to end with positive net income of more than $2.7 million, which will increase the total general fund balance to a healthier 12.8%, with an undesignated general fund balance meeting the board's commitment to a level greater than 10% of expenditures and transfers out.