Fitch Rts Schertz-Cibolo-Universal City ISD, TX GOs 'AAA'/ 'A+' Und

Business Wire, Jan 13, 2004

Business Editors

AUSTIN--(BUSINESS WIRE)--Jan. 13, 2004

Fitch Ratings has assigned a 'AAA' rating to the $4.4 million unlimited tax refunding bonds, series 2004 of Schertz-Cibolo-Universal City Independent School District (ISD or the district). The rating is based on an approval for a guarantee by the Texas Permanent School Fund, whose insurer financial strength is rated 'AAA' by Fitch.

In addition, Fitch has assigned an 'A+' underlying rating to the new issue and affirmed the 'A+' rating on the district's $92.9 million of unlimited tax general obligation bonds outstanding. The Rating Outlook is Stable. The bonds are scheduled to sell today via negotiation to Southwest Securities and First Southwest Company.

Dated Jan. 1, 2004, the new issue will contain both current interest and capital appreciation bonds. The current interest bonds will mature Feb. 1, 2006 and 2008-2015. Serial bonds maturing on and after Feb. 1, 2014 will be subject to optional redemption at par plus accrued interest on Feb. 1, 2013, or any date thereafter. The capital appreciation bonds will mature Feb. 1, 2007 and will not be subject to optional redemption prior to maturity.

The bonds are payable from the levy of an ad valorem tax, without legal limitation as to rate or amount, upon all taxable property within the district. Proceeds of the bonds will refund certain of the district's general obligation bonds outstanding for interest cost savings.

The 'A+' underlying rating is based upon the district's sound financial position, moderate direct debt burden, substantial state financial support, and growing tax base. Also considered in the rating is the district's limited tax rate flexibility for operations and maintenance (O&M) and projected operational pressures stemming from enrollment growth. Although the district's financial position is favorable, with a sufficient fund balance, it is at the statutory O&M levy limit allowed by the state, as are many districts throughout the state. Continued tax base growth has supported operations and the capital program, however enrollment growth may pose a financial challenge in future years.

The district is located in a growing area north of San Antonio, and has benefited from affordable land costs and proximity to a large employment base, which has spurred development. Experiencing both commercial and residential growth, the tax base has averaged 12.9% annual growth for the past five years, led by an 18.5% increase for fiscal 2004. Although the tax base composition is weighted toward the residential sector, the Interstate 35 and 10 corridors provide an attractive location for commercial venues. There is no tax base concentration, with the top ten taxpayers equaling 5.8% of the total.

The district's overall tax rate has steadily increased over the past five years, with the O&M tax rate at the statutory maximum for the past three, including the current year. The interest and sinking fund rate for bond debt service has increased similarly, however is expected to decline until district voters are asked to approve additional bond authority.

Rebounding from a modest operating deficit and reimbursement to the state experienced in fiscal 2002, the district anticipates an approximate $900,000 operating surplus for fiscal 2003. This would raise the total fund balance to about $8 million. The $1.2 million dollar reimbursement to the state was related to financial assistance based on enrollment that did not materialize. Enrollment gains are now being experienced and a three percent rate of growth is expected for the near term.

For fiscal 2002, the district ended the year with a $7 million total fund balance, representing about 19% of expenditures and transfers, and an undesignated fund balance of $3.1 million, or approximately 8.4% of expenditures and transfers. The fiscal 2004 budget is balanced, however, the district has usually outperformed the adopted budget and been able to contribute to fund balance. A new high school is slated to open the fall of 2005, so some financial pressure may occur if tax base growth were to slow or if state funding were altered.

Direct district debt is moderate at $1,602 per capita and 3.8% of taxable assessed value (TAV). The district has no authorized but unissued bond authority and an election may be called for additional capacity in the next 12 to 18 months. Currently, the amount of the potential referendum is not expected to exceed $20 million, however a demographic study is underway and the results may modify that anticipated amount. Overall debt is nearing the high range at $2,425 per capita and 5.7% of TAV.