Fitch Rates Mansfield ISD, Texas $35.7MM GOs 'AAA/AA-' Und

Business Wire, Nov 12, 2004

AUSTIN -- Fitch Ratings assigns an 'AAA' rating to $35.7 million of Mansfield Independent School District (the district), TX's unlimited tax school refunding bonds, series 2004, based on a guarantee from the Texas Permanent School Fund (PSF), whose insurer financial strength is rated 'AAA' by Fitch. Additionally, Fitch assigns an underlying 'AA-' rating on the current offering and affirms its 'AA-' rating on the district's $370.5 million outstanding general obligation bonds. The Rating Outlook is Stable.

The bonds are scheduled to sell via negotiation to a syndicate led by Morgan Keegan & Company, Inc. on Nov. 15. The bonds are direct obligations of the district and are payable from unlimited ad valorem taxes. The bond proceeds will be used to refund a portion of the district's outstanding debt and to pay for issuance costs.

The 'AA-' underlying rating and Stable Outlook reflects the district's strong financial management and position, rapid tax base growth, ample operating tax margin, and strong community support for growth-related capital programs. The rating also acknowledges the impact of sustained enrollment growth and related capital needs on the district's debt profile which has become quite high but tolerable due to strong voter support, above average wealth levels and favorable prospects for continued rapid tax base growth. Strong growth in the district's industrial base continues to attract jobs and investment to this Dallas-Ft. Worth metroplex community. As one of the state's fastest growing school districts, it is the district's goal to continue expanding its financial margins to mitigate the tax rate impact of additional schools.

The district employs extensive facilities planning and annual demographic analysis to help manage its growth. Faced with the additional operating costs of five new schools this fiscal year, the district's proactive planning enabled it to hire minimal staff by reallocating existing personnel through adjustment of student to teacher ratios at the higher grades. Unlike the majority of Texas school districts, ample operations taxing margin remains available.

Located southeast of Ft. Worth, the majority of the district lies in southeastern Tarrant County, with a smaller portion overlapping into Johnson County. District enrollment growth has averaged 10%-13% annually for the past five years, making it the third fastest growing district (with enrollment of 10,000 or more) in the state. Demographic projections for the next 10 years, updated annually to assist facilities planning, predict its average daily attendance (ADA), currently around 21,000, to exceed 28,000 by fiscal 2007.

The current offering is a straight refunding projected to result in net present value savings of $1.5 million or 4.3% of refunded bonds. In April 2004, the district issued the first installment of a $226 million bond program approved by voters in October 2003, the district's largest authorization to date. Direct debt ratios have grown to a very high $3,011 per capita and 5.6% of taxable assessed value (TAV), even after adjusting for state support of outstanding debt totaling 25% of annual debt service. The overall debt burden is also high at $3,775 per capita and 7% of TAV. The district's high debt levels are a result of sustained double-digit enrollment growth brought about by explosive residential development. Principal amortization is below average at 30% for 10 years and designed to minimize the tax impact for the current authorization which is projected to peak at 6 cents from its current level.

The district's fast-growing economy is marked by continuing expansion of its industrial base, new growth in its retail sector, and substantial residential construction. TAVs have grown by a compound annual average of over 16% since fiscal 1999. Currently, more than 12,000 single-family homes are in various stages of development in 45 different subdivisions, most of which are located in the City of Mansfield, with a smaller portion in the cities of Grand Prairie and Arlington.

The district's financial position and management have been strong, as evidenced by substantial operating surpluses since fiscal 1996. Consistent surpluses, totaling $1.6 million-$4.8 million, have increased the district's unreserved, undesignated fund balance to over 24% in fiscal 2003 from 18% of expenditures and transfers out in fiscal 1997. These results have exceeded management's past goal to maintain reserves with a minimum of two and a half months' operating expenses plus start-up costs for new schools.

In preparation for the opening of five new schools in fiscal 2005, the district's fiscal 2004 budget appropriated a $3 million designation for new schools that had to be fully equipped during summer 2004. As a result, a $3.2 million draw down was anticipated for fiscal 2004; however, unaudited results now point to a $1 million operating surplus. By increasing its student to teacher ratio and reassigning existing staff, the district's fiscal 2005 budget added only 200 new positions to staff its five new schools. Although the adopted fiscal 2005 budget projected a modest operating deficit, the district now projects a level fund balance due to better than anticipated operating results in fiscal 2004.