Fitch Rates Hays CISD, Texas $94.5MM Rfdg Bonds 'AAA/A'

Business Wire, Feb 2, 2005

NEW YORK -- Fitch Ratings assigns an 'AAA' rating to the $94.5 million unlimited tax refunding bonds, series 2005 of Hays Consolidated Independent School District, Texas (the district). 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 and affirmed for the district's outstanding $170.4 million in unlimited tax school bonds. The bonds are scheduled to sell via negotiation to a syndicate led by Southwest Securities on Feb. 3. 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 advance refund a portion of the district's outstanding debt.

The 'A' rating 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 $2,836 per capita, or 5.8% of TAV. The district's amortization is slightly above 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. 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. While fiscal 2004 ended with a slight operating deficit of $483,000, officials attribute this primarily to a change in the method of revenue accrual and anticipate an increase in fund balance for fiscal 2005 to meet the board's commitment to a general fund balance level greater than 10% of expenditures and transfers out.