Fitch Rates Lake Travis ISD, Texas $22.5MM GO Rfdg 'AA-' Underlying

Business Wire, Feb 25, 2005

AUSTIN, Texas -- Fitch Ratings has assigned an 'AA-' underlying rating to the $22.5 million (est.) unlimited tax refunding bonds, series 2005 of Lake Travis Independent School District (the district). The district has applied for and is expected to receive a financial guarantee provided by the Texas Permanent School Fund (PSF), whose insurer financial strength is rated 'AAA'. Additionally, Fitch has affirmed its 'AA-' rating on the district's $63.2 million in general obligation bonds outstanding. The bonds are scheduled to sell the week of Feb. 28 via negotiation to a group led by Southwest Securities. The Rating Outlook is Stable.

The bonds are direct obligations of the district, payable from the proceeds of an unlimited ad valorem tax levied against all taxable property within the district. Bond proceeds will be used to refund a portion of the district's outstanding tax support debt for annual savings and to pay issuance costs.

The 'AA-' rating reflects the sound position of district's finances, solid financial and administrative stewardship, and overall above-average economic profile of district residents. Additional rating considerations are the district's above-average direct debt burden and an operating tax levy at the state-mandated maximum.

Although taxable assessed valuation (TAV) had shown stellar growth historically, the rate of growth slowed considerably over the past two fiscal years due to the recession. Enrollment growth also moderated somewhat, although current demographic projections suggest a return to a more robust growth rate as the local economy improves. A return to more rapid student population growth likely will generate both operating and capital spending pressures for the district. The challenge is made more acute given the district's status as a 'property rich' district that must allocate local taxing among less affluent districts in the state.

Located to the west of Austin, the district is primarily a high-end residential community located adjacent to Lake Travis. Although TAV had grown an average of nearly 20% annually from fiscal 1999-2003, the rate of growth slowed to less than 2% for fiscal 2004, reflecting the overall economic slowdown in the Austin metropolitan area. However, the district is poised for additional growth, with a number of residential developments either planned or underway. Enrollment registered moderate 4%-5% annual increases the past two fiscal years, but the pace is expected to accelerate to the 7%-9% range over the next five fiscal years.

Financially, the district continues to perform admirably, despite the demands brought about by enrollment growth and the required property wealth transfers under school finance equalization laws. These transfers totaled $21 million for fiscal 2004, which is more than 40% of the district's expenditure budget. As the district's tax base expanded in relation to its student population, the magnitude of the transfers increased. Despite these transfers, the district generally has posted positive operating results and has maintained a sizeable fund balance during recent fiscal years.

For fiscal 2004, the district's total general fund balance was $11 million, which represented nearly 22% of the total expenditures and transfers out for that year, including the required wealth transfers. This fund balance level was consistent with results from previous years; reserve levels have not dropped below 20% for the past five fiscal years. However, with the district at its operating tax maximum of $1.50 per $100 TAV, additional operating pressures stemming from enrollment growth may be more difficult to manage.

The pace of district debt retirement is above average, and both direct and overall debt per capita are moderately high at $3,277 and $5,712, respectively. As a ratio of TAV, debt burden is more manageable at 2.6% and 4.6%, respectively. The district presently has no bonding authorization. However, the anticipated enrollment growth has prompted district officials and the community to consider an election in fall 2005 to address facility needs, particularly at the secondary level.