Fitch Ratings assigns an ‘AAA’ rating to Mabank Independent School District, Texas (the district) bonds as follows:
–$6.78 million unlimited tax (ULT) refunding bonds, series 2014.
The ‘AAA’ rating on the bonds is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose bond guaranty program is rated ‘AAA’ by Fitch. Fitch also assigns an underlying rating of ‘AA’ to the series 2014 bonds.
The bonds are scheduled for negotiated sale the week of July 21. Bond proceeds will be used to refund outstanding debt for interest savings.
In addition, Fitch also affirms the following ratings:
–$43.7 million (pre-refunding) in outstanding ULT bonds at ‘AA’.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax levied against all taxable property within the district. In addition, the bonds are secured by the Texas PSF guarantee, whose bond guarantee program is rated ‘AAA’ by Fitch.
KEY RATING DRIVERS
SOUND FISCAL PROFILE: The district’s solid financial performance is reflected in ample general fund balances. The tenured management team typically outperforms its structurally balanced budget.
STABLE ECONOMY: The largely rural economy continues to transition into a residential community, driving steady tax base growth. Mabank is a popular recreational destination drawing weekend visitors from nearby Dallas-Fort Worth that have spurred residential and commercial growth.
MODERATE DEBT: Overall debt levels are manageable, as the district borrows infrequently. The amortization rate is well below average, but infrastructure capacity is adequate and officials do not anticipate issuing debt in the next several years.
SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the city’s strong financial management practices. The Stable Outlook reflects Fitch’s expectation that such shifts are unlikely.
Mabank ISD is located in an agricultural and oil producing area approximately 50 miles southeast of Dallas serving a population of about 25,000, with boundaries that include portions of Kaufman, Henderson and Van Zandt Counties.
The three principal communities in the district are Mabank, Gun Barrel City and Seven Points. Nearby Cedar Creek Reservoir is a major tourism attraction, and improved highway access to the area from Dallas over the past decade has generated both residential and commercial development. The Kaufman County unemployment rate improved to 5.1% as of May 2014 (from 6.3% in May 2013), on par with the rate for Texas and below the 6.1% national average rate for the same period. The improvement reflects steady growth of the employment base over the past two years.
Market value appreciated by a compound annual growth rate of about 4% over the past seven years ending in fiscal 2014. The district attributes much of the growth to the development surrounding Cedar Creek Reservoir, the fourth largest lake in Texas. The reservoir is 18 miles long and provides 320 miles of shoreline, most of which has been built out. The short commute to Dallas benefits the community, with reported summer weekend populations increasing 10-20 times that of year-round residents. The district anticipates modest near term tax base growth as farmland continues to be converted for residential property usage, especially in northern Kaufman County.
The district’s full value per capita is below average at $61,000 for fiscal 2014; the tax base is without concentration. With a total tax rate of $1.38 per $100 of taxable assessed valuation (TAV), including a maintenance and operations (M&O) tax rate at the statutory cap of $1.04, the tax burden is moderate. The district does not have immediate plans to seek an M&O tax rate increase.
STRONG FINANCIAL PERFORMANCE
Consistent financial results over the past five fiscal years reflect prudent financial management. The district instituted cost savings to mitigate fiscal 2012/2013 state funding cuts. These included position reductions, a salary freeze during fiscal 2012, and supply and travel budget reductions. A fiscal 2013 net operating surplus of $524,000 improved the unrestricted general fund balance to $6.4 million, a strong 26.8% of spending.
The district expects to end fiscal 2014 with like reserves. Reinstatement of $1.4 million in fiscal 2014 state aid allows the restoration of several positions cut during the last biennium. The district is positioned to reap ongoing savings from utility and transportation improvement funded in part with grant monies.
Overall debt is moderate at 3.4% of market value; principal amortization is below average at 35% within 10 years. The district’s interest and sinking fund (I&S) tax rate of $.34 per $100 of TAV is well below the $0.50 statutory cap for new debt issuance, although the district does not plan to issue debt for the foreseeable future given sufficiency of capacity remaining in current facilities.
Carrying costs for debt service, pensions and other-postemployment benefits (OPEB) are low at 12% of fiscal year 2013 governmental spending. The state’s funding of school districts’ payments to the Texas Teachers Retirement System (TRS) keeps costs low. However, districts are vulnerable to future funding changes by the state as evidenced by a relatively modest 1.5% of salary contribution requirement effective fiscal year 2015.
TEXAS SCHOOL DISTRICT LITIGATION
In February 2013, a district judge ruled that the state’s school finance system is unconstitutional. The ruling, which was in response to a consolidation of six lawsuits representing 75% of Texas school children, found the system ‘inefficient, inequitable, and unsuitable and arbitrarily funds districts at different levels…. The judge also cited inadequate funding and districts’ inability to exercise ‘meaningful discretion’ in setting tax rates as constitutional flaws in the current system.
The judge agreed to reopen testimony in January 2014 after the Texas legislature restored $4.5 billion in school funding in its 2013 session. The increased funding levels apply to school district budgets in fiscal years 2014 and 2015. The judge will determine if the additional funding affected arguments made during the trial. It is anticipated that the original ruling, if upheld, will ultimately be appealed to the state supreme court.
In addition to the sources of information identified in Fitch’s Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, National Association of Realtors.
Applicable Criteria and Related Research:
–‘Tax-Supported Rating Criteria’ (Aug. 14, 2012);
–‘U.S. Local Government Tax-Supported Rating Criteria’ (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria