Fitch Ratings has assigned an 'AAA' rating to the following Longview
Independent School District, Texas (the district) unlimited tax (ULT)
--$8.8 million ULT bonds, series 2015.
The bonds are scheduled for negotiated sale the week of Oct. 12.
Proceeds will be used to refund a portion of the district's outstanding
ULT debt for interest savings.
Fitch has also assigned an 'AA' underlying rating to the bonds and
affirmed the 'AA' underlying rating on the following outstanding bonds
--$223.3 million ULT school building bonds, series 2008, 2009, 2010, and
--$8.9 million ULT tax qualified school construction bonds, series 2010.
The Rating Outlook is Stable.
The bonds are payable from an unlimited property tax levy of the
district, and also carry the Texas PSF bond guarantee (for more
information on the Texas PSF see 'Fitch Affirms Texas PSF Rating at
'AAA'; Outlook Stable', dated Sept. 4, 2014).
KEY RATING DRIVERS
STRONG FINANCIAL OPERATIONS: Consistently positive operating margins
have yielded significant general fund reserve levels and liquidity,
providing the district with a high degree of financial flexibility.
LIMITED, DIVERSE ECONOMY: The district is located in East Texas and the
city of Longview is considered a hub in the region, benefiting from its
location in a large industrial and retail economy along major
transportation corridors. The tax base is resilient and stable, and
local employment indicators are positive.
SIZABLE DEBT LOAD: Debt levels are elevated and amortization has
improved but remains slow. The debt service tax rate is near the state's
tax rate cap for new money debt issuance, but after completion of the
2008 bond program the district reports it has no capital spending
pressure that would necessitate additional leverage in the near term.
STRONG FINANCIAL OPERATIONS: The rating is sensitive to changes in the
district's strong financial management practices, including conservative
budgeting and high reserves, which mitigate concern over the elevated
The district is located roughly 120 miles east of Dallas and 60 miles
west of Shreveport, LA and served by major transportation corridors.
Enrollment in the district varies slightly from year to year but never
deviates significantly from the 10-year average of about 8,500 students.
The district population of 57,000 has been mostly stable in recent years.
STABLE AREA ECONOMY
The district is located in the Longview metropolitan statistical area,
which is an industrial, retail, and distribution center in East Texas.
The area economy has traditionally served as a center for oil and
natural gas operations but has become increasingly diversified with the
growth of education, health care, manufacturing,
transportation/distribution, government and retail trade as major
The area employment picture is positive with a fairly low unemployment
rate of 5% in July 2015 and potential for improvement with a trend of
employment growth outpacing labor force growth. Income levels of
district residents are below state and national averages.
Taxable assessed value (TAV) showed resiliency post-recession, marking
only one year of modest contraction (3.7%) in fiscal 2011. A trend of
flat to modest growth has persisted since then, and management expects
that tendency to continue near term.
POSITIVE FINANCIAL OPERATIONS; PLANNED USE OF RESERVES
Several years of positive operating results have significantly increased
reserves, with fiscal 2014 fund balance of almost $55 million
representing a very high 85% of spending. The year ending Aug. 31, 2015
is likely to be break-even despite having adopted a $2.2 million deficit
budget, a practice management typically employs. The fiscal 2016 budget
was adopted with a $4 million deficit, a flat tax rate, and a 4%
increase in expenditures.
The district is currently in the planning phases of a Montessori campus,
a 1,400 student facility that will consolidate the district's Pre-K and
Kindergarten classrooms. The estimated cost of the facility is $35
million and will be funded with a combination of remaining bond revenues
from construction cost savings ($10 million) and general fund reserves
($25 million), and is expected to be completed by summer 2017. Fitch
expects the district's reserve position to remain robust; management has
committed to maintain $30 million in fund balance (47% of fiscal 2014
MIXED DEBT PROFILE
Key debt ratios are elevated due to the issuance of $267 million over
four installments since 2008 to support comprehensive rebuilding,
renovating, and repurposing of district facilities. Debt is 5.7% of
market value (MV) and $4,593 per capita. Amortization has improved to
40% from 24% retired in 10 years, yet remains sluggish.
The district's debt service tax rate is also high at $0.47 per $100 of
TAV, which is near the state's statutory cap of $0.50 for new money debt
issuance. However, the district reports it is able to fund its limited
near-term capital needs from current resources given the recent capital
improvements and modest enrollment growth environment.
The district contributes to the Teacher Retirement System of Texas
(TRS), a cost-sharing, multiple employer defined benefit pension plan.
Other post-employment benefits (OPEB) are also provided through TRS. The
combined pension and OPEB contributions, which are set by state law,
totaled $600,000 or less than 1% of government spending in fiscal 2014.
The district's total carrying costs for debt service and retirement
benefits comprised a manageable 17.4% of governmental spending. The
district is considered property wealthy by the state and does not
receive debt service assistance.
TEXAS SCHOOL FINANCE LITIGATION
For the second time in the past two years a Texas district judge ruled
in August 2014 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 underfunded. The judge also ruled
that local school property taxes are effectively a statewide property
tax due to lack of local discretion and therefore are unconstitutional.
Following a similar ruling in February 2013, the judge granted a motion
to reopen the lawsuit four months later after state legislative action
that partially restored state funding levels and made other program
changes. The Texas attorney general has appealed the judge's latest
ruling to the state supreme court. If the state school finance system is
ultimately found unconstitutional, the legislature would likely follow
with changes intended to restore its constitutionality. Any changes that
include additional funding for schools and more local discretion over
tax rates would be positive credit factors.
Additional information is available at 'www.fitchratings.com'.
Fitch recently published an exposure draft of state and local government
tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating
Criteria, dated Sept. 10, 2015). The draft includes a number of proposed
revisions to existing criteria. If applied in the proposed form, Fitch
estimates the revised criteria would result in changes to fewer than 10%
of existing tax-supported ratings. Fitch expects that final criteria
will be approved and published by Jan. 20, 2016. Once approved, the
criteria will be applied immediately to any new issue and surveillance
rating review. Fitch anticipates the criteria to be applied to all
ratings that fall under the criteria within a 12-month period from the
final approval date.
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, Underwriter, Bond Counsel, Underwriter Counsel,
Trustee, U.S. Federal Government (non-public information), and the
Municipal Advisory Council of Texas.
Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
Dodd-Frank Rating Information Disclosure Form
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