Fitch Affirms Eagle Pass ISD, TX's ULTs at 'A+' Underlying; Outlook Stable
AUSTIN, Texas -- January 31, 2013
Fitch Ratings takes the following rating action on Eagle Pass Independent
School District, Texas' (the district) unlimited tax (ULT) bonds:
--$65.6 million of ULT bonds affirmed at 'A+'.
The Rating Outlook is Stable.
The bonds are direct obligations of the district, secured by an unlimited tax
pledge levied against all taxable property within its boundaries. The bonds
also carry the Texas Permanent School Fund guaranty, which Fitch rates 'AAA'.
IMPROVED FISCAL CUSHION: Sound reserves and liquidity have improved as a
result of several years of operating surpluses. Budget balance has been
largely preserved amid state funding reductions.
EXPANDING RESOURCE BASE: The local economy centers on trade with Mexico and
oil and gas production and services. Top taxpayer concentration is slightly
elevated while population and tax base growth continues, spurred by oil and
gas activity and development underway.
SUBPAR SOCIO-ECONOMIC PROFILE: Area wealth measures are low and unemployment
and poverty rates are elevated.
MODEST DEBT BURDEN: Fitch considers key debt burden ratios to be low. The
fixed-cost for debt and pensions is quite affordable due to state subsidies.
Amortization is average.
This 15,000-student district is located along the U.S.-Mexico border,
approximately 150 miles southwest of San Antonio. The county seat, Eagle Pass
(GO bonds rated 'A+' by Fitch), serves as the port of entry into Mexico at
Piedras Negras, Coahuila.
LOCAL ECONOMY LINKED TO MEXICO & OIL/GAS ACTIVITY
The population of the Eagle Pass and Piedras Negras metropolitan area
approximates 200,000, providing a solid base for trade and tourism that is
complemented by agriculture and oil/gas production in the surrounding Maverick
County. Increased economic activity in the latter sector is tied to drilling
in the Eagleford Shale, a large natural gas play spanning southern Texas and
underlying portions of the district's tax base.
The drilling activity has spurred residential and commercial development,
which, together with positive re-appraisals and the favorable resolution of an
appeal by the district's top taxpayer (Conoco Phillips; long-term Issuer
Default Rating of 'A' with Stable Outlook), produced a nearly 8% gain in
fiscal 2013 TAV to $1.8 billion. Average annual TAV growth since fiscal 2009
has been more moderate at 3% and the economic activity noted above supports
projections for continued near-term TAV growth.
The top 10 taxpayers comprise a slightly elevated 16% of fiscal 2013 TAV, with
Conoco Phillips alone representing 6% followed by a medical facility at 2.2%.
There is some energy-industry concentration amongst the top payers (four out
of 10), and Fitch believes the tax base overall is likely fairly concentrated
in that sector. The remaining top payers span healthcare, retail, real estate,
and utilities. The large amount of farm and ranch land in Maverick County
makes up the largest share of the tax roll and contributes to an average
per-capita market value of $61,000.
Enrollment, on which state aid is largely based, has steadily and moderately
increased at 1.7% average annual rate since 2009, with current-year enrollment
up 1% from last year. Similar growth is expected to continue in the near term.
PERSISTENTLY HIGH UNEMPLOYMENT AND LOW WEALTH
Top employers include the school district, retail, healthcare, and a casino,
though the area's large migrant-worker labor force has contributed to
historically elevated unemployment rates. Unemployment trended upward in
Maverick County from 2009-2011, reaching 14.2%, and while the November 2012
unemployment rate dropped to 10.5% from 12.1% year-over-year, this was due to
contraction in both the labor force and employment. Residents' income levels
are below average, with per capita income at 47% of the national average and
the poverty rate at 220% of the nation's.
PRUDENT BUDGETING AND RESULTS ADD TO OPERATING RESERVES
Conservative budgeting practices yielded consecutive years of operating
surplus after transfers from fiscal years 2006-2011, increasing operating
reserves and liquidity. The fiscal 2011 surplus was particularly significant
at 4.8% of spending and was aided by under-spending of the balanced budget
(spending-to-budget ratio of 93%) due in part to the receipt of $2.5 million
of non-recurring federal aid that funded some general fund salaries out of a
federal revenue fund for one-year.
State budget cuts and the expiry of non-recurring federal aid in fiscal 2012
prompted management to reduce budgeted spending. Reductions included the
elimination of positions via attrition as well as a hiring freeze and
discretionary cuts for overtime, incentive pay, and athletics. Fiscal 2012
unrestricted general fund balance totaled $13.6 million or a solid 11% of
spending, down slightly from fiscal 2011 but well above the 7.8% unreserved
fund balance at the end of fiscal 2010. Liquid general fund assets remained
adequate, covering current liabilities 1.1x.
The fiscal 2013 budget increases spending by 2.5% from the 2012 budget, with
the addition of nine FTEs supported by modest gains in local and state
revenues. Officials presently expect to outperform the budgeted deficit of
$472,000 (0.4% of spending) given positive year-to-date attendance figures and
continued expenditure monitoring. Fitch expects reserves and liquidity will
remain solid given management's demonstrated ability to narrow prior-year
deficits. Fitch also notes that the district retains a degree of expenditure
flexibility through its ability to further increase class-size ratios, which
are currently below the state's maximum.
LOW DEBT BURDEN DUE TO STATE DEBT SERVICE SUBSIDIES
Overall debt ratios, including direct and overlapping debt, are low at $1,240
per capita and 2% of market value. Direct debt is heavily subsidized by state
funds totaling 65% of annual debt service, which Fitch considers to be
self-supporting debt. Net of state subsidies debt service is only 1.5% of
governmental expenditures (excluding capital projects fund spending). The rate
of amortization is average at 45% retired in 10 years.
The district does not maintain a formal capital improvement plan but
anticipates seeking additional debt authorization to fund new campus
construction sometime within the next five years. Officials have indicated
debt authorization would be sought in conjunction with available state debt
service aid, which Fitch notes would temper increases to the debt burden and
tax rate impact. The current tax rate for debt service is $0.13 per $100 of
TAV, which is very competitive with other districts.
PENSION COSTS EASILY MANAGED
Pension and other post-employment benefits (OPEB) are provided through the
state's Teacher Retirement System, a cost-sharing multiple employer plan. The
state pays the bulk of the required contributions on behalf of the district
and currently adequately funds TRS at 74.5% using an adjusted 7% investment
return rate. The district's annual required contribution to TRS was $500,000
in fiscal 2012 or a marginal 0.4% of governmental spending. Combined carrying
costs for debt service and pensions totaled less than 2% of spending.
Additional information is available at 'www.fitchratings.com'. The ratings
above were solicited by, or on behalf of, the issuer, and therefore, Fitch has
been compensated for the provision of the ratings.
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-Schiller Home Price
Index, IHS Global Insight, National Association of Realtors, and the Texas
Municipal Advisory Council.
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
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