|[January 25, 2013]
Fitch Affirms Beaumont ISD, (TX's) ULT Bonds 'AA' Underlying Rating; Outlook Stable
NEW YORK --(Business Wire)--
Fitch Ratings affirms the following rating on Beaumont Independent
School District (the district), Texas' unlimited tax (ULT) bonds:
--$410 million various series ULT School Building Bonds - 'AA'
The bonds are additionally secured by a guarantee provided by the Texas
Permanent School Fund (PSF), whose Insurer Financial Strength is rated
'AAA' by Fitch.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax pledge of the
district and are secured further by the PSF guarantee.
STRONG RESERVE LEVELS MAINTAINED: Consecutive years of operating
surpluses have resulted in a build-up of strong financial reserve
levels. The rating assumes the district will maintain high reserve
levels given economic concentration, potential revenue volatility and
high debt levels.
CONCENTRATED TAX BASE: The district's tax base is heavily concentrated
in the petrochemical industry. This concern is mitigated to a degree by
industry diversification in both production and end users as well as the
key role oil refineries play in the national economy. Leading taxpayers
comprise a high 26% of the 2011 tax base.
STABLE VALUATIONS: Taxable assessed values (TAV) are stable with small
increases in 2011 and 2012 following a modest contraction in fiscal 2010.
HIGH BUT MANAGEABLE DEBT: Overall debt levels are high with below
average amortization. Debt levels are expected to remain high even with
modest additional borrowings planned over the next few years. However,
debt service is a moderate burden on the budget.
STEADY ENROLLMENT TRENDS: Student enrollment has stabilized over the
past decade and is expected to remain constant.
The district serves an estimated population of about 124,000 primarily
in the city of Beaumont, TX. The city is a major commercial and
industrial center in the 'Golden Triangle' of southeast Texas along the
gulf that also includes the cities of Port Arthur and Orange (News - Alert).
STABLE ECONOMY WITH BELOW AVERAGE INDICATORS
The area economy is heavily concentrated in the petrochemical, oil and
gas sectors complemented by retail, government and healthcare
employment. City wealth levels are generally below state and national
averages and unemployment levels, which have historically trended above
state and national levels, have increased during the recent economic
downturn evidencing cyclicality. Fitch expects the district economy to
remain concentrated with elevated economic cyclicality over the long
The district's estimated 2013 enrollment is just below 20,000, which
reflects modest growth and a return to 2005 levels. Enrollment has
modestly increased since 2008 following some volatility from 2005 - 2007
as a result of hurricanes Katrina and Rita. Officials expect continued
modest enrollment gains driven by current housing development and
refinery expansion projects. Fitch expects enrollments to remain
CONCENTRATED TAX BASE
The district's concentrated tax base is led by ExxonMobil (senior
unsecured debt rated 'AAA' by Fitch Ratings), which comprised a high
16.5% of the district's tax based for 2011 (down from 23% in 2008 given
overall tax base growth). However, there is some diversity between
upstream (oil exploration and refining) and downstream users (chemical
and manufacturing) that helps stabilize the impact of swings in oil
prices. Additionally, the oil refineries' key role in the national
economy mitigates some credit concerns over the long-term prospects of
the district's tax base. Fitch expects the district's tax base to remain
Until fiscal 2010, TAV grew at between 6% 10% annually over the three
previous years. After registering a moderate 4% dip in fiscal 2010, TAV
expanded by a total of 5.6% in 2011 and 20122. Officials expect flat to
modest TAV gains in the next few years due to strengthening of
industrial values but continued weakness in residential values. Fitch
believes this projection is reasonable given the recent return to growth.
STRONG FINANCIAL PERFORMANCE AND RESERVES
Financial performance remains very strong, evidenced by consecutive
years of general fund surpluses which have enabled a build-up of solid
reserve levels. Fitch expects management to continue to meet budgetary
challenges and maintain strong reserves. The district registered a
sizable $1.5 million surplus in fiscal 2011, ending with an unreserved
general fund balance of $42.8 million or a solid 24% of spending.
Management adopted a balanced budget for fiscal 2012 with conservative
revenue assumptions and expects a small surplus and continued strong
reserves. The district expects to maintain budgetary balance by
offsetting reduced state funding with conservative budgeting of
nonrecurring federal EduJobs funds and expenditure savings from some
school consolidation and lower maintenance costs as a result of facility
renovations and improvements.
The 2013 budget incorporates continued state funding declines and is
expected to be balanced largely due to conservative revenue assumptions.
Management anticipates potential further state funding reductions in the
2014 and 2015 budgets and is evaluating various actions including a
combination of expenditure reductions from a salary freeze, increased
class sizes and modest use of fund balance. Additionally, district tax
rates remain competitive with margin to increase with voter approval,
although voters have already approved steep debt service rate increases
over the past five years.
HIGH BUT MANAGEABLE DEBT WITH MODERATE NEEDS
Total debt levels are high at $5,741 per capita and 7.6% of market value
(MV). With the recent completion of a $388 million bond program, the
district's future capital needs are moderate. The district capital
improvement program includes the possible construction of three new
elementary schools and renovations to an existing middle school, which
may be proposed to voters for authorization within the next 5 years.
Debt amortization is below average with a low 28% retired in 10 years.
Additional debt would not materially change district debt
characteristics. The districts total tax rate increased from 1.095 in
2008 to a peak of 1.325 in 2011 due to the voter-approved debt
issuances. The rate for 2012 fell modestly to 1.315 and is expected to
remain stable as AV growth continues to rebound.
The district contributes to the Teacher Retirement System of Texas
(TRS), a public employee retirement system that is a cost-sharing,
multiple employer defined benefit pension plan. The district contributes
100% of its annually required contribution which has remained stable
over the last few years. The plan is funded at an estimated 75%, using a
Fitch-adjusted funding ratio at a 7% discount rate. Other
post-employment benefits are also provided through TRS. Overall carrying
costs for debt service, pensions and OPEB are moderate at 14% of GF
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 and IHS (News - Alert)
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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