2009-07-07 23:44:03 -

Fitch Ratings assigns an 'F1+' rating to Cypress-Fairbanks Independent School District, TX's (the district) $36 million tax anticipation notes (TANs), series 2009. In addition, Fitch affirms the district's approximately $1.6 billion outstanding unlimited tax general obligation (GO) bonds at 'AA-' with a Stable Rating Outlook. The notes are scheduled to sell on a competitive basis on July 9, 2009.

Revenues pledged

for note repayment consist of ad valorem taxes levied in fiscal 2010 for operations & maintenance (O&M) purposes by the district, local non-tax income, interest and other income, and state appropriations to the district (excluding state appropriations to assist in paying the district's GO bonds). Note proceeds will be used to finance deficits in the district's operating fund cash flow during the fiscal year ending June 30, 2010 which occur due to the uneven nature of cash receipts from state appropriations and property taxes. This is the fourth consecutive time in 14 years that the district has issued TANs; the district last issued $41 million for fiscal 2009.

The 'F1+' rating, which represents the highest short-term credit quality, reflects adequate coverage by diverse and stable pledged revenue sources. The district's cash balance is projected to provide 1.6 times the note principal at maturity. The maximum projected cash flow deficit, excluding TAN proceeds, is expected to occur at the beginning of September 2009 and is expected to be cured by the end of the same month when the district expects to receive the bulk of state appropriations. The notes mature on June 25, 2010.

The 'AA-' long-term rating reflects the district's solid tax base, sound management practices, historically healthy financial position, and operating and capital pressures associated with rapid enrollment growth.
The district's debt burden is high and is expected to remain high due to the its substantial capital needs and slow principal amortization.

Considering the district's rapid growth, its financial position remained stable over time. However, fiscal 2008 operations were significantly pressured due to lower than expected enrollment growth and budget pressures from implementation of HB1, which changed the school funding formula. Further significant declines in the district's fund balance reserves will likely put downward pressure on the its underlying long-term bond rating.

For fiscal 2008, the district posted a large $24 million deficit, reducing its total fund balance levels to $55 million, or 9% of operations, down from $79 million, or 14% in fiscal 2007. The district adopted a balanced budget for fiscal 2009 and expects to add an estimated $4 million to fund balance. The district made significant expenditure adjustments to the budget to achieve these results including no pay increases, the elimination of about 450 teaching positions, and cutting support positions. The district maintains one of the lowest cost per pupil in the state, reflective of management's prudent fiscal stewardship and tight budgetary measures. The district's 2010 budget includes a $9.5 million general fund surplus, despite the opening of three new campuses.

The district is the third largest in the state in terms of student population. It is located in west and northwest Harris County and covers 186 square miles, including the unincorporated communities of Cypress and Fairbanks, as well as the City of Jersey Village. Enrollment has grown at a rapid clip, averaging over 5% over the last five fiscal years. The slowdown of single family home construction in the last two years resulted in a lower than previously projected enrollment growth rates; however, enrollment is still experiencing large annual increases of 3,500 to 4,000 students. District officials have revised enrollment estimates for the next three years to reflect the slower near-term growth. Although the district's tax base is primarily residential, the commercial component represents almost one-fourth of the taxable value.
Tax base growth has averaged more than 10% per year for the past five years, including a $3.5 billion increase in fiscal 2009 to $31.4 billion.

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Fitch RatingsGabriela Gutierrez, +1-512-215-3731 (Austin)Rebecca
Moses, +1-512-215-3739 (Austin)Media Relations:Cindy
Stoller, +1-212-908-0526 (New York) cindy.stoller@fitchratings.com : mailto:cindy.stoller@fitchratings.com