2008-07-24 23:23:09 -

- Fitch Ratings assigns an 'AAA' rating to Paris Independent School District (ISD, or the district), Texas' $12 million unlimited tax school building bonds, series 2008, based on the guaranty by the Texas Permanent School Fund (PSF) whose insurer financial strength is rated 'AAA' by Fitch. Fitch also assigns an 'A' underlying rating to the series 2008 bonds and affirms

its 'A' rating on the district's outstanding debt comprising $41.7 million unlimited tax bonds, $750,000 tax and revenue notes, and $415,000 maintenance tax notes. The Rating Outlook is Stable. The bonds are scheduled to be sold on Aug. 7 via negotiation.

Payment for the bonds is provided by an ad valorem tax levied, without legal limitation as to rate or amount, against all taxable property within the district. The bonds are also secured by the PSF guarantee. Bond proceeds will be used for the construction of a new high school, a new multi-purpose football complex, and district-wide renovations.

The 'A' rating reflects the district's stable financial results, long-tenured management, steady tax base expansion, high debt levels, and strong voter support for its capital needs. The rating incorporates the magnitude of the district's capital plan, which has resulted in high district debt levels and the corresponding large debt-service tax rate increase. Notably, due to conservative budgeting and improved staffing ratios, the district's financial performance has remained balanced despite a stagnant enrollment base which limits state aid revenue growth.

The service area of Paris ISD includes most of the city of Paris, Texas, which is the county seat and major economic center for Lamar County. Paris and Lamar County are located northeast of Dallas and the county's northern boundary borders the Red River and Oklahoma. The estimated 2007 population of Paris is about 26,000 and the district's fiscal 2007 average daily attendance (ADA) totaled 3,573. District ADA has been declining modestly over the past five fiscal years as the district is approaching full maturity with limited ongoing residential development. The county's primary employment sectors are manufacturing, educational and health services, and trade, with many of the major manufacturing employers being located in Paris. The unemployment rates in the city and county have improved since peaking in 2003 and are both modestly higher than state and national norms. Per capita income for the county is lower than both the state and national levels.

The current offering is the second installment of a $53.8 million authorization approved by voters in May 2007 in the form of three propositions. The first offering ($38 million) was issued in July 2007. The authorization includes $37.5 million for a replacement high school, $10.3 million for district-wide renovations, and $6 million for a multi-purpose stadium. All propositions were approved by a minimum of 61% of voters despite the prospect of a large debt-service tax rate increase totaling $0.33 per $100 taxable assessed valuation (TAV), bringing the rate to $.405.

The district's previously low direct debt burden has increased to a high 7.6% of TAV but a more moderate $2,100 per capita, after adjusting for state support of 17.5% of outstanding general obligation debt. Overall debt is also moderate on a per capita basis at $2,400 but still high as a percentage of TAV at 8.7%. The principal pay-out is slow at 25.4% in 10 years. The district anticipates issuing the remaining $4 million of authorization in fiscal 2009.

After nearly depleting its financial cushion in fiscal 2001, the district posted general fund operating surpluses annually through fiscal 2006. In fiscal 2007, the district reported a net loss of ($941K) due to enrollment declines and expenditures for state categorical funding which were received in fiscal 2006, but not expensed until fiscal 2007. The district's unreserved fund balance has grown to $3.0 million or 12.2% of expenditures and transfers out in fiscal 2007. The district has designated $600K of its total general fund balance for construction/maintenance projects. The district expects to continue adjusting staffing levels through attrition, which should result in 16-20 fewer employees in the fiscal 2009. In addition, the district plans to consolidate two campuses, including a kindergarten campus, which should allow for greater efficiencies.

District officials project a small draw-down for fiscal 2008, and the proposed fiscal 2009 budget is balanced and based on level ADA. The fiscal 2008 general fund balances are expected to be approximately $3 million. In the absence of a formal fund balance policy, district management has established one-month's expenditures (8.3%) as the minimal fund balance goal and a three-month (25%) target as its optimal goal.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings, Austin
Andy Kaaz, 512-215-3730
Steve Murray, 512-215-3729
or
Media Relations:
Sandro Scenga, 212-908-0278, New York