Fitch Upgrades Canyon ISD, Texas' ULT Bonds to 'AA-'; Outlook Stable

2009-11-09 22:58:01 -

In the course of routine surveillance, Fitch Ratings has upgraded Canyon Independent School District, Texas' (the district) $90.5 million outstanding unlimited tax bonds to 'AA-' from 'A+'. The Rating Outlook is Stable.

Fitch's upgrade on the district's underlying rating reflects a strengthened and solid financial position, achieved despite increased enrollment growth pressures. Further diversification of the growing tax base adds to

previously cited strengths, such as sound management practices and modest debt levels. The district has no immediate debt plans and capital needs appear manageable over the near term. These positives are balanced against below average amortization (although not atypical of growing school districts in Texas) and a stable yet somewhat limited area economy. Maintaining solid reserves remains a key rating driver, given likely budget pressures from continued enrollment growth.

The district is located approximately 15 miles south of downtown Amarillo, serving a 720-square mile area that is largely rural and encompasses roughly 50,000 individuals. The city of Amarillo is a regional hub that serves as the banking, distribution, and commercial center for the Texas Panhandle. Benefiting from its proximity, the district's economic base is shifting away from a rural, agricultural area to that of a bedroom community. While rising to 5.8% in September 2009, Amarillo area unemployment levels remain low and well below those of the state and nation, comparable to historical patterns. Wealth levels are typically above local and state averages.

Growth trends in the district's enrollment and tax base have resulted from the area's available land which spurred predominately residential development pushing south from the city of Amarillo and subsequent population growth. While moderating slightly in fiscal 2010, tax base growth remained stable and healthy at almost 7% from the prior year, reaching approximately $3 billion. Attendant commercial/retail development has further expanded the tax base; taxpayer concentration is minimal. District enrollment that now totals almost 8,800 students has grown at an average annual pace of just over 2% since fiscal 2005 and the district has experienced even higher levels of enrollment growth in fiscal years 2009 and 2010, despite the recently slowed housing market.

Finances are a positive credit factor. Since fiscal 2004, the district has consistently recorded operating surpluses and solid reserve levels enhance the district's financial flexibility. At the close of fiscal 2008, the unreserved general fund balance totaled almost $21 million, which represented a very high 41% of spending and remained well above the district's informal operating reserve policy of maintaining no less than three months or 25% of expenditures. The district now anticipates closing fiscal 2009 with a $2 million addition to reserves. The district currently projects about a $3.3 million operating deficit in the fiscal 2010 budget, primarily due to planned, one-time capital expenditures.
The district has no immediate plans to approach voters for additional operating tax rate increases.

Debt levels remain modest, assisted in part by state support for the district's debt that has declined from prior years' levels with increased property wealth. Overall debt levels approximate 3.6% of taxable assessed value or $2,200 per capita. Comparable to earlier projections, no near-term debt plans are anticipated as district management reports capital needs have been met for at least four or more years. Future facility needs are expected to be at the intermediate/junior high level. Amortization is below-average. While only 35% of principal is retired in 10 years, the debt service expense remains fairly level before declining in 2014.

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