Fitch Ratings assigns an 'AAA' rating to the following Clear Creek Independent School District, Texas' (the district) unlimited tax (ULT) bonds:

--$170.3 million unlimited tax (ULT) school building and refunding bonds, series 2015A.

The 'AAA' rating on the bonds is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose bond guaranty program is rated 'AAA' by Fitch. (For more information on the Texas Permanent School Fund see Fitch Affirms Texas PSF Rating at 'AAA'; Outlook Stable, dated Sep. 4, 2014.)

Fitch also assigns an 'AA+' underlying rating to the series 2015A bonds and to the $11.3 million series 2015B ULT refunding bonds and affirms the 'AA+' underlying rating on the district's $857.8 million (pre-refunding) in outstanding parity bonds.

The bonds are scheduled to sell the week of March 9th via negotiated sale. Proceeds will be used to construct and equip new school facilities, purchase school buses, refund certain outstanding maturities for savings, and to pay related costs of issuance.

The Rating Outlook is Stable.

SECURITY

The series 2015A and 2015B bonds are payable from an unlimited property tax levied against all taxable property within the district. The series 2015A ULT bonds are also insured as to principal and interest repayment from a guaranty provided by the PSF.

KEY RATING DRIVERS

SOUND FINANCIAL PROFILE: Prudent planning and cost management support a history of consistent surpluses and adequate policy-level reserves, enabled by steady enrollment gains.

PART OF LARGE REGIONAL ECONOMY: The district is located in Harris and Galveston counties, benefiting from a diverse economy with prominence in the energy and petrochemical industries. Moderate taxable assessed valuation (TAV) gains since the recession have been fueled mostly by residential development underway in Galveston County.

HIGH OVERALL DEBT: Overall debt is high and principal amortization is slow; however, the district's fixed cost burden, including annual debt payments and pension contributions is moderate.

ABOVE-AVERAGE DEMOGRAPHIC PROFILE: The district's unemployment rate historically trends below state and national averages; measures of income and education exceed those of the state and the U.S.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to material changes in fundamental credit characteristics, including the district's strong financial management practices and high overall debt levels. The district's history of reserve adequacy and sound financial management practices indicates expected rating stability.

CREDIT PROFILE

Clear Creek ISD encompasses 120 square miles and is located midway between Houston and Galveston. The district's main population centers include League City and the Clear Lake area of Houston. District income and educational attainment metrics are well above-average.

DIVERSIFIED HOUSTON ECONOMY

The district's tax base is well represented by all segments of the oil & gas industry characteristic of the region, but is diversified with significant presence of the aerospace and other manufacturing, retail trade and health service sectors. Diversity of the local economy tempers the impact of the oil & gas price volatility present in the Houston area economy. Substantial downstream energy manufacturing additionally buffers the local economy from oil & gas price declines.

Chemical and petroleum/coal products comprise the majority of the region's sizable export market (second largest U.S. export market behind New York according to IHS Global Insights), supported by a strong multimodal transportation network which includes the Houston Ship Channel (HSC). Located along the HSC is the massive Bayport Industrial Development with 62 industrial plants in operation.

A historically low unemployment rate reflects ready access to the Houston employment market. For League City (the largest city in the district), a local jobless rate of 3.5% as of December 2014 is improved from the prior year despite 3.6% year-over-year job growth and compares favorably to state (4.1%) and U.S. (5.4%) averages for the same period.

The Houston MSA economy made a robust post-recessionary recovery given many of the aforementioned major drivers that contributed to recent population and employment gains. However, Fitch believes the recent plunge in oil prices is likely to dampen the pace of growth over the near term. It is also Fitch's opinion that the state's various petrochemical centers should benefit from lower energy prices, which may serve as a partial offset to any economic softening. (see Fitch press release, 'Oil Price Decline Likely to Have Targeted Effect on Local Texas Economies & Revenues', dated Jan. 13, 2015).

CONTINUED, POSITIVE TAV MOMENTUM

The district's largely residential tax base continues to realize steady growth after a two year period (fiscals 2011-2012) of relatively stagnant TAV during the recession. A 5.5% TAV gain was realized in fiscal 2015, which was fairly comparable to the prior year's gain. Most of the year's gain was attributable to tax base appreciation rather than new construction according to district officials.

The top 10 taxpayers comprise a modest 6% of the district's $17.4 billion TAV in fiscal 2015. Although much of the district is mature, undeveloped pockets remain in the 40% represented by Galveston County, where the district expects further TAV gains over the next several years. Fitch believes TAV has some sensitivity to oil prices although a level of modestly positive TAV growth also appears feasible to Fitch over the near term given an active housing market, ongoing retail and commercial investment, and historical tax base performance.

STRONG FINANCIAL PERFORMANCE

The district's financial performance remains sound and stable. Conservative budgeting of enrollment-related revenues and tightened spending in prior years to address state aid cuts has allowed the district to typically outperform budget. Operations have generated annual surpluses since fiscal 2009. This is notably net of a sizeable transfer to the capital projects fund for one-time capital outlays. In line with the district's two-month (16% of spending) fund balance policy, such transfers are made annually from any amounts in excess of the policy level. General fund transfers to the capital projects fund totaled approximately $47 million between fiscal 2009 and fiscal 2014, lending added financial flexibility.

Year-end fiscal 2014 performance continued this trend. District operations generated a $5.8 million operating surplus due to favorable spending trends throughout the year and higher student-related revenues. Unrestricted reserves increased modestly and totaled $53.8 million or 19% of operational spending at fiscal 2014 year-end with the bulk of the surplus ($5.4 million or 2% of general operations) transferred to the capital projects fund.

The adopted fiscal 2015 $302.6 million general operating budget was balanced, supported in part by a modest $2.8 million transfer from the capital projects fund to the general fund. The year's budgeted spending also provides for the second year of building up a comparably-sized ($2.2 million) reserve for future technology and maintenance capital needs. Management reports enrollment is tracking higher than projected which should produce balanced operations and stable reserves without need of the transfer. Fitch believes this is a reasonable projection as prior years' fiscal performance has generally been positive relative to the budget and does not foresee substantial changes to the district's strong financial position.

HIGH OVERALL DEBT BURDEN

The district's overall debt (including overlapping debt of municipalities) is high at $7,480 per capita or 8% of market value, although down slightly as a percentage of market value given recent TAV gains. Principal amortization of the district's direct debt is below average at 40% repaid in 10 years. The new money portion included in this offering exhausts the district's $367 million bond authorization approved by a high 68% of voters in May 2013 and should not require further increase to the presently moderate debt service tax rate of $0.36 per $100 TAV (well below what was promised voters for the entire authorization) according to management. The tax rate leaves sufficient capacity in relation to the statutory rate of $0.50 for new debt issuance.

Preliminary plans for a future GO bond authorization as early as 2017 and estimated at approximately $150-$170 million, are presently under consideration by management, reflective of somewhat more moderate capital needs in the near-term.

AFFORDABLE RETIREE COSTS

Fitch's concern about the elevated level of the district's overall long-term liabilities is lessened by its low retiree cost burden. Retiree pension and healthcare benefits are provided through the Teacher Retirement System of Texas (TRS), a cost-sharing multiple employer plan. The district's annual contribution to TRS is determined by state law as is the contribution for the state-run post-employment benefit healthcare plan; the district consistently funds its annual required contributions.

District employees contribute to TRS for pensions at 6.4% of annual payroll, and the state pays the local district's contributions (6.4% of payroll in fiscal 2013), with the exception of district contributions for probationary employees and for benefits on employees' salaries that exceed the TRS statutory minimum. Other post-employment benefit (OPEB) contributions paid by the district are nominal as the state and employees also pay the bulk of these costs. Total pension and OPEB contributions made by the district in fiscal 2014 totaled less than 1% of governmental fund expenditures.

TRS reported a funded ratio of 80.8% as of Aug. 31, 2013, though Fitch estimates the funded position to be lower at 72.8% when a more conservative 7% return assumption is used. The state's payment of district pension costs is an important credit strength as it keeps overall carrying costs manageable in the face of an elevated debt burden.

Carrying costs for the district (debt service, pension, OPEB costs, net of state support) were manageable at 13% of governmental fund spending in fiscal 2014 due in large part to the slow pace of principal amortization. Pension contributions for all districts in the state rose to 1.5% in fiscal 2015 on the statutory minimum portion of payroll, from zero, increasing carrying costs further. Increases in district funding requirements beyond fiscal 2015, while not presently anticipated, could create additional budget pressure, which Fitch will monitor.

TEXAS SCHOOL FUNDING LITIGATION

A Texas district judge ruled in August 2014 that the state's school finance system is unconstitutional. The ruling, which was in response to a consolidation of six lawsuits representing 75% of Texas school children, found the system inefficient, inequitable, and underfunded. The judge also ruled that local school property taxes are effectively a statewide property tax due to lack of local discretion and therefore are unconstitutional.

Following a similar ruling in February 2013, the judge granted a motion to reopen the lawsuit four months later after state legislative action that partially restored state funding levels and made other program changes. The Texas attorney general has appealed the judge's latest ruling to the state supreme court. If the state school finance system is ultimately found unconstitutional, the legislature will be directed to make changes to the system to restore its constitutionality. Fitch would view positively any changes that include additional funding for schools and more local discretion over tax rates.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, Texas Municipal Advisory Council, IHS Global Insight, National Association of Realtors.

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

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=980499

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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 MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Fitch RatingsPrimary AnalystRebecca C. MosesDirector+1 512-215-3739Fitch Ratings, Inc.111 Congress Ste. 2010Austin, TX 78701orSecondary AnalystRebecca MeyerDirector+1 512-215-3733orCommittee ChairpersonKaren RibbleSenior Director+1 415-732-5611orMedia Relations:Elizabeth Fogerty, +1 212-908-0526elizabeth.fogerty@fitchratings.com