Fitch Ratings has affirmed the following Pampa Independent
School District, Texas' (the district) unlimited tax (ULT)
bonds:
--$42.4 million ULT school building bonds series 2007 at
'A+'.
The Rating Outlook is Stable.
SECURITY
The bonds are payable from an unlimited property tax levy and
also carry the Texas PSF bond guarantee (for more information on
the Texas PSF see 'Fitch Affirms Texas PSF Rating at 'AAA'; Outlook
Stable', dated Sept. 4, 2014).
KEY RATING DRIVERS
COMMODITY ACTIVITY DRIVES CONCENTRATED RESOURCE BASE: The area
economy remains substantially concentrated in and dependent on
volatile chemical manufacturing, oil production and related
industries, particularly given its fairly remote location in the
north Texas panhandle. Enrollment expectedly fluctuates based on
energy sector trends; economic growth over the last five years was
preceded by a sharp decline from the previous expansion period.
COST FLEXIBILITY AND RESERVES ARE KEY: Commodity price
volatility drives assessed value and enrollment fluctuations,
resulting in challenging revenue budgeting. The district's proven
ability to adjust spending, cutting both instructional and capital
expenditures in the past to ensure fiscal balance, and its
maintenance of high reserves, are key offsetting factors.
MODERATE DEBT BUT CAPITAL PRESSURE EXISTS: Fitch expects debt
levels to remain moderate, but the very low debt service burden on
the budget could grow to more moderate levels over time due to slow
principal amortization. The district does not prepare a formal
multi-year capital plan, thus creating uncertainty about future
borrowing needs.
RATING SENSITIVITIES
STABLE CREDIT PROFILE: Fitch expects the school district to
continue with timely expense reductions in response to revenue
fluctuations to retain ample cushion.
CREDIT PROFILE
The district serves the city of Pampa, TX and portions of
surrounding Gray and Roberts Counties in the Texas panhandle about
56 miles northeast of Amarillo. Population within the district was
21,179 as of 2014. District enrollment in 2015 was 3,524, up 2%
from the prior year, but down 4% from the 2013 high.
COST CUTTING & RESERVES UNDERSCORE FINANCIAL FLEXIBILITY
The district has grown unrestricted reserves in each of the
previous three years to $11.8 million in fiscal year 2014, or 36%
of annual expenditures including transfers. Fiscal 2014 results
reflect an addition of over $1M to reserves. Management's ability
to cut expenditures in the past to preserve the level of reserves
is an important offsetting factor.
A lease agreement with the county for new drilling sites led to
one-time revenue gains in fiscal 2012 ($1 million), 2014 ($5.4
million), and another expected in 2016 ($1.6 million) which are
generally available for operations and maintenance expenditures. If
the new wells on the leased land successfully begin producing oil,
the district could receive ongoing royalty payments that would not
impact the state's funding formula for the district. Management is
conservative and does not budget for one-time leasehold drilling
revenues, however over half of the fiscal 2014 leasehold revenues
supported one-time cost overages for the district's new
administration building.
Recent annual revenues have also increased due to a better
funding picture of schools at the state level and recent enrollment
and TAV increases. The district's maintenance and operations
(M&O) tax rate is at the statutory cap of $1.04 per $100 of
TAV. The district does not have plans to pursue a tax ratification
election to tap the additional 13-cents available under current
statutory provisions.
The district projects balanced results in fiscal 2015 and
maintenance of high unrestricted general fund balances. The fiscal
2016 adopted budget is balanced and up 6% over the prior year,
largely driven by enrollment growth needs.
CONCENTRATED, OIL-BASED ECONOMY SEES GROWTH LEVEL OFF
The school district's tax base is very concentrated and
volatile, as assessments for property owners in the oil/gas
industry are closely tied to commodity prices. Concentration among
the top 10 taxpayers is a high 25%. The top taxpayer in the
district, Halliburton Energy Service (Halliburton Company's
long-term Issuer Default Rating is 'A-' with a Stable Outlook by
Fitch), constitutes a large 8.6% of the total tax base.
Fiscal 2015 market value per capita of $74,000 is up from
$58,000 in fiscal 2011, reflecting a healthy tax base growth. More
recently, with the decline of oil prices, the TAV has leveled off
with just a 0.6% TAV growth in fiscal 2015 compared to an 11.6%
gain in the prior year as rising home prices and new construction
rose. Gains from the recent opening of G2X Energy's sizable
methanol plant assessed at $45M, which will hit the district's tax
base in fiscal 2016, will likely be offset by other TAV contraction
related to oil price declines. Fitch expects continued volatility
to TAV levels in the long term.
BELOW-AVERAGE WEALTH AND INCOME INDICATORS
The district's median household income is equal to 84.6% of
state and 82.7% of U.S. averages, but grew at a rapid pace in
recent years. The unemployment rate in Gray County was 4.5% as of
May 2015, which is above the state level but below the national
level, as has been the case much of the prior decade.
UNCERTAIN ENROLLMENT GROWTH PRESSURES CAPITAL PLANNING
The district's facilities are currently at maximum capacity with
the use of portable classrooms relieve overcrowding. Despite the
failure of a $30m bond vote put to voters in May 2015, the district
remains within their legal class size limits. The district is
currently discussing the possibility of bringing another bond to
vote in the near future; however, the decline of oil and
corresponding decline in enrollment growth is expected to make
increasing capacity less of a necessity.
A statutory cap limits the district rate to $.50 for the
issuance of new debt. The district, which completed fiscal 2014
with a rate of $.27, has ample capacity under the cap. Overall debt
is a moderate $3,129 per capita and 4.4% of market value in fiscal
2014. Principal amortization is slow, with about 30% retired within
10 years, resulting in a currently low (7.4% of spending) but
increasing debt service burden on the budget. Fiscal 2014
governmental spending included a significant increase due to
one-time capital spending. The debt service burden on the budget in
fiscal 2013 was higher at 8.4%.
The district's pension liabilities are limited to its
participation in the state pension plan administered by the
Teacher's Retirement System of Texas (TRS). The district's low
annual required contribution is based on salaries in excess of the
statutory cap. Other post-employment benefits (OPEB) are similarly
provided through TRS. The district's carrying costs are a very low
7.9% of governmental spending, reflecting a slow principal
amortization and low required OPEB/Pension contributions.
TEXAS SCHOOL DISTRICT 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 and was the second such ruling in the past
two years, 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.
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 would
likely follow with changes intended 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, University Financial
Associates, S&P/Case-Shiller Home Price Index, IHS Global
Insight, National Association of Realtors.
Applicable Criteria
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug
2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
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Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=988882
Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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Fitch RatingsPrimary AnalystParker
MontgomeryAnalyst+1-212-908-0356Fitch Ratings, Inc.33 Whitehall
StreetNew York, NY 10004orSecondary AnalystMaria
CoritsidisAnalytical Consultant+1-212-908-0514orCommittee
ChairpersonJessalynn MoroManaging Director+1-212-908-0608orMedia
Relations:Alyssa Castelli, +1
212-908-0540alyssa.castelli@fitchratings.com