Linden-Kildare Consolidated Independent School District, Texas; General Obligation

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1 Summary: Linden-Kildare Consolidated Independent School District, Texas; General Obligation Primary Credit Analyst: Horacio G Aldrete-Sanchez, Dallas (1) ; horacio.aldrete@standardandpoors.com Secondary Contact: Kate Choban, Dallas (1) ; kate.choban@standardandpoors.com Research Contributor: Sonali Suri, CRISIL Global Analytical Center, an S&P affiliate, Mumbai Table Of Contents Rationale Outlook Related Criteria And Research SEPTEMBER 26,

2 Summary: Linden-Kildare Consolidated Independent School District, Texas; General Obligation Credit Profile Linden-Kildare Cons Indpt Sch Dist maintenance tax nts (AGM) Unenhanced Rating A+(SPUR)/Stable Affirmed Many issues are enhanced by bond insurance. Rationale Standard & Poor's Ratings Services affirmed its 'A+' underlying rating (SPUR) on Linden-Kildare Consolidated Independent School District (ISD), Texas' series 2011 maintenance tax notes. The outlook is stable. The rating reflects our opinion of the district's: Adequate wealth and income levels, Very strong financial position plus adoption of a reserve and liquidity policy in 2011, and Low overall debt level as a percent of market value and rapid amortization of debt. Limiting factors include our view of the district's: History of declining enrollment and projections indicating that further declines are likely; and Moderate volatility in the tax base, in part reflecting a significant presence of timber production and oil and gas taxpayers. An ad valorem tax levy on all taxable property in the district, within the limits prescribed by law, secure the notes. Linden-Kildare Consolidated ISD serves an estimated population of 5,212. It is in northeast Texas, about 39 miles southwest of Texarkana, 52 miles northeast of Longview, and 59 miles northwest of Shreveport, La. According to district officials, the largest local industry is board timber production, and many of the district's residents commute to Texarkana or Longview for additional jobs. Market value per capita, an indicator of wealth, is adequate, in our view, at $39,683. Per capita effective buying income is adequate, in our opinion, at 75% of the U.S. average. The district's enrollment has been declining historically. After a short-lived increase of 6% in 2012, enrollment continued to decline and dropped by a cumulative 9% from 2012 to 752 in Management is expecting further declines of about 2%-3% in the near term. Assessed value (AV) trends have fluctuated recently. After a drop of about 4.3% in fiscal 2014, it increased by 1.2% to $206.8 million in fiscal The fluctuations in the AV primarily reflect the mineral value fluctuations. The district's tax base is diverse and the top 10 taxpayers consist primarily of oil-, gas-, and timber-related businesses and the two largest taxpayers are natural-gas pipeline companies. These taxpayers account for approximately 21% of taxable AV. SEPTEMBER 26,

3 Summary: Linden-Kildare Consolidated Independent School District, Texas; General Obligation Despite the enrolment and state aid declines seen in the past, the district has managed to generate multiyear surpluses in its general fund except for fiscal 2012, when the deficit was due to a one-time capital outlay. The district ended fiscal 2013 with an available general fund balance of $1.9 million, or a very strong 25.3% of the operating expenditures. For fiscal 2014, the district had adopted a balanced budget and expects to end the fiscal year in balanced operations. It has planned for a deficit budget of $408,000 for fiscal 2015, mainly due to an increase in expenditures. However, despite the deficit budget, we believe that the district would maintain its very strong financial position due to its sound reserves. State program revenues are the district's primary revenue source, accounting for 65% of general fund revenues, while property taxes account for about 32% of revenues. The district's operations and maintenance property tax rate is $1.17 per $100 of AV, the statutory maximum allowed by state law, at least since 2008, reflecting voter support since then. The district does not levy a debt service tax rate, so the total direct tax rate is $1.17 per $100 of AV. We consider the district's management practices "standard" under Standard & Poor's Financial Management Assessment (FMA) methodology. An FMA of "standard" indicates that the finance department maintains adequate policies in some, but not all, key areas. Officials use five years of historical data in preparing budget projections for revenues and expenditures. The board receives monthly financial updates and budget amendments are made on an "as needed" basis, less than five times per year. The district maintains a formal investment policy that conforms to state law and is updated annually. The district has adopted a formal reserve and liquidity policy on July 18, 2011, according to which it will strive to maintain a yearly fund balance in the general operating fund in which the total fund balance is 35% of the total operating expenditures and the unassigned fund balance is 20% of the total operating expenditures. The district does not maintain formal debt management nor does it maintain either a formal capital plan or perform multiyear financial planning. The district's overall net debt burden is, in our opinion, low at 1% of market value and very low at $391 per capita. We view amortization as rapid, with officials due to retire 80% of total principal during the next 10 years and 100% within the next 20. The district does not have any authorized but unissued debt currently outstanding, and we understand that management has no plans to issue additional debt over the next two years. The district provides pension benefits to its employees through the Teacher Retirement System of Texas (TRS), a multiemployer defined-benefit pension plan operated by the state. TRS administers retirement and other postemployment benefits for employees of Texas public school systems. For fiscal 2013, the state contributed $304,638 to TRS on behalf of the district, while the district contributed $41,636. Outlook The stable outlook reflects our view that despite enrollment declines and state aid cuts, the district has managed to generate multiyear surpluses and sustain its very strong financial position. We also believe that the adoption of a formalized reserve policy will support management's actions if budget shortfalls develop in the next two years. The outlook further reflects our view of the district's manageable debt burden. While we do not anticipate changing the rating in the next two years, we could raise it if the district experiences a SEPTEMBER 26,

4 Summary: Linden-Kildare Consolidated Independent School District, Texas; General Obligation significant expansion of its property tax base, while maintaining its very strong financial position. Conversely, we could lower the rating if the district's reserves unexpectedly fell to a level below the formally adopted policy. Related Criteria And Research Related Criteria USPF Criteria: GO Debt, Oct. 12, 2006 USPF Criteria: Financial Management Assessment, June 27, 2006 Complete ratings information is available to subscribers of RatingsDirect at All ratings affected by this rating action can be found on Standard & Poor's public Web site at Use the Ratings search box located in the left column. SEPTEMBER 26,

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