Huffman Independent School District, TX

Transcription

1 CREDIT OPINION Huffman Independent School District, TX New Issue - Moody's Assigns A1 Underlying/Aaa Enhanced to Huffman ISD, TX's GOULT Bonds New Issue Summary Rating Rationale Moody's Investors Service has assigned A1 underlying/aaa enhanced ratings to Huffman Independent School District's, TX $25 million Unlimited Tax School Building Bonds Series 2017A and an A1 underlying to $2.7 million Unlimited Tax Refunding Bonds Series 2017B. The Aaa enhanced rating is provided by a guarantee of the Texas Permanent School Fund (PSF) program. We maintain the A1 on the outstanding general obligation unlimited tax debt. Contacts Jessica Raab Associate Analyst jessica.raab@moodys.com Denise Rappmund VP-Senior Analyst denise.rappmund@moodys.com The A1 reflects the district's modestly-sized tax base, healthy financial reserves, and favorable socio-economic profile. The A1 rating also incorporates elevated debt burden and below average principal amortization. The Aaa enhanced rating is based on the rating of the Texas Permanent School Fund and the structure and legal protections of the transaction which provide for timely payment by the PSF if necessary. Moody s currently rates the Permanent School Fund Aaa with a stable outlook. For additional information on the PSF program, please see Moody's Rating Update Report on the Texas Permanent School Fund dated January 27, Credit Strengths Modestly-sized tax base with above average wealth indices Healthy General Fund reserve levels Credit Challenges Elevated debt burdens and below average principal amortization Rating Outlook Outlooks are usually not assigned to local government credits with this amount of debt outstanding. Factors that Could Lead to an Upgrade Moderation of debt burden Substantial economic activity yielding taxable value growth Factors that Could Lead to a Downgrade Erosion of reserve levels

2 Significant tax base contractions measure by assessed valuation declines Key Indicators Exhibit 1 Full Value increased by 2.6% in 2017 to $883 million Source: Moody's Investors Service Recent Developments This debt issuance is the second installment of debt authorized in May 2016 for the construction of a new elementary school. Including this debt issuance the net direct debt increases to 5.9% of full value. The last $10 million that was authorized is expected to be issued in January Detailed Rating Considerations Economy and Tax Base: Modestly Sized Tax Base and Growing Student Enrollment The district's economic profile is will remain stable supported by expected residential construction, and relatively stable performance in the larger metropolitan area. Huffman ISD, located 30 miles northeast of Houston (Aa3 negative), is situated in Harris County (Aaa stable). The district's economy includes a small portion of mineral values, but is primarily residential given that approximately 80% of the taxable value is comprised of single family or multifamily properties. Commercial property and mineral values account for the remaining 20% of the district's taxable value. Assessed values have returned to strong growth recently following modest increases through the most recent economic downturn. Over the past five years values have increased an average 4.4% annually to reach $883 million in fiscal 2017, fueled by residential development and reevaluation of existing property. Preliminary indications for fiscal 2018 reflect an increase to $1.1 billion. The district is fairly diverse with the top ten taxpayers comprising of 4.8% of fiscal 2017 assessed valuation. Management anticipates the taxable value will experience modest annual growth rates over the medium term given proposals for residential construction, and the expectation of the Grand Parkway opening in the area within the next four to five years. Given historical trends, we believe the district will continue to experience modest growth over the medium term. The district's population has increased by a significant 39.5% to 14,985 in 2010 since the 2000 U.S. Census. Since then, population has increased an estimated 6.1%. The district exhibits favorable wealth indicators measured by a median family income (2014 American Community Survey, U.S. Census) equal to 128.2% of the nation. The county's November 2016 unemployment rate was 4.9%. Enrollment levels continue to grow with an annual average increase of 1.0% over the past five years to 3,456 students in fiscal This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on for the most updated credit rating action information and rating history. 2

3 Estimates for fiscal 2017 reflect a 0.4% decrease to 3,441. Management expects enrollment to grow modestly over the medium term, supported by results from a recent demographic study. Financial Operations and Reserves: Multiple Surpluses Boost Reserve Levels The district's financial position will remain stable over the near term given relative minor reserve needs, and supported by historical conservative budgeting. The district financial position is favorable despite recent draws for one-time capital expenditures. The district has posted five consecutive operating surpluses since fiscal 2009, with the exception of fiscal 2014 and 2015, mainly due to management's conservative budgeting practices. Fiscal 2016 resulted in a surplus of $1.8 million which increased fund balance to $12.5 million or 38.4% of revenues. Included in the General Fund is $700,000 committed for technology needs; officials expect it will likely be expended over the medium term. The fiscal 2017 budget was balanced, and officials report unaudited results are in line with original expectations. The district's financial position should remain healthy and in line with similarly rated peers despite expected modest use over the medium term. The district's General Fund revenues consisted of a mix of state-aid (61.0%) and property taxes (37.5%) in fiscal In fiscal year 2016, the district's maintenance and operations (M & O) levy was $10.40 per $1,000, the maximum without voter approval. With voter approval, the district can levy up to a maximum of $11.70 per $1,000 of assessed values. Officials have expressed no desire for the additional taxing authority. LIQUIDITY The district maintains liquidity in the General Fund with total cash and investments equal to $6.5 million (23.4% of General Fund revenues). Total cash and investments in the operating funds including the General and Debt Service Funds was $9.6 million (29.5% of operating revenues). Debt and Pensions: Elevated Debt Burdens and Modest Pension Obligations The district's debt burdens will remain elevated over the medium term as principal is amortized slowly and assessed values experience modest grow. The district's debt burdens are elevated at 5.9% direct and 7.7% overall of fiscal 2016 assessed valuation, which incorporates the amount supported by the state (estimated 21%). In May of 2016, voters approved $44.1 million. This sale is the second installment from the authorization, and officials anticipate the district will exhaust the authorization within the next year. In fiscal 2016, the district levied a total tax rate of $3.60 per $1,000 of assessed values and they are anticipating increasing the rate by about 4.5 to 5 cents. Officials anticipate the rate will increase a total of 10 cents cover the impact of the total authorization. Payout of the outstanding debt is below median with 48.3% of principal in ten years. Fixed costs were low at 13% of 2016 revenues. Fixed costs include debt service as well as pension and OPEB contributions. DEBT STRUCTURE The debt service schedule is relatively flat through fiscal 2029, before it starts to descend. Final maturity is scheduled for fiscal Payout is slow with 48.5% paid out in 10 years compared to the median payout of 80.8% in 10 years in the nation. DEBT-RELATED DERIVATIVES All of the district's debt is fixed rate, and the district is not party to any derivative agreements. PENSIONS AND OPEB Budgetary pressure due to the district's participation in the Texas Teachers Retirement System (TRS) pension plan is expected to remain minimal in the near term. The State of Texas (Aaa stable) makes most of the employer pension contributions on behalf of the district annually. Moody's adjusted net pension liability (ANPL) for the district, under our methodology for adjusting reported pension data, is $21 million. This liability is equal to a manageable 0.64x annual operating revenues for fiscal 2016, including the General and Debt Service Funds. Moody's ANPL reflects certain adjustments we make to improve comparability of reported pension liabilities. The adjustments are not intended to replace the district's reported contribution information, or the reported liability information of the statewide cost-sharing plans, but to improve comparability with other rated entities. For more information on Moody's insights on employee pensions and the related credit impact on companies, governments, and other entities across the globe please visit Moody's on Pensions at 3

4 Management and Governance: Stable Team With Demonstrated Conservative Management Style The district is governed by a Board of Trustees which consists of seven members, who serve three year terms without salary. The district is under administrative supervision of the Superintendent of Schools, who is employed by the Board of Trustees. The district demonstrates good governance with the use of conservative budgeting practices resulting in a more favorable financial performance at fiscal year end. Texas school districts have an institutional framework score of Aa, or strong. Revenues, which are highly predictable, are determined by the state funding formula that takes into account local taxes and state aid. School districts maintain moderate revenue-raising flexibility. Although property tax rates (typically $10.40) are under the state-mandated cap of $11.70 per $1,000 of assessed value, districts are dependent on enrollment growth to drive additional revenue. Expenditures, which primarily consist of personnel and facility operational costs, are highly predictable. Districts have a moderate degree of flexibility to make cuts given the lack of unions within the state. Legal Security The bonds are secured by a direct and continuing annual ad valorem tax, levied on all taxable property without limit as to rate or amount. Use of Proceeds Proceeds of the Series 2017A will be used for the construction of the elementary school. Proceeds of the Series 2017B will be used to refund the district's 2010 bonds for a net present value savings of approximately $100,000 or 3.5% of refunded principal. Obligor Profile Huffman Independent School District is located in Harris County in southeastern Texas. The district includes the unincorporated community of Huffman, a semi-rural area approximately 30 miles northeast of downtown Houston. The county's April 2016 unemployment rate was 4.8%. In fiscal 2016, enrollment was 3,456 students. Enrollment estimates for fiscal 2017 reflect a 0.4% decrease to 3,441. Methodology The principal methodology used in the underlying ratings was US Local Government General Obligation Debt published in December The principal methodology used in the enhanced rating was Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts published in December Please see the Rating Methodologies page on for a copy of these methodologies. 4

5 Ratings Exhibit 2 Huffman Independent School District, TX Issue Rating Unlimited Tax School Building Bonds Series 2017A Rating Type Sale Amount Expected Sale Date Rating Description Unlimited Tax School Building Bonds Series 2017A Rating Type Sale Amount Expected Sale Date Rating Description Unlimited Tax Refunding Bonds Series 2017B Rating Type Sale Amount Expected Sale Date Rating Description A1 Underlying LT $25,000,000 02/27/2017 General Obligation Aaa Enhanced LT $25,000,000 02/27/2017 General Obligation A1 Underlying LT $2,725,000 02/27/2017 General Obligation Source: Moody's Investors Service 5

6 2017 Moody s Corporation, Moody s Investors Service, Inc., Moody s Analytics, Inc. and/or their licensors and affiliates (collectively, MOODY S ). All rights reserved. CREDIT RATINGS ISSUED BY, INC. AND ITS RATINGS AFFILIATES ( MIS ) ARE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MOODY S PUBLICATIONS MAY INCLUDE MOODY S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MOODY S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS AND MOODY S OPINIONS INCLUDED IN MOODY S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY S ANALYTICS, INC. CREDIT RATINGS AND MOODY S PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. NEITHER CREDIT RATINGS NOR MOODY S PUBLICATIONS COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY S ISSUES ITS CREDIT RATINGS AND PUBLISHES MOODY S PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE. MOODY S CREDIT RATINGS AND MOODY S PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY S CREDIT RATINGS OR MOODY S PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided AS IS without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing the Moody s publications. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY S. To the extent permitted by law, MOODY S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY S IN ANY FORM OR MANNER WHATSOEVER. Moody s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody s Corporation ( MCO ), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody s Investors Service, Inc. have, prior to assignment of any rating, agreed to pay to Moody s Investors Service, Inc. for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,500,000. MCO and MIS also maintain policies and procedures to address the independence of MIS s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at under the heading Investor Relations Corporate Governance Director and Shareholder Affiliation Policy. Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY S affiliate, Moody s Investors Service Pty Limited ABN AFSL and/or Moody s Analytics Australia Pty Ltd ABN AFSL (as applicable). This document is intended to be provided only to wholesale clients within the meaning of section 761G of the Corporations Act By continuing to access this document from within Australia, you represent to MOODY S that you are, or are accessing the document as a representative of, a wholesale client and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to retail clients within the meaning of section 761G of the Corporations Act MOODY S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors. It would be reckless and inappropriate for retail investors to use MOODY S credit ratings or publications when making an investment decision. If in doubt you should contact your financial or other professional adviser. Additional terms for Japan only: Moody's Japan K.K. ( MJKK ) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody s SF Japan K.K. ( MSFJ ) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization ( NRSRO ). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively. MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any rating, agreed to pay to MJKK or MSFJ (as applicable) for appraisal and rating services rendered by it fees ranging from JPY200,000 to approximately JPY350,000,000. MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. REPORT NUMBER