Summary: Linden-Kildare Consolidated Independent School District, Texas; General Obligation Primary Credit Analyst: Horacio G Aldrete-Sanchez, Dallas (1) 214-871-1426; horacio.aldrete@standardandpoors.com Secondary Contact: Kate Choban, Dallas (1) 214-871-1420; 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 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 26, 2014 1
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 2014. 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 2015. 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. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 26, 2014 2
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 WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 26, 2014 3
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 www.globalcreditportal.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 26, 2014 4
Copyright 2014 Standard & Poor's Financial Services LLC, a part of McGraw Hill Financial. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT SEPTEMBER 26, 2014 5