AUSTIN, Texas--()--Fitch Ratings affirms its 'AA-' rating on the following Howard County Junior College District, Texas (HCJCD or the district) outstanding (GO) debt:
--$18.1 million in GO bonds, series 2007.
The Rating Outlook is Stable
SECURITY:
The bonds are secured by an ad valorem tax levied against all taxable property within the district, limited to $0.50 per $100 of taxable assessed valuation (TAV).
KEY RATING DRIVERS
SOUND FINANCIAL POSITION: Howard County Junior College District (HCJCD or the district) maintains a sound and stable financial position despite recent state funding cuts, characterized by solid reserves and further revenue raising flexibility provided by relatively low tuition and tax rates.
NARROW ECONOMIC PROFILE: The local economy is generally stable but rural in nature and concentrated in oil/gas exploration and refining activity.
STRONG TAX BASE GROWTH; HIGH CONCENTRATION: TAV has grown at a strong pace due in large part to increased mineral values and significant oil/gas activity that has subsequently led to higher taxpayer concentration. A relatively stable list of top taxpayers now comprise roughly one-third of the tax base.
BELOW AVERAGE INCOME INDICATORS: Local income/wealth levels are generally below state and national averages.
ENROLLMENT TRENDS MODERATE: Strong, annual enrollment growth trends made during weak economic conditions significantly boosted the district's historically modest enrollment base, but have begun to slow. Fiscal 2012 enrollment reflects a 6% decline as compared to prior years' double-digit gains.
MODERATE DEBT LEVELS: Overall debt levels are moderate. Near-term capital needs appear manageable given private donations, near-term plans for self-supporting revenue bonds, and pay-go capital spending.
CREDIT PROFILE
SOLID FINANCIAL PROFILE, RESERVES MAINTAINED DESPITE RECENT PRESSURES
The district's financial performance is enhanced by a relatively diverse revenue stream, which includes state appropriations (despite recent declines, still the district's largest revenue source at about 36% of total operating/non-operating revenues or $13.5 million in fiscal 2011), property taxes for operations and debt service, federal revenue, and tuition. Trending upwards since fiscal 2008, federal monies for Pell grants equaled nearly $7.3 million in fiscal 2011, providing about 19% of total operating/non-operating revenues. Net tuition and fees have contributed a fairly level 9%-10% since fiscal 2007.
Solid, positive operating margins are typical for HCJCD, averaging 4.3% in fiscal years 2007 - 2011. Liquidity as measured by available funds (cash and investments not permanently restricted) to expenses remained adequate and slightly improved at $9.6 million or 26.6% in fiscal 2011. In Fitch's view, the receipt of property taxes throughout the year, generally a very stable and predictable revenue stream offsets the need for higher levels of operating liquidity. The district maintained $7.8 million in unrestricted reserves at fiscal 2011 year-end or a solid 29% of unrestricted spending, which was in line with its informal policy to maintain roughly 25 - 30% of spending.
Management is forecasting minimally break-even operations for fiscal 2012 despite reductions in state funding of approximately $2.2 million (including $1.5 million for staff benefits). Revenue enhancements have included tuition and fee increases that provided roughly $2.5 million in additional revenue. The district has also cut costs, centered on staff reduction through attrition. Additional expenditure flexibility is afforded most community colleges given their use of largely part-time, non-tenured faculty. Fitch believes the district maintains good revenue flexibility due to its relatively low tuition rate (despite the recent adjustment) and additional headroom under its existing operating tax rate (just under $0.17 per $100 TAV), which it may consider increasing in fiscal 2013.
Management is developing structurally balanced operating budgets for its various campuses in fiscal 2013 using flat enrollment assumptions and inclusive of comparable district spending on staff benefits. In addition, a board-approved tuition/fee increase should largely offset the year's moderate $600,000 decrease in state aid projected due to enrollment declines realized the previous year (fiscal 2012).
REVERSAL OF ENROLLMENT IN FISCAL 2012
Like other community colleges in the state, weaker economic conditions led to solid enrollment gains in recent years in conjunction with affordable tuition rates and open enrollment policies. In addition, the district maintains a competitive position in its large regional service area given its reach into local high schools. Continued expansion of its offerings at the San Angelo campus has also assisted in the district's more recent enrollment growth.
Annual enrollment growth as measured by full-time student equivalents rose at a very strong, average pace of 15% since fiscal year 2006, reaching a high of 7,436 in fiscal 2011. However, in a reversal of this trend, year-to-date fiscal 2012 enrollment reflects a 6% decline as compared to prior years' double-digit gains and the 2% enrollment growth budgeted for the year. Management currently anticipates minimally flat enrollment trends in fiscal 2013 and over the near term due in part to the improved strength of the local economy.
HCJCD serves Howard County and 12 other primarily rural counties in the surrounding West Texas area. The district has four campus locations: Big Spring and the Southwest Collegiate Institute for the Deaf are both located in the city of Big Spring, which is the county seat of Howard County, the Lamesa campus in Dawson County, and the San Angelo campus in Tom Green County.
TAX BASE GROWTH INCREASES CONCENTRATION
The local economy is generally stable but narrow in scope with much of the area's economic activity coming from oil/gas business concerns, which are also the primary drivers behind the district's strong TAV gains made in recent years. At $2.5 billion TAV in fiscal 2012, the tax base has grown on average by 10% annually over the past five fiscal years. Consequently, tax base concentration among the district's relatively stable list of top 10 taxpayers has risen to a high 33% of total TAV, up from an above-average 21% a few years ago. Alon USA, a local refinery, is the district's top taxpayer, providing roughly 9% of the total. Management anticipates another solid 8% TAV gain for fiscal 2013.
The county's 6.3% unemployment rate as of February 2012 remains below the state (7.2%) and U.S (8.7%) but its improvement from the year prior generally reflects a contraction in the labor force, as overall job growth has been essentially flat. Area income and wealth levels are generally below state and national averages.
MODERATE DEBT PROFILE
Direct debt levels as a percentage of market value or on a per capita basis are low, but overlapping debt increases total debt to a moderate 4.2% of market value, or approximately $3,600 on a per capita basis. The district is an infrequent borrower, choosing instead to offset a portion of its capital needs with private donations and grants as well as pay-go capital spending. The district's fixed debt cost burden (including debt service on outstanding revenue bonds) remains flat at $1.9 million or a moderate 8.3% of fiscal 2011 unrestricted spending. Principal amortization of the district's tax-supported debt is slightly above-average at 56% repaid in 10 years.
Over the near term, management reports preliminary plans to issue approximately $9 million to $11 million in self-supporting revenue bonds to construct two new facilities at its growing San Angelo campus, although these plans are currently on hold due to the district working to resolve additional infrastructure issues with the city.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope,
Applicable Criteria and Related Research:
--'Tax-Supported Rating Criteria' (Aug. 15, 2011);
--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 15, 2011).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648898
U.S. Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=648842
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