OREANDA-NEWS. Fitch Ratings assigns a 'AA+' rating to the following Amarillo Junior College District, Texas' limited tax debt:

--$17.8 million limited tax refunding bonds, series 2016.

The bonds are scheduled to sell competitively as early as August. 2. Proceeds will be used to refund certain outstanding maturities for debt service savings and to pay related costs of issuance.

In addition, Fitch assigns a 'AA+' Issuer Default Rating (IDR) to the district and affirms the 'AA+' rating on approximately $64.5 million (pre-refunding) in outstanding limited tax bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from 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

The 'AA+' rating reflects the district's ample revenue-raising ability, sound budgetary flexibility, strong reserve cushion, and limited historical revenue volatility; these factors combine to provide the district with a high level of operating flexibility and anticipated financial resilience throughout the economic cycle. Fitch expects population and economic trends will continue comparable to historical performance, which should keep the long-term liability burden low.

Economic Resource Base

The district's revenues are primarily influenced by local trends, including enrollment and property taxes. Enrollment typically runs counter-cyclical to local economic conditions. The district is located in the Texas Panhandle region and serves the city of Amarillo plus several nearby counties, with an estimated population of about 262,000. The city of Amarillo is the economic and commercial center for the surrounding, largely rural region. Fitch expects the local economy will continue to exhibit its historically stable profile, and expand at a modest pace with further population, job, and income gains.

Revenue Framework: 'aaa' factor assessment

Fitch believes natural revenue growth prospects remain solid - above inflation, but below U. S. GDP - and slightly below historical trends. The superior ability of the district to raise property tax and tuition/fee revenues in the event of normal, cyclical decline underpins the 'aaa' assessment.

Expenditure Framework: 'aa' factor assessment

Enrollment is a key driver of both revenue and expenditure trends, which should keep the pace of spending generally aligned to or in excess of revenues over time. Sound expenditure flexibility is a result of moderate carrying costs and the district's ability to adjust its labor costs, if needed.

Long-Term Liability Burden: 'aaa' factor assessment

The long-term liability burden is low, composed largely of overlapping debt. Fitch expects it should remain low given the area's anticipated, moderately - paced economic and population gains.

Operating Performance: 'aaa' factor assessment

The district's high level of operating flexibility is underpinned by minimal revenue volatility, ample tuition-raising ability, and sound budgetary control. Use of this flexibility has allowed the district to preserve a strong and stable reserve cushion. Fitch believes the district would maintain its sound financial resilience in a moderate economic decline.

RATING SENSITIVITIES

Financial Flexibility: Deterioration of the district's operating flexibility would likely lead to negative rating action.

CREDIT PROFILE

Population in the greater Amarillo metropolitan service area (MSA) is presently estimated at about 262,000 residents, having grown modestly at about 1% annually since 2000. Health care, education, services, trade/transportation, food production/distribution, and government are all major employment sectors. The area's economic stability is reflected in the Amarillo MSA's historically low unemployment rate. The district's taxing jurisdiction is coterminous with the city of Amarillo. The tax base is diverse, and TAV has registered moderate (3%-4%) annual gains recently.

Enrollment has declined on average by about 2% annually over the last five fiscal years (fiscals 2010-2015), due to continued growth in the area's post-recession economy. Enrollment totaled about 7,000 in full-time equivalent students in fiscal 2015; another 2% enrollment decline was realized in fiscal 2016. Nonetheless, preliminary data for fiscal 2017 (fall 2016) indicate some year-over-year improvement in enrollment may be realized, which management largely attributes to offering most of the district's workforce training and educational programs in an accelerated completion format.

Revenue Framework

Property tax revenue provided about 25% of total revenues in fiscal 2015, up slightly from prior years.

Although historical revenue growth has outpaced both U. S. GDP and inflation, Fitch believes the natural pace of revenue growth going forward will be somewhat more moderate as there has been a fairly consistent trend by the district to raise revenues annually. In addition, Amarillo's somewhat distant location from other population centers also provides an inherent constraint to the assessment.

The district's total tax rate is limited to $1.00 per $100 TAV according to state statute, of which no more than $0.50 per $100 TAV can be used for debt service. However, the district's operating property tax revenue is capped at a lower $0.20 per $100 TAV tax levy by locally voted limitations.

Some capacity exists under the operating tax levy cap (the district presently levies about $0.16 per $100 TAV). If a proposed tax rate results in an 8% year-over-year levy increase (based on the prior year's values), the rate increase may be subject to election if petitioned by voters. The district also retains full ability to independently raise its tuition and fee charges without any legal limit; tuition and fees made up about 16% of total revenues in fiscal 2015.

Third-party funding support stems from the long-standing commitment of the state and U. S. government to fund higher education. Nonetheless, these revenue streams remain susceptible to changes in enrollment trends, education policy and eligibility requirements, and recessionary funding pressures

Expenditure Framework

Instruction is the primary purpose of the institution and a key operating expense, consuming about 40% of total spending in fiscal 2015. Fitch's expectation is that spending pressures will be manageable and should be more or less aligned with the expected solid pace of revenue growth over time.

The district maintains sound flexibility to adjust instruction outlays (its largest operating expense) to respond to changing enrollment trends. The district can adjust employee headcount and compensation, enabled by the absence of multi-year, contractual agreements or collective bargaining with labor. This expenditure flexibility is tempered by the district's need to recruit and retain a sufficient number of highly educated professionals for instructional and leadership purposes.

The district has demonstrated its ability to respond to both state aid and enrollment-related revenue declines. Structural operating balance has been maintained with the implementation of some temporary as well as multi-year expenditure cuts that included salary and staffing cost efficiencies as well as some programmatic changes.

Fixed carrying costs - the combination of total annual debt service, the actuarially calculated annual pension funding amount, and the annual spending for other post-employment benefits (OPEB), net of state support - consumed a relatively modest 7.5% of total operating/non-operating expenses in fiscal 2015. Fitch expects carrying costs will increase somewhat given projected increases in annual debt service, but should remain moderate given manageable retiree costs that are shared with the state.

Long-Term Liability Burden

Including this issuance, the long-term liability burden is low at 4.2% of 2014 city of Amarillo personal income. Fitch expects this burden, largely attributable to overlapping debt, to remain consistent with a 'aaa' assessment given the area's generally stable population and economic trends.

Most of the district's debt is supported by a separate tax levy of up to $0.50 per $100 TAV, and the current rate of $0.04 affords ample taxing margin. The district's capital needs are manageable and there are no additional debt plans (GO or revenue) at this time.

The district participates in the Texas Teachers Retirement System (TRS), a cost-sharing, multiple-employer plan for which the state provides roughly half of the community college's (employer) annual pension contribution. Under GASB 68, the district reported its share of the TRS net pension liability (NPL) at $10.5 million for fiscal 2015, with fiduciary assets covering 83.3% of total pension liabilities at the plan's 8% investment rate assumption (approximately 75% based on a more conservative 7% investment rate assumption). The NPL remains small at less than 1% of personal income when adjusted for the 7% investment rate assumption.

Participants' required pension contributions are based on a statutory formula that consistently falls short of the actuarially-determined amount. Fitch therefore expects modest growth in the NPL even if investment returns meet assumed rates, although it should remain within the 'aaa' assessment range given how small the pension liability is relative to overall debt. In addition, the district remains vulnerable to future policy and funding changes by the state, similar to all Texas community colleges. The district also provides OPEB through the state-run, post-employment benefit healthcare plan and its obligation is small at less than 1% of personal income.

Operating Performance

The financial resilience assessment reflects Fitch's expectation that the district will maintain sufficient reserves and a high level of financial flexibility throughout the economic cycle. This assessment is informed by the district's recent history of unrestricted cash/investments (net of bond proceeds), which Fitch uses as a proxy for unrestricted general fund balance.

The district continues to fund its ongoing technology and its renewal/replacement capital needs on an annual pay-go basis from technology fees and modest use of reserves. The district typically adopts structurally balanced budgets and maintains at least break-even operating margins despite some one-time losses from the disposal of fixed assets in recent fiscal years. Unrestricted cash/investments (net of bond proceeds) totaled $30.1 million or 32.5% of total operating/non-operating expenses in fiscal 2015, well above the district's formal policy minimum of unallocated reserves at no less than 10% of the next year's budget.

Fiscal 2016 operating performance is projected to result in a modest surplus (about $2.5 million or 4% of the general operating budget) at year-end, positive to budget. District officials rapidly closed the year's budget gap from the larger than anticipated reduction in state funding with tightened spending. Actions included reduced staffing costs from the elimination of some positions and the acceptance of the district's mid-year retirement incentive by about 60 employees. In total, pay-out of the retirement incentive ($1.2 million) in fiscal 2016 is balanced against further salary savings projected in the next two fiscal years. The fiscal 2017 operating budget maintains structural balance, conservatively assuming another modest enrollment decline.