OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating to the following unlimited tax (ULT) bonds of Paris Independent School District, Texas:

--\$8.9 million ULT refunding bonds series 2015.

The 'AAA' rating is based on a guarantee provided by the Texas Permanent School Fund. (For more information on the Texas Permanent School Fund see 'Fitch Affirms Texas PSF Rating at 'AAA'; Outlook Stable', dated Sep. 4, 2014.)

The bonds are scheduled for a negotiated sale as early as the week of Jan. 19. Proceeds will be used to refund a portion of the district's unlimited tax debt for interest savings.

Fitch also assigns an underlying rating of 'AA-' to the series 2015 bonds and affirms the 'AA-' underlying rating on the district's \$51.1 million ULT bonds and tax and revenue notes outstanding (pre-refunding).

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited property tax levy and also carry the PSF guarantee. The tax and revenue notes are payable from any available revenues of the district, including proceeds from its operations and maintenance (O&M) tax (not subject to annual appropriation).

KEY RATING DRIVERS

STRENGTHENED FINANCIAL POSITION: Consistent positive financial performance has bolstered reserve levels. The improvement was the result largely of a fiscal 2010 tax rate restructuring whereby the general fund benefited from a higher tax rate and additional local and state revenues. Concurrently, debt service reserves supplemented revenues produced by a lower debt service tax rate.

LIMITED LOCAL ECONOMY, DECLINING ENROLLMENT: Local employment levels have been flat to declining over the past decade, and unemployment remains moderately elevated. Enrollment has been gradually trending lower over the same timeframe.

MANAGEABLE DEBT LOAD, NO BORROWING PLANS: Debt levels are elevated relative to market value and the pace of repayment is slow. Management reports no campus capacity issues and no near term facility needs.

RATING SENSITIVITIES

REVERSAL OF OPERATING GAINS: The district has boosted operating reserves largely as a result of the fiscal 2010 tax rate restructuring. Any sizable application of general fund reserves to support annual debt service payments (necessitated by material taxable assessed valuation (TAV) declines) would be viewed negatively by Fitch.

CREDIT PROFILE

The service area of Paris ISD includes most of the city of Paris, which is the county seat and economic center for Lamar County. Paris and Lamar County are located northeast of Dallas and the county's northern boundary borders the Red River and Oklahoma. The district's estimated 2015 population is 22,159.

SOLID FINANCIAL PROFILE

The district has recorded net income after transfers in the general fund for six consecutive fiscal years, and in the process boosted reserves to a solid level. The results were aided by the voter-approved increase in the O&M tax rate in fiscal 2010 from \$1.04 to \$1.17 per \$100 of TAV. In addition, a change in the district's fiscal year-end from August 31 to June 30 in 2011 boosted reported reserves for fiscal 2011.
Positive results in fiscal years 2012-2013 reflect the district's successful management of \$1.8 million in state aid cuts during the biennium. Management's actions included a reduction of 28 personnel through attrition, a salary freeze, and 10% campus and department budget cuts.

The fiscal 2014 audit posted modest net income of \$636,000 (2.3% of spending), increasing the unrestricted fund balance to \$8.9 million or a solid 32.3% of spending. The fiscal 2015 budget is balanced, based on a flat attendance projection, and includes modest pay hikes. Year to date attendance is modestly above budget, which will generate a positive variance to the district's state funding total for the year.

TAX RATE SWAP
The district's fiscal 2010 voter-approved tax rate increase boosted both local tax revenue and state revenues for operations. Concurrently, the district lowered its debt service tax rate from \$0.41 to \$0.16, temporarily reducing the total tax rate by \$0.12.

Management's strategy has been to draw on debt service reserves to help make debt payments in recent years while gradually increasing the debt service tax rate. The rate has been increased twice since fiscal 2010 and now is \$0.285, yielding a similar total tax rate to the fiscal 2008 level.

A modest use of general fund balance for debt payments was budgeted in fiscal years 2014 and 2015, although the fiscal 2014 transfer was not needed due to improved tax collections. A level debt service schedule through 2025 will require only a modest use of reserves going forward or a small debt service tax rate adjustment. Fitch cautions that sizable transfers from the general fund for debt service (and an accompanying decline in general fund reserves) would be viewed negatively.

MANAGEABLE DEBT BURDEN, NO BORROWING PLANS

The district's overall debt is moderate on a per capita basis at \$2,531 and above average as a percentage of current market value at 6.4%. Payout is very slow at 30% in ten years.
Enrollment at the district has been declining over the past decade (down 9.4% since fiscal 2005), thus alleviating any near-term capacity constraints. The district has no GO bond authorization remaining, and management reports no plans for a new referendum.

The district's pension liabilities are limited to its participation in the state pension plan administered by the Teachers Retirement System of Texas (TRS). The district's annual contribution to TRS is determined by state law, as is the contribution for the state-run post-employment benefit healthcare plan. However, school districts are susceptible to future funding changes by the state as evidenced by a new, relatively modest employer contribution requirement of 1.5% of salary effective fiscal 2015.

At Aug. 31, 2013 TRS reported a funding level of 81%, and funding was still satisfactory at 73% using a 7% investment return assumption. Including debt service, pension and other post-employment benefit contributions, payments on long-term liabilities were modest at 6% of governmental spending in fiscal 2014 net of state support for debt service.

LIMITED LOCAL ECONOMY

Paris is the county seat and regional commercial center for Lamar County, but given its remote location its economic prospects likely are limited. Both population and employment have been essentially flat over the past ten years. The unemployment rate for Paris declined to 6% in Nov. 2014 from 7.8% the year prior due to an uptick in employment, but the rate remained moderately above state and U.S. averages. District TAV expanded by 4% in fiscal 2015 to \$743.6 million after posting little growth over the previous five years. The district's market value per capita remains modest at \$40,000.

TEXAS SCHOOL DISTRICT LITIGATION

For the second time in the past 18 months a Texas district judge ruled in August, 2014 that the state's school finance system is unconstitutional. The ruling, which was in response to a consolidation of six lawsuits representing 75% of Texas school children, found the system inefficient, inequitable, and underfunded. The judge also ruled that local school property taxes are effectively a statewide property tax due to lack of local discretion and therefore are unconstitutional.

Following a similar ruling in February, 2013, the judge granted a motion to reopen the lawsuit four months later after state legislative action that partially restored state funding levels and made other program changes. The Texas attorney general has appealed the judge's latest ruling to the state supreme court. If the state school finance system is ultimately found unconstitutional, the legislature will be directed to make changes to the system to restore its constitutionality. Fitch would view positively any changes that include additional funding for schools and more local discretion over tax rates.