OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating based on the Texas Permanent School Fund (PSF) guarantee and an 'AA+' underlying rating to the following Birdville Independent School District, Texas' (the district) unlimited tax (ULT) bonds:

--\$91.5 million ULT school building bonds series 2015-A;
--\$98.3 million ULT refunding bonds series 2015-B.

The bonds are expected to be sold through negotiated sale the week of March 2. Proceeds from series 2015-A will be used for the acquisition, construction and equipment of school facilities in the district. Proceeds from series 2015-B will refund a portion of the district's outstanding debt for interest cost savings.

Fitch also affirms the 'AA+' underlying rating on the district's \$168.8 million in outstanding ULT bonds (pre-refunding).

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited property tax levy and are further secured by the Texas PSF bond guarantee program (for more information on the Texas PSF see 'Fitch Affirms Texas PSF Rating at 'AAA'; Outlook Stable', dated Sept. 4, 2014).

KEY RATING DRIVERS

SOLID FINANCIAL RESERVES: The district maintains a stable financial profile and strong reserve levels, despite some use of operating revenues for one-time expenses.

FAVORABLE ECONOMIC CONDITIONS: The district benefits from its proximity to the larger Fort Worth economy and employment base, which fared relatively well during the recession. Tax base and enrollment should show steady, modest growth in the near term given some residential development underway.

MODERATE DEBT BURDEN TO CLIMB: Debt levels will increase with this issuance and with the remaining phases of the \$163 million authorization voters passed in November 2014. Despite the associated increase in debt service, overall carrying costs will remain affordable.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics, including the district's healthy financial profile.

CREDIT PROFILE

The district is located in Tarrant County, north of Fort Worth and near the Dallas-Fort Worth International Airport. Its 42-square mile service area is largely built-out and includes the cities of North Richland Hills, Haltom City, Richland Hills, and Watauga, as well as a portion of the city of Hurst.

Enrollment growth in this mature district remains modest, averaging less than 2% annually since 2008. An open-enrollment policy for non-district students enables the district to maximize facility utilization and formula funding, which represents about 2% of the study body. Current enrollment is at 24,356 students.

ESTABLISHED RESIDENTIAL TAX BASE

The district is primarily residential in nature and serves as a bedroom community for the greater metropolitan area. After a moderate 8% decline in the tax base in fiscal 2011, recent gains have brought the tax base to pre-recession levels. Revaluations drove a solid 5.5% increase in certified values for fiscal 2015, and some residential development will help drive possible modest increases in this established district in coming years.

County unemployment levels continued to decline as a result of expanded employment opportunities that outpaced labor force growth, consistent with the Dallas-Fort Worth MSA and the state. At 4% as of December 2014, MSA unemployment is on par with the state (4.1%) and lower than the national average (5.4%).

SOLID FINANCIAL PERFORMANCE

The district's financial position remains strong, characterized by stable and sizeable reserves that are typically in excess of the district's established policy to maintain a minimum of 20% of spending in general fund reserves. In fiscal 2014, the general fund made a budgeted transfer of \$6.5 million to the local special projects fund for a variety of one-time uses, including technology infrastructure and HVAC. Despite the transfer out, unrestricted reserves at year-end were a solid \$52 million, or 28% of general fund spending.

The fiscal 2015 budget shows growth in expenditures at 8% from the prior year's actual results, driven by salary increases and pay-go for capital projects. The additional expenditures will be funded by a combination of local revenues from strong tax base growth, a reimbursement from bond revenues, a rental agreement, and the potential settlement of a lawsuit. The district currently projects ending the year with at least 27% of expenditures in reserves.

MODERATE DEBT BURDEN TO INCREASE

Debt levels climb with this issuance but remain moderate on a per capita basis (\$3,660) but elevated as a percent of market value (6%). The pace of debt amortization is swift with 60% retired in 10 years and the use of capital appreciation bonds (CABs) is nominal.

Voters passed the \$163 million bond referendum in November 2014 for the rehabilitation and maintenance of existing facilities as well as technology and security upgrades. This series of bonds is the first of three installments, and the remaining issuances are planned for the spring of 2017 and 2018.

The current I&S rate of \$0.395 per \$100 TAV will increase by 2 cents in 2016 to service all three phases of the debt authorization, assuming zero growth in the tax base from 2017 on. Fitch views the conservative growth assumption and healthy margin under the \$0.50 new-money cap as a credit positive, providing the district ample flexibility to address facility upgrades for the foreseeable future.

OTHER LONG-TERM LIABILITIES MANAGEABLE

The district's pension liabilities are limited to its participation in the state pension plan administered by the Teachers Retirement System of Texas (TRS), a cost-sharing multiple employer plan. 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. The district's cost for pension and other post-employment benefits (OPEB) represented 1% of governmental fund expenditures in fiscal 2014, as plan contribution amounts are principally paid by the state and district employees.

The state's payment of district pension costs is an important credit strength, as it keeps overall carrying costs manageable in the face of a growing debt burden. Debt service will increase to about \$30 million in fiscal 2016 and stay level for the next nine years if the authorized debt is issued as planned. Annual debt service at this level represents 11% of fiscal 2014 governmental spending, which Fitch still considers moderate. The district's limited retiree liabilities also keep total carrying costs moderate. Combined carrying costs for the district (debt service, pension, and OPEB costs net of state support) consumed a manageable 10.5% of governmental fund spending in fiscal 2014.

Fitch will continue to monitor the level of state support for school district pension payments, noting district pension contributions statewide increased modestly to 1.5% on the statutory minimum portion of payroll from 0% in fiscal 2015.

TEXAS SCHOOL FUNDING LITIGATION
For the second time in the past two years 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.