OREANDA-NEWS. Fitch Ratings affirms its 'AA-' rating on Odessa Junior College District, Texas' (the college or district) approximately \$68.3 million in outstanding limited tax bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are a direct obligation of the district, secured by an annual property tax levy limited to \$0.50 per \$100 of taxable assessed valuation (TAV) on all taxable property within the district.

KEY RATING DRIVERS

SOUND FINANCIAL POSITION; FLEXIBILITY REMAINS: The college maintains positive financial margins and stout reserves, bolstered by recent enrollment growth. A diverse revenue base provides adequate pricing and tax rate flexibility. The college's financial flexibility has historically provided a buffer against tax base concentration.

TAX BASE CONCENTRATION: The trend of solid TAV growth continued in fiscal 2015 from a tax base that is highly concentrated in the energy sector, susceptible to fluctuations in mineral values and oil/gas activity. Fitch expects the potential for a near-term decline in TAV based on declining oil prices. This potential is incorporated in the current rating.

OIL PRICES CLOUD GROWING ECONOMY: Unemployment remains low, although Fitch believes the recent plunge in oil prices will likely result in some economic softening over the near term.

MIXED SOCIO-ECONOMIC METRICS: Local income levels have risen rapidly, but remain at or slightly below state and national averages. Educational attainment is below average.

MODERATE LONG-TERM LIABILITIES: The overall debt burden is modest. Capital needs are expected to remain manageable over the intermediate term and not require additional debt issuance given the significant facility improvements completed or underway. Carrying costs are manageable, but this partially reflects the very slow amortization of outstanding debt.

RATING SENSITIVITIES

WEAKENED FINANCIAL PROFILE: The rating is sensitive to shifts in fundamental credit characteristics, including the district's stout reserves and revenue-raising flexibility, which help to mitigate exposure to oil and gas price fluctuations. Evidence of unmitigated fiscal pressure from prolonged and/or significant weakening of the tax base could signal a fundamental shift. However, Fitch expects continued rating stability due to the ability of college officials to manage through the cycle.

CREDIT PROFILE
Odessa Junior College District is an accredited, two-year community college that offers a full range of academic, vocational, and workforce training programs. Located in central west Texas, the college is in the heart of the Permian Basin, which holds much of the nation's proven, accessible oil and natural gas reserves.

ENERGY-BASED ECONOMY
The post-recession recovery of the Odessa metropolitan statistical area (MSA) has outpaced that of many other metro areas as a robust energy sector fueled strong economic activity, evident in labor force, income, and employment gains. The MSA also serves as a regional retail/commercial and health care hub for surrounding counties. Top employers include the education, medical, and governmental sectors as well as various energy-related firms. The December 2014 MSA unemployment rate of 2.6% reflects four years of solid employment base growth, and was well below the state (4.1%) and the U.S rates (5.4%) for the same time period. Nonetheless, Fitch expects the area will realize some moderate economic softening and deceleration of employment in the near to intermediate term given the key role of the energy sector and the resulting effects from reduced exploration and drilling activity due to lower oil prices.

CONCENTRATED TAX BASE GROWS
The district's tax base, which is coterminous with the county's, reflects sizeable sector and taxpayer concentration. The 10 largest taxpayers, nearly all of which are oil/gas business concerns, represent about 22% of TAV. Accounting for approximately 6% of TAV, Occidental Permian Ltd has remained the college's top taxpayer for the past 10 years. In total, about 60% of TAV comes from mineral values and commercial/industrial property; residential values contributed an additional 30%. Mineral values have contributed no more than one-third of TAV since fiscal 2007.

The college's fiscal 2015 TAV of \$14.7 billion represents a doubling of value since fiscal 2008. Fiscal 2015 market value per capita is a high \$115,000. Management currently projects a 6% TAV decline for fiscal 2016 based on preliminary estimates from the appraisal district. Fitch believes the decline may be somewhat sharper given the college's energy-rich TAV and the current trend of lower oil prices.

SOUND FINANCIAL POSITION
Slightly less than half of the college's revenues or \$24.2 million came from property taxes in fiscal 2014; the next largest revenue source was tuition/fees at 21%. State aid provided 19% or \$9.7 million, which was up by \$1 million (roughly 13%) from fiscal 2013 due in part to some improvement in state funding for all community colleges in the most recent biennium (fiscal 2014 and 2015). The college also benefitted from a reversal in its enrollment declines with stable to modest growth in fiscal 2014 despite the counter-cyclicality typically realized against a strong job market. The college's dependency on property taxes for operations has increased as the mix of the three aforementioned key revenues has shifted over the last several years due primarily to a trend of declining per student state funding. In fiscal 2006, state aid and property taxes provided a roughly equal portion (30%) of total revenues while tuition/fees provided a lower 16%.

Financial performance in fiscal 2013 and 2014 remained consistent with the college's steady trend of positive operations in prior fiscal years, recording positive margins of 7.2% and 3.3% respectively. Management's careful budgeting and spending practices as well as its revenue-raising ability have enabled these results. Reserves remained stout with \$19 million (about 38% of total expenses) in unrestricted net position at fiscal 2014 year-end, exceeding management's policy to maintain three months of operations in reserve, a policy Fitch considers prudent.

The fiscal 2015 \$40.8 million unrestricted funds operating budget was adopted as balanced under flat enrollment assumptions, inclusive of \$600,000 set aside for contingencies. 4% year-over-year budget growth was supported by modest tuition/fee increases as well as growth in property tax revenues. The college's operating tax rate remained comfortably below the locally voted operating tax rate cap of \$0.20 per \$100 TAV, set at just under \$0.15 per \$100 TAV for the year. Management reports actual enrollment trends are running slightly above fiscal 2014's with no material variances from budget to date; a modest increase to unrestricted net position of about \$500,000 is again projected at year-end.

MODERATE DEBT BURDEN AND OTHER LONG-TERM LIABILITIES
Overall debt levels are modest at approximately 1.3% of market value or \$1,500 on a per capita basis. The college has historically been an infrequent borrower. Capital needs are expected to remain manageable over the intermediate term without requiring additional debt issuance as the college is nearing completion on various, prioritized facility upgrades/renovations from full use of its nearly \$70 million bond authorization. Amortization of the college's tax-supported debt is very slow with 26% of principal retired in 10 years with annual debt service fairly level over much of the schedule at \$4.7 million.

The college's pension and other post-employment benefit (OPEB) liabilities are limited because of its participation in the state pension plan administered by the Teachers Retirement System of Texas (TRS). TRS is a cost-sharing, multiple-employer plan in which the state rather than the college historically provided the bulk of the employer's annual pension contribution. TRS is funded at 80.8% as of Aug. 31, 2013, though Fitch estimates the funded position to be lower at 72.8% when a more conservative 7% return assumption is used. The college's annual contribution to TRS is determined by state law as is the contribution for the state-run post-employment benefit healthcare plan. The employer's contribution is shared at roughly 50% with the state. Carrying costs (debt service, pension, OPEB costs, net of self-supporting debt and state support) are moderate at about 11% of total expenses in fiscal 2014, which is due largely to the slow amortization of tax-supported debt.