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

--\$10.4 million ULT refunding bonds, series 2015.

The 'AAA' long-term rating for the bonds is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose bond guaranty program is rated 'AAA' by Fitch.

The bonds are scheduled for negotiated sale the week of April 6. Proceeds will be used to refund a portion of the district's outstanding ULT debt for interest savings.

Fitch also assigns an 'A+' underlying rating to the bonds and affirms the 'A+' underlying rating on the following outstanding bonds (pre-refunding):

--\$26.5 million ULT school building bonds, series 2006 and 2010;
--\$39.1 million ULT refunding bonds, series 2005, 2007, 2008, 2012, and 2014.

The Rating Outlook is Stable.

SECURITY

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

KEY RATING DRIVERS

POSITIVE FINANCIAL PROFILE: Conservative budgeting practices have produced a trend of operating surpluses leading to significant increases in general fund reserve levels, despite some use of balances for one-time capital purposes.

NARROW LOCAL ECONOMY: The district's economy is limited and vulnerable to fluctuations in the energy sector. Tax base concentration is a concern; however, a prolonged slump in natural gas prices has reduced the share of mineral values in the district's taxable assessed value (TAV), as well top taxpayer concentration.

BELOW AVERAGE SOCIOECONOMIC PROFILE: The region's income levels are well below average but have grown faster than state and national levels over the past five years. Unemployment has improved from a year ago, but is consistently much higher than state and national levels.

HIGH DEBT RATIOS: The district's debt is high in relation to market value, although fixed costs are low in relation to governmental spending due to state assistance.

RATING SENSITIVITIES

DECLINE IN STATE SUPPORT: Material decline in state support for operations and debt service or a weakening of the district's strong fund balance position could pressure the rating. Reductions in state support are unlikely given the low property wealth in the district.

CREDIT PROFILE

Roma ISD is located in south Texas in the 490-square mile Starr County along the U.S.-Mexico border. Enrollment has been relatively stable during the past decade, averaging 6,400 students with annual variation of +/- 3%. The district realistically budgets flat enrollment.

WEAK SOCIOECONOMIC PROFILE

Wealth indicators of the district are very low. The district's market value per capita is \$27,000, and personal income indicators (both per capita and median household income) are less than 50% of state and national averages. The unemployment rate of Starr County has historically trended much higher than the state and national rates and despite some moderate improvement after the post-recession peak in 2010, remained a very high 13.9% in January 2015.

TAX BASE STABILIZATION

Recent declines in TAV were due to weakness in mineral values, which made up over 30% of fiscal 2007 TAV but fell to less than 10% of fiscal 2015 certified values. The post-recession tax base contraction was significant, dropping over a quarter of its value from fiscals 2008-2013. Fiscal 2014 marked the first year of recovery with modest growth at 2.7%, and fiscal 2015 certified values came in mostly flat. The district anticipates flat TAV in fiscal 2016 without significant changes in area oil and gas production during the near term.

Several consecutive years of low natural gas prices have reduced the top taxpayers' share of the tax base, but industry concentration remains a concern. The top 10 taxpayers comprised a still elevated 18% of fiscal 2015 TAV, and eight of the top 10 are directly engaged in the oil and gas industry. Offsetting this concern is the large residential component of the tax base and stable home valuations.

STRONG FINANCIAL OPERATIONS

The district's low property wealth results in significant state support for both operations and debt service. Operational state support in 2015 was \$47.6 million, representing approximately 80% of general fund revenues.

The district posted sizable general fund operating surpluses after transfers from 2009-2013 due to conservative budgeting, adding significantly to reserves. Fiscal 2014 closed with a \$3.1 million budgeted drawdown of reserves for various capital projects, including athletic upgrades, roof replacement, and the completion of an elementary school. Unrestricted general fund balance at year end was \$33.2 million, or a still high 53.7% of expenditures.

The fiscal 2015 budget assumed flat enrollment and tax rates, and marked another year of budgeted draws for one-time needs. The district reports no year-to-date fiscal 2015 variances with the budget.

MIXED DEBT PROFILE

Metrics for overall debt outstanding are mixed, with moderate debt per capita (\$3,138) and very high debt per market value (11.5%) reflecting the area's low property wealth. The district's debt service payments were a very low 0.60% of government spending after adjusting for the 90% state debt service assistance received in fiscal 2014. The fiscal 2014 debt service payment makes up a higher but still very manageable 6% of spending without the state adjustment.

The district plans to approach voters with a \$25 million bond referendum this May; the most significant capital project is the replacement of an existing elementary school. The affordable debt service tax rate of \$0.29 per \$100 of TAV (comfortably below the statutory new money issuance cap of \$0.50), along with the significant state support of debt service mitigate concerns over a potential increase in debt levels.

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 TRS funded position is satisfactory at an estimated 75% using Fitch's more conservative 7% rate of return assumption compared with 83% funded as reported by 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. The district's cost for pension and other post-employment benefits (OPEB) represented less than 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 the fixed component of the district's operating budget manageable. Combined carrying costs for the district (debt service, pension, and OPEB costs net of state support) consumed a very low 1.3% 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 DISTRICT 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.