OREANDA-NEWS. June 16, 2015. Fitch Ratings has affirmed the 'A+' rating on the following Greenwood ISD, TX unlimited tax (ULT) bonds:

--\\$60.7 million ULT bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited property tax levy of the district.

In addition, the bonds are supported by the Texas Permanent School Fund (PSF) whose bond guaranty program is rated 'AAA' by Fitch. (For more information on the Texas Permanent School Fund see 'Fitch Affirms Texas PSF Rating at 'AAA'; Outlook Stable', dated Sept. 4, 2014.)

KEY RATING DRIVERS

SOLID RESERVES AND CONSERVATIVE MANAGEMENT: The district's management has prudently built up reserves over the last seven years despite pressures associated with a decline in state funding levels. The district's general fund reserves are solid and increasing due to increased property tax revenues, somewhat mitigating other risk factors.

GROWING TAX BASE, ECONOMIC CONCENTRATION: The district's taxable assessed valuation (TAV) has surged in recent years. The tax base is heavily concentrated in oil and gas, making it vulnerable to commodity price swings. The most recent economic indicators remain favorable with very low unemployment rates, above-average wealth levels, and continued rapid enrollment growth.

SIZABLE DEBT BURDEN; MANAGEABLE CARRYING COSTS: The overall debt burden will likely remain above average even with no new debt plans, due to the debt's very slow amortization. The inherent volatility of mineral values exposes the district's debt service tax rate to some uncertainty although the current rate is moderate. Overall carrying costs, including net debt service, pension and other post-employment (OPEB), are manageable.

RATING SENSITIVITIES

SHIFT IN FUNDAMENTALS: The rating is sensitive to shifts in fundamental credit characteristics including the district's healthy financial profile and manageable capital needs. Maintenance of solid reserves and limited borrowing plans, given the district's tax base concentration, are key credit considerations.

CREDIT PROFILE

Greenwood ISD is located about three miles east of the city of Midland. The district covers a large 133 square miles of unincorporated land in Midland County (GO bonds rated 'AAA' with a Stable Outlook by Fitch) in the oil rich Permian Basin region of west Texas. Serving an estimated population of just under 9,000, the district's current enrollment is 2,041 students for fiscal year 2015 and will likely continue to grow with the population. The boom in oil and gas exploration has doubled taxable values since 2010 to reach high per capita levels of \\$7,648 per capita.

TAXPAYER CONCENTRATION IN BROADER ENERGY BASED ECONOMY

The top 10 taxpayers (all oil and gas-related) comprised a substantial 38% of fiscal year 2015 TAV, with the single largest taxpayer at 15% (Pioneer Natural Resources, IDR of 'BBB-' by Fitch). Oil, gas, and minerals comprised about half of total TAV each year from 2008-2013, but has since declined to 44% and 38% in 2014 and 2015, respectively, while overall TAV levels have grown. These valuations are susceptible to a number of factors including market price swings and production estimates.

The district's land boundaries and tax base comprise roughly 14% and 6% of the county's, respectively. A recent uptick of exploration and drilling activity fueled a substantial 15.3% average annual growth in the district's TAV since fiscal year 2010. This growth surpassed the county's large 11.6% average annual growth during the same period, indicative of increasing activity within the district boundaries. Fitch anticipates a decline in the district's energy-rich TAV in the next couple of years based on the current trend of lower oil prices. This expectation is incorporated in the current rating.

Much of the available economic data are for Midland city and county. The city of Midland (located about three miles from the district) serves as the county seat and as the financial and transportation center of the county. The county's unemployment rate is consistently well below the state and national average over the last 10 years at 2.8% in February 2015. Income levels, both household and per capita, are well above the state and nation.

SOLID RESERVES

Prudent financial management of the district resources and conservative budgeting, despite statewide education spending cuts since 2010, has resulted in a build-up of solid reserves. The district posted positive financial results in each of the last seven fiscal years. The district's unrestricted fund balance at the 2014 fiscal year-end is \\$11.6 million, or nearly 76% of spending, an increase of 63% since 2010. The excess general fund reserves help mitigate the risk of the tax base or enrollment taking a sudden dip. Further mitigating revenue risks due to tax base declines, the state funding formula for district operations and maintenance expenditures would trigger an increase of state funding (and reduction of the recapture payment) that would offset tax base declines absent a decline in enrollment. Enrollment has increased significantly in recent years up over four hundred students in the last four years (a 25% increase) to 2,041 in the 2014-2015 school year.

For fiscal 2015, the district adopted a balanced budget totaling \\$15.2 million representing a 10% increase over the 2014 budget, primarily due to an increase in instructional spending. Year-to-date results have the district on pace to meet budget, depending on final construction costs for a water project (due to the district's remote location, it has responsibility for its own water supply and collection system). The second and final phase of this non-recurring water project is scheduled for completion in June.

WEALTH EQUALIZATION

Dramatic increases in the district's TAV resulted in wealth per student levels that surpassed the state's average wealth levels. In fiscal year 2011 the district gained a property-wealthy status and began making recapture payments based on average daily attendance (ADA) revenue targets. Fiscal year 2015's recapture payment to the state was a modest \\$38,500 and management estimates a fiscal year 2016 recapture payment of about \\$700,000 which will be offset by an increase in property tax revenues.

SIZABLE DEBT LEVELS; MANAGEABLE CARRYING COSTS

Overall debt levels are high at \\$7,648 per capita but more moderate at 4.6% of market value. Fitch believes the latter measure in particular is subject to increase due to the potential volatility of the tax base even if the district does not issue additional debt. The 2013 bond program for the construction of an intermediate school (in addition to certain facility improvements and technology upgrades) increased enrollment capacity by 1,200 and will satisfy the district's growth over the next 10 to fifteen years. While the district has no further debt plans, the slow pace of amortization (only 21.2% of debt retired in 10 years) may keep the debt burden elevated. The district's fiscal 2014 tax rate (\\$0.30 per \\$100 of TAV) is under the current statutory cap of \\$0.50 for new debt issuance.

District employees participate in the Teacher Retirement System of Texas (TRS), a cost-sharing multiple employer pension system. The district's portion of its pension contribution, which is set by state law, was \\$120,000 (a nominal 0.5% of government spending) in fiscal year 2014. Despite state reform to increase contribution rates, the employer contribution to TRS remains below actuarially calculated levels. OPEB is also provided through TRS and district contributions are minimal. The district's carrying costs including net debt service, pension and OPEB contributions represent a moderate 16.4% of fiscal year 2014 governmental expenditures.

TEXAS SCHOOL FUNDING LITIGATION

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 and was the second such ruling in the past two years, 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.

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 would likely follow with changes intended to restore its constitutionality. Fitch would view positively any changes that include additional funding for schools and more local discretion over tax rates.