OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating based on the Texas Permanent School Fund (PSF) to the series 2015A bonds and an 'AA+' underlying rating to the following Eanes Independent School District (ISD), Texas (Eanes or the district) unlimited tax (ULT) bonds:

--\$52.5 million unlimited tax school building bonds series 2015A;
--\$23.26 million unlimited tax refunding bonds series 2015B.

The bonds are expected to sell via negotiation June 29, 2015. Proceeds will be used for improvements and to refund outstanding obligations for savings.

Additionally, Fitch affirms the underlying 'AA+' rating for the district's approximately \$123.9 million (prerefunding basis) of outstanding ULT bonds.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited property tax levied against all taxable property within the district, without limitation as to rate or amount. Series 2006 ULT refunding bonds, series 2011 school building bonds, and the series 2015A bond issues are additionally secured by the Texas Permanent School Fund (PSF), whose bond guarantee 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 FINANCES: The district maintains a sound financial profile and adequate reserves. Financial performance is typically favorable to the conservative budget.

AFFLUENT AUSTIN AREA DISTRICT: The largely residential area is characterized by very high wealth. The district lies immediately to the west of Austin and participates in the broad economic base of the region.

MATURE DISTRICT; ADEQUATE CAPACITY: The mature district is largely built out with adequate capacity for the foreseeable future. Capital needs are manageable.

HEALTHY TAX BASE: Fitch anticipates the district will realize ongoing tax base appreciation based on a relatively limited supply of high demand residential properties and a notable presence of commercial and retail enterprise.

AFFORDABLE DEBT AND PENSIONS: Fitch expects the district's direct debt to remain low based on limited planned issuances and rapid amortization. Carrying costs (debt service, pension and other post-employment benefit [OPEB] contributions) place a low burden on the budget, benefiting from strong state-wide funding of school district pension and OPEB contributions.

RATING SENSITIVITIES

STRONG FINANCIAL PROFILE: The Eanes Independent School District's history of maintaining solid reserves while addressing operating and capital needs that are key to the rating. Progress toward structural budget balance could put upward pressure on the rating.

CREDIT PROFILE

The district encompasses 31-square miles and serves the cities of West Lake Hills and Rollingwood as well as a small portion of Austin.

DISTRICT FINANCES ARE SOUND

The district has maintained a solid financial position through careful cost management. As a property rich district under Chapter 41 of the Texas Education code, Eanes makes substantial wealth equalization payments to the state, consuming a high 44% of its fiscal 2014 expenditure budget. Fiscal 2014 unrestricted reserves of \$33.3 million represent a sound 26.9% of spending, despite several years of modest operating deficits signaling expenditure pressures.

Officials project a modest fiscal 2015 deficit and unrestricted reserves of \$29.6 million (22.5% of budgeted spending). The district anticipates achieving structural balance over the next several years through expenditure reductions coupled with the potential for additional revenue sources.

The district's maintenance and operations (M&O) tax rate is at the current statutory cap of \$1.04 per \$100 of taxable assessed value (TAV). While district officials do not plan to seek voter approval to increase the M&O tax rate, additional flexibility exists to levy up to \$1.17 with voter approval.

STRONG LOCAL ECONOMY WITH APPRECIATING RESIDENTIAL VALUES

A high fiscal 2015 market value per capita of \$313,000 reflects an historically strong residential market and growing commercial base. Single family residential properties comprise 72% of the fiscal 2015 tax base, followed by commercial and industrial properties at 18%. The tax base realized five-year compound annual average growth of 2.6%, with a strong uptick of 6.3% in fiscal 2015 due primarily to home price appreciation. The tax base is without concentration. Top 10 taxpayers are represented by real estate, shopping center, and technology concerns.

The district's median household income is a high 238.6% of the U.S. average and per capita income is a solid 259.5% of the U.S. Area unemployment is a low 2.9% as of March 2015 compared to 5.6% for the nation. Top area employers include government, education, manufacturing, and health care.

AFFORDABLE DEBT

The district's overall debt is elevated at \$8,144 per capita, but relatively low at 2.6% of market value, reflecting the wealthy tax base.

Fitch expects the district's debt burden to remain relatively low given a rapid 10-year debt amortization rate of 69% and anticipated capital needs over the next several years. Officials anticipate maintaining an interest and sinking (I&S) fund rate not to exceed the current tax rate of \$0.1725 per \$100 of TAV.

LIMITED PENSION AND OPEB OBLIGATIONS

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. Including debt service, pension and OPEB contributions, carrying costs were a low 10.9% of fiscal 2014 governmental spending, benefitting from strong state-wide funding of local school district pension contributions. However, districts are susceptible to future funding changes by the state as evidenced by a relatively modest 1.5% of salary contribution requirement effective fiscal year 2015 from 0% the year prior.

TEXAS SCHOOL DISTRICT 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. Any changes that include additional funding for schools and more local discretion over tax rates would be positive credit factors.