OREANDA-NEWS. July 14, 2015. Fitch Ratings has assigned an 'AAA' rating to the following Corpus Christi Independent School District (ISD), Texas' (the district) unlimited tax (ULT) school building bonds:

--\\$100 million ULT school building bonds series 2015.

The 'AAA' long-term rating for the ULT 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 July 21, 2015. Proceeds of the ULT bonds will be used for the construction, consolidation, and renovation of school facilities.

In addition, Fitch assigns an 'AA+' underlying rating to the series 2015 bonds.

The Rating Outlook is Stable.

SECURITY

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

In addition, the series 2008A and 2015 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 FINANCIAL POSITION: The district's financial position is healthy, with robust reserves, consistently balanced operations and solid liquidity driven by conservative budgeting and proactive expenditure control.

STABLE ECONOMY: The district's economy has shown strong performance over the past decade relative to the state and nation as evidenced by sustained employment growth and continued increases in taxable assessed value (TAV). The local economy does show some concentration in the military and oil and gas sectors.

MODERATE DEBT: Debt levels and overall carrying costs remain moderate, although principal amortization is slow. Manageable future needs are expected to keep debt moderate.

RATING SENSITIVITIES

CONTINUED STRONG FINANCIAL MANAGEMENT: Continued solid management practices are a key credit factor given possible risks to enrollment and finances associated with economic concentration in the petrochemical and military sectors

CREDIT PROFILE
Corpus Christi ISD serves a large portion of the City of Corpus Christi (population of 316,381). Corpus Christi is the county seat of Nueces County and is located on the Gulf of Mexico coast. Fiscal year 2015 enrollment was 38,736.

SOLID OPERATING PERFORMANCE; HIGH RESERVES

The district's strong fiscal operations are reflected in solid reserves and liquidity. In recent years, unrestricted general fund balances have been over the district's policy of 20% of spending and it is expected to remain close to these levels in the near term. Transfers totaling \\$27 million from the general fund to the capital projects fund in fiscal years 2013 and 2014 covered construction cost overruns related to the construction of a new high school and middle school on the city's south side.

Due to the transfers (\\$18 million in fiscal year 2013), fiscal year 2013 ended with a general fund deficit of \\$11.2 million (or 3.9% of spending), which reduced the unrestricted general fund ending balance to a still solid \\$70.9 million, or 24.7% of spending. Fiscal year 2014 ended with a modest surplus of \\$5.5 million after transferring an additional \\$9 million for construction related overruns. The fiscal year 2014 general fund unrestricted ending balance was \\$75.8 million or 25.8% of spending.

The fiscal year 2015 general fund budget assumes a \\$6.6 million deficit (2% of spending) that reflects about \\$9.3 million in one-time spending on capital and equipment. Continuing the district's strong expenditure management and conservative revenue forecasting, actual fiscal year 2015 general fund operations are expected to be close to balanced, with a small surplus likely. With major capital projects continuing in the near term, there is the potential that fund balance may be drawn on in the future for pay-go construction costs.

The district has a history of budgeting deficits with actual results outperforming estimates. Conservative budgeting practices include budgeting vacant staff positions and related salary and benefit costs at 100%.

The district will not meet its 2015 budgeted average daily attendance (ADA) figure and ADA declined by 1.5% between fiscal years 2014 and 2015. The district is budgeting flat ADA for fiscal 2016. Any resulting decline in enrollment-driven state funding is expected to be offset by lower than budgeted spending. The district is expecting to recapture students once it opens a new high school and middle school in August 2015. These schools were built to address population shifts and the need for more schools in the city's growing south side.

MODERATE DEBT DESPITE SIZABLE ISSUANCES
The district's debt profile remains manageable even with the current issuance, which exhausts its current bond authorization. The district has structured repayment of this issuance to avoid a tax rate increase, assuming continued TAV growth. The district has ample capacity to issue additional debt if TAV slows given the current I&S rate (\\$0.177) is well below the statutory cap for new issuance (\\$0.50).

Amortization is slow with 32% of principal retired within the next 10 years, including the new issuance. Overall debt levels remain moderate with the new issuance, with debt to full value estimated at 4.6% and debt per capita of \\$3,256. Debt service requirements (net of state support) as a percentage of governmental spending should also remain moderate, estimated at about 7%.

Management drew on debt service fund reserves in fiscal years 2012 and 2014 rather than increase the tax rate. The district has an informal unassigned debt service fund balance policy of 15% of spending. The fiscal year 2014 balance of \\$6.3 million (21%) exceeded the requirement and no further draws on these reserves are planned.

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. Overall fiscal 2014 carrying costs for debt service, pensions and other post-employment benefit costs were low at 7.5% of net governmental fund spending given the state's sizable support.

GROWING ECONOMY; SOME VULNERABILITY
The economy of Corpus Christi is shaped by a mix of military, port activities, health care and tourism. The Army Depot of Corpus Christi (one of world's largest helicopter repair facilities) and the U.S. Naval Air Station are the largest employers in the area with over 8,600 combined employees. Although sequestration has not had a notable negative impact on the local economy, significant cuts to these major local employers could affect the district's credit profile.

A local development project of note is the \\$2 billion Tianjin Pipe project (a steel pipe mill) located adjacent to the Port of Corpus Christi that is projected to be one of the largest Chinese investments in the U.S., adding 600 permanent jobs to the area. Another large industrial development project, a plastics company facility, (M&G Corporation) is also projected to be fully built over the next few years.

The city is a major petrochemical center and the Port of Corpus Christi ranks is the fifth largest in the U.S. and 44th in the world in terms of tonnage. Despite the recent decline in oil prices, various expansion projects related to local refineries such as Valero (rated 'BBB'/Stable Outlook) and Flint Hills are ongoing. Furthermore, the significant presence of the government, healthcare and education sectors afford some stability to the local economy as indicated by low unemployment rates and consistent job growth. Income levels are below the state and national averages.

SOMEWHAT CONCENTRATED TAX BASE
The district's TAV has generally experienced steady growth. TAV increased in fiscal 2015 by more than 6%. Due to economic development activity in the area, TAV is expected by the assessor to expand by an additional 6% in fiscal 2016. The tax base is somewhat concentrated as the top 10 taxpayers represent 15.9% of total valuations in fiscal year 2014; six of the leading taxpayers are oil refineries including Valero Energy Corp., which accounts for 5% of the tax base.

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.