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

--$9.2 million ULT refunding bonds series 2015

The bonds are scheduled for a negotiated sale the week of July 27th. Proceeds from the bonds will be used to refund portions of the district's outstanding debt for interest savings.

In addition, Fitch assigns 'AA' underlying rating to the series 2015 bonds and affirms the 'AA' on the following obligations (pre-refunded basis):

--$771,000 ULT refunding and improvement bonds series 2002A;
--$55.2 million ULT refunding bonds series 2007 and 2014;
--$15.2 million ULT school building bonds series 2007.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited property tax levy 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

SOLID FINANCIAL PROFILE: The district's financial profile remains strong and is characterized by solid general fund reserve levels and sound management practices.

STABLE TAX BASE: The district benefits from its proximity to the larger Amarillo MSA employment base and economy. The area's economy is stable and the city serves as the regional commercial hub for the Texas panhandle.

GROWTH POTENTIAL: The district's tax base appears poised for manageable, steady growth in the near-term due to residential development in southern Amarillo which lies within district boundaries.

MODERATE DEBT BURDEN: Fitch expects debt levels to remain moderate as the district addresses capital needs as a result of enrollment growth.

RATING SENSITIVITIES

STRONG OPERATING PERFORMANCE: The rating is sensitive to the district's ability to maintain strong operating performance while implementing its upcoming capital improvement plans.

CREDIT PROFILE

The district is located along the southern border of Amarillo in Randall County, serving a 720-square mile area that is largely rural with roughly 54,000 residents. The city of Amarillo is a regional hub that serves as the banking, distribution, and commercial center for the Texas panhandle. The district's economic base is benefiting from its proximity to Amarillo, and shifting away from its rural, agricultural roots toward that of a suburban, bedroom community.

GROWING ENROLLMENT AND TAX BASE

Growth in district enrollment and tax base has resulted from the area's available land which spurred predominately residential development pushing south from Amarillo. While moderating slightly in fiscal 2010 and 2011, the district did not mark any tax base contraction during or post-recession and has averaged about 6% growth annually since 2008.

Preliminary values for 2016 show another year of strong growth at 6%, driven by housing starts and increased valuations within the district's boundaries. District enrollment totals roughly 9,200 students and has grown at an average annual pace of just over 2% during the past 5 years. Management reports the possibility of an uptick in enrollment given current trends in residential development.

STABLE ECONOMY

Amarillo area unemployment levels are typically below state and national levels and although they rose, they remained below 6% during the national recession. At 3.0% in March 2015, the unemployment rate remains well below the state's 4.2% and nation's 5.6% rates. Income metrics in the district are above average as evidenced by median household income representing 130% of state and 120% of national figures.

STRONG FINANCIAL PROFILE

The district's financial profile is characterized by its conservative management, consistent positive operating results, and solid financial reserves. The district has a history of posting positive or break-even results that have boosted reserves over the years.

At the close of fiscal 2014 the district's unrestricted general fund balance totaled a solid $29.3 million, or 47% of spending; well in excess of the district's informal target of three months or 25% of expenditures. Year-to-date fiscal 2015 results point to a nominal $500,000 - $1 million draw on fund balance at year end due to one-time spending on athletic upgrades. Preliminary plans for the fiscal 2016 budget include a 1% increase in average daily attendance and a tax rate increase to $0.22 per $100 TAV from $0.175 to service the debt on the recently approved bond program.

MODERATE DEBT LEVELS WITH MANAGEABLE FACILITIES NEEDS

Debt levels are moderate at $2,200 per capita or 2.8% of market value. Principal amortization is average at a rate of 50% within 10 years. Debt levels are expected to remain moderate with the issuance of the $34.8 million bond program that will address capacity pressures at the intermediate level (grades 5 and 6), as well as an addition at an elementary school. Another issuance is possible in the next 4-5 years whose amount will be contingent upon enrollment growth. Given the manageable growth needs and the relatively low debt service tax rate, Fitch believes the debt burden will remain affordable upon implementation of the long-term capital plan.

The district contributes to the Teacher Retirement System of Texas (TRS), a cost-sharing, multiple employer defined benefit pension plan. Other post-employment benefits (OPEB) are also provided through TRS. The combined pension and OPEB contributions, which are set by state law, totaled less than $1 million or a low 1% of spending in fiscal 2014. The district's total carrying costs for debt service and retirement benefits comprised a low 9.4% of governmental spending.

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.