OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating based on the Texas Permanent School Fund (PSF) and assigns an underlying rating of 'AA-' on the following Eagle Mountain-Saginaw Independent School District, Texas (the district)unlimited tax (ULT) bonds:

--$24.925 million unlimited tax school building bonds, series 2015-A;
--$11.3 million unlimited tax refunding bonds, series 2015-B.

The bonds are expected to sell via negotiation the week of July 27, subject to market conditions. Proceeds will be used to fund facility construction and to refund certain outstanding obligations for savings and to pay related costs of issuance.

In addition, Fitch upgrades the district's $559.9 (pre-refunding) in outstanding ULT bonds to 'AA-' from 'A+'.

The Rating Outlook is revised to Stable from Positive.

SECURITY
The bonds are payable from an unlimited property tax levied against all taxable property within the district and are further secured by the PSF bond guarantee program, rated 'AAA' by Fitch. (For more information on the Texas Permanent School Fund see Fitch Affirms Texas PSF Rating at 'AAA'; Outlook Stable, dated Sep. 4, 2014).

KEY RATING DRIVERS

IMPROVED DEBT PROFILE FLEXIBILITY: The upgrade to 'AA-' recognizes reduced risk in the district's debt structure. Tax base growth and interest and sinking fund (I&S) tax rate capacity allow the district to address growth needs.

RESUMPTION OF TAV GROWTH: Improving home prices and new construction drove a third consecutive year of strong tax base growth, reversing several years of uncharacteristically flat values. Fitch expects to see further gains in taxable assessed value (TAV) based on development underway and regional growth patterns.

SOUND FINANCES AND RESERVES: The district maintained a solid financial profile through a period of state-wide funding cuts. Benefiting from ongoing enrollment growth, the district aligned its cost structure with moderate revenue gains and continues to maintain reserve adequacy.

STRONG DEMOGRAPHICS: Median household income and employment metrics compare favorably to state and national averages, reflecting the district's participation in the diverse greater Fort Worth economy. Top employers represent the airline and defense industries, as well as government, education, and health service sectors.

RATING SENSITIVITIES
GROWTH AFFORDABILITY: The current rating is premised on the district's ongoing ability to manage growth as demonstrated by affordable carrying costs and maintenance of stable finances.

DEBT PROFILE: The current rating also assumes tax base growth adequate to support new debt issuance without increasing the overall debt burden and improvement over time in the district's debt amortization rate.

CREDIT PROFILE
Eagle Mountain-Saginaw ISD is located approximately seven miles from the center of Fort Worth, with an estimated fiscal 2015 population of 88,045, up more than 1.5 times since fiscal 2000. The district includes the northernmost portion of Fort Worth as well as the cities of Saginaw and Blue Mound.

GROWING LOCAL ECONOMY WITH STRONG DEMOGRAPHICS

Fiscal 2015 market value per capita of $91,000 is up from $84,000 in fiscal 2011, reflecting the resumption of tax base growth. Strong 7.6% growth in fiscal 2015 TAV follows a gain of 5.7% in the year prior as rising home prices and new construction rose consistent with regional trends. Fitch expects the strengthening residential market trends to provide ongoing TAV growth in the near term as indicated by an additional pick up of 9.5% in the district's preliminary fiscal 2016 TAV.

The top 10 taxpayers, represented by oil & gas, utility, financial and commercial concerns, comprise a moderate 10.7% of fiscal 2015 TAV. Mineral values represent a modest 3% of the district's fiscal 2015 market value, down from 8.9% in fiscal 2011.

The district's median household income is 139% of the Texas and 136% of the U.S. average, with a poverty rate less than half of the state and national levels. The city of Fort Worth unemployment rate of 4.1% as of March 2015 compares favorably to the state and U.S. levels of 4.2% and 5.6% respectively.

POSITIVE FINANCIAL PERFORMANCE

The district has a history of consistently sound reserves and generally positive operating margins. A fiscal 2014 net surplus of $6.1 million (4.3% of spending) reflects enrollment gains and cost savings associated with a salary freeze and unfilled positions.

Fiscal 2014 results also reflect a net increase of $650,000 in state funding associated with the 2014 tax ratification election (TRE). The district's fiscal 2014 unrestricted general fund balance of $31 million represents a sound 22.1% of spending. Officials project like reserves in fiscal 2015.

The district expects a fiscal 2016 surplus budget. The budget reflects tax base growth and increased state funding associated with enrollment gains and a legislative fix to the funding formula that helps to mitigate the potential loss of additional state aid for tax reduction monies in fiscal 2018.

ELEVATED DEBT; ONGOING NEEDS

Fitch expects overall debt, currently at 7.9% of fiscal 2016 market value, to remain elevated based on the district's ongoing growth-related debt needs despite solid tax base growth. Series 2015-A issuance will fund a new elementary school after which the district will have $163 million of voted authorization remaining from its 2008 bond election. Fitch anticipates issuance against this authorization over the medium term as supported by growth in TAV.

Proceeds from the series 2015-B ULT refunding bonds provide savings without extending principal repayment. Amortization remains slow at 24% in 10 years with maximum annual debt service not until fiscal 2026.

The district anticipates a flat I&S tax rate, $.37 per $100 of TAV, in the near term. Fitch anticipates that the district will maintain adequate capacity in relation to the statutory cap of $.50 for new debt issuance based on regional tax base growth and the flexibility provided by a 2014 tax rate restructuring that allows a portion of operating funds to be used for debt service.

LIMITED PENSION/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 other post-employment benefit (OPEB) contributions, carrying costs were a moderate 19% 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.

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. Fitch would view positively any changes that include additional funding for schools and more local discretion over tax rates.