OREANDA-NEWS. July 28, 2015. Fitch Ratings has assigned an 'AAA' rating based on the Texas Permanent School Fund (PSF) and an 'AA+' underlying rating to the following unlimited tax (ULT) bonds for the Mansfield Independent School District, Texas (the district):

--\\$48.53 million ULT school building bonds, series 2015.

The bonds are expected to price via negotiated sale the week of July 27 subject to market conditions. Proceeds will be used to fund facility improvements.

The district's \\$745 million of outstanding ULT bonds are currently rated 'AA+' by Fitch.

The Rating Outlook is Stable.

SECURITY
The bonds are payable from an unlimited property tax levy 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 Sept. 4, 2014.)

KEY RATING DRIVERS
SUBSTANTIAL FINANCIAL CUSHION: The district's financial profile is characterized by healthy operating reserves, ample liquidity, and sound management practices, and is the key mitigant to the district's high debt burden.

SOUND TAX BASE GROWTH: The district's largely residential tax base reflects solid historical growth, albeit at an uneven post-recession pace. Reduced fiscal 2013 mineral values have been mitigated by growing residential and commercial property sector growth. The tax base is not concentrated.

HIGH DEBT, LIMITED CAPACITY: The district's overall debt is high, reflecting decades of healthy enrollment growth. Although nearing the statutory tax rate cap for new debt issuance, a trend of tax base growth in excess of enrollment growth provides the district with improved flexibility in the near term.

FAVORABLE ECONOMIC METRICS: The district's profile is characterized by high income and wealth levels, and unemployment is low.

RATING SENSITIVITIES
MANAGING THE DEBT BURDEN: Debt service pressure on operations or frequent and recurring debt restructuring could result in negative rating action.

FINANCIAL FLEXIBILITY: An adequate financial cushion acts as a credit mitigant to the district's high debt, and any erosion of reserves below the target three month minimum could pressure the current rating.

CREDIT PROFILE
Mansfield is located south of Fort Worth within the ninth largest metropolitan area in the nation, with 1.1 million residents located within a 15-mile radius. The city's estimated population of 61,000 has more than doubled since the 2000 census.

FINANCIAL FLEXIBILITY DEMONSTRATED BY GENERAL FUND SPENDING ON CAPITAL NEEDS

Fitch views the district's solid financial position as a credit strength. Management budgets conservatively, with actual results typically outperforming the budget. Strong financial flexibility allows the district to fund capital and nonrecurring expenditures from its ample reserves.

The district outperformed its fiscal 2014 budget due largely to cost savings from unfilled positions. The district ended the year with a strong \\$85.4 million (34.6% of spending) in unrestricted general fund reserves. The district projects a fiscal 2015 planned draw down of \\$3.5 million (1.3% of budgeted spending), which includes \\$6.2 million for acquisition of technology and vehicles. Officials anticipate maintaining well in excess of its three month operating reserve target at year-end.

Officials expect a modest 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 beginning in fiscal 2016.

The district's maintenance and operations (M&O) tax rate resides at the statutory cap of \\$1.04 per \\$100 of taxable assessed value (TAV). The district does not have immediate plans to pursue a tax ratification election to tap the additional \\$0.13 available to it under current statutory provisions.

POSITIVE ECONOMIC PROSPECTS

The district is part of the sizable Dallas-Fort Worth-Arlington economy. Affordable land spurred residential development throughout the district over the past two decades, fueling rapid population and enrollment growth. The district projects more moderate enrollment growth over the next several years, which Fitch considers reasonable based on recent trends.

The fiscal 2015 TAV of \\$10.3 billion reflects solid 8% growth over the prior year. A robust and expanding transportation network, combined with the district's recent population gains, continue to attract commercial development. Preliminary fiscal 2016 TAV growth of 5.3% reflects appreciation of existing properties, new residential and new commercial construction. Fitch anticipates ongoing tax base growth in at least the near term based on reported residential and commercial development activity underway.

Wealth levels in the city of Mansfield trend above state and national averages. The city's unemployment rate of 3.2% as of March 2015 remains below the regional, state, and national averages. Recent declines in unemployment have been driven by employment growth as the local economy continues to expand.

HIGH DEBT OFFSET BY AFFORDABLE BENEFIT COSTS

Debt ratios are high, with overall debt of 7.8% of market value. Scheduled principal amortization remains below average with about 33% of principal retired in 10 years.

Voters showed public support for the district's capital program in November 2011 with the successful authorization of \\$198 million in ULT bonds to fund the rebuilding of five elementary schools and various campus improvements and upgrades. This issuance, the final from the 2011 authorization, was accelerated to avoid a potential increase in the homestead exemption. Officials do not anticipate seeking additional ULT bond authorization prior to 2017.

Fitch views the debt service tax rate (just below the \\$0.50 per \\$100 of TAV statutory cap for new debt issuance) and below-average principal repayment as credit concerns. However, tax base growth in excess of enrollment growth and capacity in existing facilities provide some flexibility regarding the schedule of new debt issuances.

District employees participate in the Teacher Retirement System of Texas (TRS), a cost-sharing multiple-employer pension system. The bulk of contributions are made by individual plan members and the state of Texas on behalf of the district, thus minimizing liability for the district. The system also offers other postemployment benefits (OPEB) to retirees.

Fitch views the district's limited pension and OPEB obligations as an offset to the high debt levels. Carrying costs for debt service, pensions and OPEBs are relatively low at 14.7% of fiscal year 2014 governmental spending, and an even lower 13% considering state support for debt service.

The state's funding of school districts' payments to TRS helps keep these fixed costs low. However, like all Texas school districts, the district is vulnerable 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.