OREANDA-NEWS. April 13, 2016. Fitch Ratings has assigned a 'AAA' rating to the following Dallas County Community College District, Texas (DCCCD or the district) limited tax general obligation (GO) bonds:

--\\$125.8 million general obligation (GO) refunding bonds series 2016.

The bonds will be used to refund certain outstanding obligations for debt service savings and pay the costs of issuance.

The bonds will be sold via competitive sale as early as the week of April 25.

Fitch has also affirmed at 'AAA' the district's \\$321 million in outstanding GO bonds (pre-refunding).

The Rating Outlook is Stable

SECURITY

The GO bonds are secured by an ad valorem tax levied against all taxable property within the district, limited to \\$0.50 per \\$100 of taxable assessed valuation (TAV).

KEY RATING DRIVERS

STRONG FINANCIAL PROFILE MAINTAINED: Recent financial performance reflects a continued trend of solid operating surpluses. Unrestricted reserves are expected to be in excess of the district's strong minimum threshold of no less than four months of spending. The district's relatively low tuition and tax rate afford it considerable revenue raising flexibility.

STRONG MANAGEMENT PRACTICES: Financial management practices are strong and proactive, featuring long-term planning for capital and operations, conservative budgeting, and interim reporting.

TAV, ECONOMIC GROWTH: Taxable assessed valuation (TAV) gains continue to strengthen and TAV is now above pre-recessionary levels. There is no taxpayer concentration. Unemployment is low and the Dallas-Fort Worth (DFW) MSA continues to outpace the nation in total employment, population, and income growth.

DEBT AND OTHER LONG-TERM LIABILITIES MODERATE: The overall debt burden is moderately high. Principal amortization of tax-supported debt is rapid. The district is currently evaluating its capital needs and could have material revenue-backed debt plans for programmatic expansion over the near-term. Renewal/replacement needs appear generally manageable given ongoing, pay-go capital investment. Carrying costs are modest.

RATING SENSITIVITIES

MAINTENANCE OF FINANCIAL POSITION: The rating is sensitive to material changes in the district's debt profile or consistently strong finances, which are underpinned by ample revenue-raising flexibility, stable and strong reserves, and conservative fiscal practices.

CREDIT PROFILE

Coterminous with Dallas County, the district encompasses 860 square miles and serves a large population base of nearly 2.5 million. DCCCD is the largest community college district in the state, with seven colleges located throughout the county, along with five neighborhood campuses. County income and educational attainment metrics are mixed, but typically exceed those of the state.

CONTINUED TAX BASE AND ECONOMIC GROWTH

The district benefits from its central location within the broad and diverse Dallas-Fort Worth metropolitan economy. Dallas, together with its sister-city Fort Worth, is an economic and cultural hub for the southwestern U.S. Dallas is the third largest city in Texas and headquarters for a broad array of corporate entities, serving as a nationally recognized technology, trade, and health service center. The city exhibited good resiliency during the national recession and shifted into economic expansion earlier than many other parts of the country. Top employers in the education, government and health services sectors lend stability to the city's employment base.

Dallas county unemployment rates typically exceed those of the larger MSA, although both are presently low. The unemployment rate fell to 4.0% in January 2016 from 4.7% the year prior. The January 2016 rate was slightly below the state (4.4%) and nation (5.3%).

TAV gains have continued to strengthen since fiscal 2013. The strong 8% gain in fiscal 2016 to \\$197 billion was due largely to tax base appreciation and brought TAV above pre-recessionary levels. Management projects additional, moderate TAV growth, which Fitch believes is reasonable given a robust economy that should drive new construction and further commercial and residential reappraisal gains.

ENROLLMENT TRENDS COUNTER-CYCLIC TO ECONOMY

Most students attend the college on a part-time basis and are residents of Dallas County. Tuition rates remain among the area's most affordable despite increases typically every 2 years. Student enrollment as measured by full-time student equivalents (FTSEs) totaled 49,535 in fiscal 2015, reflecting the effect of modest annual erosion since fiscal 2010 (1.5% decline on average).

Nonetheless, the district maintains some of the residual effect of gains made over the recession and more recent enrollment trends beginning in fiscal 2014 have remained relatively stable year-over-year. Workforce development, online courses/degrees, and dual credit high school enrollment programs are all targeted by management to drive much of the modest enrollment growth projected over the near term.

REVENUE DIVERSITY SUPPORTS STRONG FINANCIAL PROFILE AND RESERVES

The district benefits from experienced, conservative financial management as well as a diverse revenue stream comparable to all community colleges in the state that provides significant financial flexibility. The revenue stream includes property taxes for operations and debt service (the largest revenue source at about 42% of total revenues or \\$224 million in fiscal 2015), followed by relatively comparable percentages of funding from federal (largely Pell grant) revenue, state appropriations, and tuition at about 20% - 22% in fiscal 2015.

The district has relied more heavily on revenues from a healthy Dallas tax base as tuition revenues and state operating funds have declined or stagnated in recent years.
The district's overall tax rate remains one of the lowest in the state. The approximately \\$0.10 per \\$100 TAV operating tax levy in fiscal 2016 maintains headroom under the local levy limit of \\$0.16 per \\$100 TAV for operations that could generate additional revenues, if necessary. The district maintained a nominally flat operating tax rate in fiscal 2016 at slightly over \\$0.10 per \\$100 TAV for the third consecutive fiscal year. The current tax levy also includes a prior \\$0.02 increase to the operating tax levy that generates about \\$16 million annually, dedicated by management as funding for various pay-as-you-go renewal and replacement capital projects.

A trend of solid, positive operating margins stemming from revenue growth and expenditure control underpins the district's strong financial position. The district continued this trend and produced strengthened operating margins at 9% and 8.6% in fiscal years 2014 and 2015 respectively. Liquidity as measured by available funds (cash/investments not permanently restricted) to expenses rose to about \\$317 million or 65% in fiscal 2015 from \\$279 million or 60.4% in fiscal 2014.

The approved \\$560 million fiscal 2016 operating budget is structurally balanced and declined by a modest 1% or \\$6.5 million from the prior year. Additional property tax revenue generated of about \\$15 million more than offset a modest decrease in state funding due to recent enrollment declines. Year-to-date revenue and expenditure trends remain in line with budget despite the year's flat enrollment trend (2% growth was budgeted) and management indicates year-end performance should be similar to fiscal 2015 (outside of the impact of GASB 68).

Fitch expects balance sheet resources to remain solid, comparable to historical trends. Unrestricted reserves have been maintained well above the minimum four months of spending, consistent with the board's established policy and reflective of DCCCD's financial strength and stability. Fiscal 2015 results remained in line with this policy despite the initial booking of the district's GASB 68 liability in the financial statements that reduced unrestricted reserves to \\$126 million from \\$165 million in fiscal 2014. Management projects maintaining unrestricted reserves at a strong five months of spending in the near-term while prioritizing pay-go capital spending over accumulating higher levels of reserves. Fitch views this practice as a positive credit consideration.

MODERATE DEBT AND OTHER LONG-TERM LIABILITIES

Overall debt levels are moderately high at approximately \\$4,840 per capita or 5.5% of fiscal 2016 market value. GO and maintenance tax bond programs have a relatively minor impact on the district's tax rate and direct debt ratios given the size of the district's tax base and infrequent borrowing.
This refunding is projected to accelerate tax-supported debt service as the district intends to maintain a stable debt service tax rate in the near-term for future flexibility. The debt service levy was approximately \\$0.02 per \\$100 TAV in fiscal 2016. Inclusive of this issuance, principal amortization of the district's tax-supported debt is expected to be very rapid with 81% repaid in 10 years.

The district is currently evaluating its capital needs, although management has no firm plans presently. Fitch expects management's typical operating conservatism will extend to its future debt plans. Self-supporting revenue debt, backed by pledged tuition/fees, may be considered in near-term to fund management's plan for expanding key, high-demand programs throughout its seven, separately accredited colleges.

The district participates in the Teacher Retirement System of Texas (TRS), a cost-sharing multiple-employer defined benefit plan. As the non-employer contributing entity, the state contributes an amount roughly equal to the current employer contribution rate.

However, like all Texas community colleges and K-12 public schools, the district is vulnerable to future policy changes by the state. Legislative changes in 2013 increased the state's annual contributions, although it remains to be seen whether this improves TRS' ratio of assets to liabilities over time.

Under GASB 68, the district reports its share of the TRS net pension liability (NPL) at \\$53.5 million, with fiduciary assets covering 83.3% of total pension liabilities at the plan's 8% investment rate of return assumption (approximately 75% based on a more conservative 7% investment rate of return). The NPL represents less than 1% of the district's fiscal 2016 market value. Other post-employment benefit (OPEB) contributions paid by the district are nominal, as the state and employees also pay the bulk of these costs. Carrying costs for debt service, pensions and OPEB are presently modest at 13.2% of total operating/non-operating spending in fiscal 2015.