OREANDA-NEWS. Fitch Ratings has assigned a 'AAA' rating to the following Birdville Independent School District, TX (the district) unlimited tax (ULT) school building bonds:

--$43.09 million ULT school building bonds, series 2016.

The bonds are scheduled for a negotiated sale the week of Aug. 15. Proceeds will be used to finance various capital improvements in the district.

The 'AAA' rating on the bonds is based on a guaranty provided by the Texas Permanent School Fund (PSF), whose bond guaranty program is rated 'AAA' by Fitch. In addition, Fitch assigns a 'AA+' underlying rating to the series 2016 bonds and affirms the 'AA+' rating on the district's $283.59 million in outstanding ULT bonds and the district's Issuer Default Rating (IDR).

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited property tax levy of the district and also carry the Texas PSF bond guaranty (for more information on the Texas PSF see 'Fitch Affirms Texas PSF Rating at 'AAA'; Outlook Stable', dated Sept. 4, 2014).

KEY RATING DRIVERS

The 'AA+' IDR reflects the district's historically strong operating performance and ample flexibility to manage through an economic cycle. Long-term liabilities are low and are not expected to increase in the near term. District enrollment is expected to remain flat to slightly declining over the next three to five years.

Economic Resource Base

The district is located in Tarrant County, north of Fort Worth and near the Dallas-Fort Worth International Airport. Its 42-square mile service area is largely built-out and includes the cities of North Richland Hills, Haltom City, Richland Hills, and Watauga, as well as a portion of the city of Hurst.

Revenue Framework: 'a' factor assessment

The property taxes and state aid that support district operations are expected to continue to yield revenue growth generally in line with inflation. The district's independent legal ability to raise revenues is limited by state law, and the district has reached the limit allowed without additional voter approval.

Expenditure Framework: 'aa' factor assessment

District expenditures are likely to equal or slightly exceed revenues as enrollment is projected to stagnate or decrease. The low fixed-cost burden reflects state support for debt service, pension and OPEB costs.

Long-Term Liability Burden: 'aaa' factor assessment

The long-term liability burden is low, reflecting strong state support for retiree benefits and an affordable amount of outstanding district debt. With limited additional capital needs identified, the long-term liability burden is expected to remain in the low range.

Operating Performance: 'aaa' factor assessment

The combination of the district's expenditure flexibility and healthy reserve levels leave it well positioned to address cyclical economic downturns.

RATING SENSITIVITIES

Maintenance of Financial Flexibility: The rating is sensitive to material changes in the district's solid financial profile and budget flexibility, which Fitch expects it to maintain.

Manageable Long-Term Liabilities: A material increase in long-term liabilities above the level currently expected could pressure the rating.

CREDIT PROFILE

Enrollment in this mature district has been increasing slowly over the past six years. An open-enrollment policy for non-district students (which represent about 2% of the study body) enables the district to maximize facility utilization and state formula funding. Current enrollment is just over 24,300 students.

Revenue Framework

Funding for public schools in Texas is provided by a combination of local (property tax), state and federal resources. The state budgets the majority of instructional activity through the Foundation School Program (FSP), which uses a statutory formula to allocate school aid taking into account each district's property taxes, projected enrollment, and amounts appropriated by the legislature in the biennial budget process. The vast majority of districts are funded using a target revenue approach, whereby the combination of local and state funding for operations meets a predetermined per pupil amount (which varies from district to district).

State sources remain the largest operating revenue source, making up a bit more than half of general fund monies; property taxes account for approximately 43% of the operating total. Revenue growth is primarily a function of enrollment, as the state seeks to ensure a certain level of per pupil spending for all Texas school districts. Enrollment is expected to remain flat to declining, limiting near term revenue growth prospects.

The district's general fund revenues have grown at a compound annual growth rate of 2.9% over the past 10 years, below U. S. GDP and about 0.6% above CPI..

The district's O&M tax rate of $1.04 per $100 TAV is below the legal limit of $1.17, but any increase in the rate would require voter approval. The district's debt service tax rate increased to $0.414 per $100 of TAV in fiscal 2016 after several years at $0.395; this rate remains below the statutory new issuance cap of $0.50. Management reports limited additional borrowing plans and no increases to the debt service tax rate over the next several years.

Expenditure Framework

The district's main expenditure item is instruction, at approximately two-thirds of general fund spending. The district also funds some annual capital outlay from general fund revenues for maintenance and repairs on facilities.

Due to the weak enrollment projections, Fitch expects expenditure growth to be in line to slightly above revenue growth absent policy actions. However, Fitch recognizes a high level of expenditure flexibility in terms of the district workforce (i. e. individual, short-term contracts).

The district's fixed cost burden is moderate, with carrying costs for debt, pensions and OPEB equaling about 13% of fiscal 2015 governmental expenditures. Fitch expects the fixed cost burden to remain moderate given the strong state support for retiree benefits, limited future capital needs, and the current debt amortization structure.

Long-Term Liability Burden

Long-term liabilities as a percentage of total personal income are low. The district anticipates the possibility of small additional debt issuances to complete current capital improvements, and as a result Fitch expects the long-term liability burden to remain manageable.

The district participates in the Texas Teachers Retirement System (TRS), a cost-sharing multiple employer pension system. Under GASB 67 and 68, TRS's assets cover a reported 83% of liabilities as of fiscal 2015, a ratio that falls to 75% using a more conservative 7% return assumption. The state assumes the majority of TRS' employer contributions and net pension liability on behalf of school districts, except for small amounts which state statute requires districts to assume. Like all Texas school district's, the district is vulnerable to future policy changes that shift more of the contributions and liabilities onto districts as evidenced by a relatively modest 1.5% salary contribution requirement, effective in fiscal year 2015.

Operating Performance

The district has maintained a sound financial cushion over the last six fiscal years, weathering the recession successfully. General fund balances have remained relatively stable over this period, with the unrestricted fund balance reaching a strong $53.9 million or 29.3% of spending in fiscal 2015.

The district has demonstrated a strong commitment to financial flexibility. Budgeting is conservative and management has been proactive in maintaining operational balance.

The district retains adequate expenditure flexibility to manage well through economic downturns.

The district has demonstrated a strong commitment to financial flexibility. Budgeting is conservative and management has been proactive in maintaining operational balance.