OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating based on the Texas Permanent School Fund (PSF) guarantee and an 'AA' underlying rating to the following Bryan Independent School District (ISD), Texas' unlimited tax (ULT) bonds:

--$44 million ULT school building bonds series 2016.

The bonds are expected to be sold through competitive sale the week of June 6th. Proceeds will be used for realigning grades, building new facilities to manage growth, eliminating portable buildings, and addressing other infrastructure repairs and replacement.

Fitch also affirms the district's 'AA' Long-Term Issuer Default Rating (IDR) and underlying rating on the district's $174 million in outstanding ULT bonds.

The Rating Outlook is Stable.

SECURITY
The bonds are payable from an unlimited property tax levy and are further secured by the Texas Permanent School Fund (PSF) bond guarantee program (for more information on the Texas PSF see 'Fitch Affirms Texas Permanent School Fund at 'AAA'; Outlook Stable', dated Aug. 5, 2015, available at www.fitchratings.com).

KEY RATING DRIVERS

The 'AA' rating reflects the district's sound economic underpinnings, strong gap-closing capacity, and low fixed costs. Long-term liabilities will continue to be moderate despite planned debt issuances. Given the stability and maturity of the district, capital needs are expected to be minimal beyond the current authorization in the near term.

Economic Resource Base
Bryan ISD encompasses a large 400 square mile area in the College Station-Bryan metropolitan statistical area (MSA). The city is about 90 miles equidistant from Houston and Austin. The flagship campus of the Texas A&M University System in College Station (50,000 enrollment) drives much of the local economy, as well as oil and gas production and exploration in the nearby Eagle Ford Shale.

Revenue Framework: 'a' factor assessment
The property taxes and state aid that support the district are expected to continue to yield solid revenue growth given prospects for economic growth above inflation. The district's independent legal ability to raise revenues is limited by state law.

Expenditure Framework: 'aa' factor assessment
The district is mature and maintains expenditure flexibility given a lack of enrollment pressure, and growth in spending is likely to trend with revenue growth. The low fixed-cost burden reflects state-support for pension and other post-employment benefit (OPEB) costs.

Long-Term Liability Burden: 'aa' factor assessment
Debt and pension liability levels are moderate relative to personal income. Fitch anticipates the district's long-term liabilities will rise but remain a moderate burden on resources when the remainder of the district's remaining debt authorization is issued in the near term.

Operating Performance: 'aaa' factor assessment
The combination of the district's expenditure-cutting flexibility and solid reserve funding levels leave it well positioned to address cyclical downturns.

RATING SENSITIVITIES
Manageable Long-Term Liabilities: A material increase in long-term liabilities beyond current plans could pressure the rating.

CREDIT PROFILE

The district lies on the eastern boundary of the oil-rich Eagle Ford Shale, which experienced a boom in exploration and production before the energy price collapse. However, at its peak in fiscal 2015, mineral values made up only 11% of district taxable assessed value (TAV). Fiscal 2016 mineral values declined by 15%, yet total tax base growth was a still robust 8% given strong activity in other areas of the tax base, and preliminary figures for fiscal 2017 show modest growth.

Some industry concentration is evident with the majority of the top 10 taxpayers in oil exploration and production. The employment picture is favorable, marked by a low unemployment rate of 3.4% in the city of Bryan, although income metrics fall below the state and nation - primarily due to the large university student population.

Revenue Framework
Local revenues sources of late have become a larger portion of the district's overall profile given the strong tax base growth post-recession, though state sources still made up a significant 47% of general fund revenues in fiscal 2015. Revenue growth is primarily a function of enrollment as the state seeks to ensure a certain level of per pupil spending for all state school districts.

The district's general fund revenues have grown at a compound annual growth rate of slightly below U.S. GDP over the last 10 years. Fitch anticipates modest enrollment growth will continue yielding revenue growth in excess of inflation.

The current state funding formula for Texas K-12 schools' cushions district operational finances from swings in TAV. On the debt service side, concern over tax base vulnerability to mineral values is tempered by the flexibility in the debt service tax rate. Current projections anticipate that the debt service rate will remain at $0.31 per $100 TAV to service the entire $132 million 2014 bonding authorization (raised from $0.25 in fiscal 2016). The projected rate is well below the state attorney general's new-money tax rate cap of $0.50 and provides flexibility in the unlikely event of a precipitous decline in the tax base.

The district's M&O tax rate of $1.04 per $100 TAV is below the legal limit of $1.17. The district would need voter authorization to raise the rate and there are no current plans to do so.

Expenditure Framework
The district's main expenditure item is salaries, common for local governments. Management reports it is currently implementing a three-phase teacher compensation plan that will focus on performance in order to improve the turnover rate. Impact on the budget will likely be minimal.

Fitch expects expenditure growth at a similar rate to revenue growth absent policy actions, and notes that the district maintains tight control over its spending within each budget cycle based on available resources.

The district's fixed cost burden is low, with carrying costs for debt, pensions and OPEB equaling only 8.6% of 2015 governmental expenditures. Fitch expects the fixed-cost burden to remain low given the current descending debt service structure. The district retains flexibility in staffing levels given the modest enrollment growth prospects, and does not have any labor contracts.

Long-Term Liability Burden
The district received a strong 65% of voter support for its $132 million 2014 bond program, the fourth consecutive successful bond election since 2002. Management plans to issue the $44 million authorization remaining after this sale next year, completing the capital improvement plan for the rehabilitation and maintenance of existing facilities, as well as grade realignment and expansion at some schools to eliminate the use of portable classrooms. If the remaining authorization is issued as planned, Fitch anticipates the district's debt burden will rise but remain moderate.

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. Contributions are determined by state statute, rather than actuarially, and historically have fallen short of the actuarial level. Recent reforms have lowered benefits and increased statutory contributions to improve plan sustainability over time.

The proportionate share of the system's net pension liability paid by the district is minimal, representing less than 1% of personal income. The district's contributions currently are limited to 1.5% of salaries (total contribution of $2.5 million in fiscal 2015 compared to a general fund budget of $126 million).

Operating Performance
The district has grown their financial cushion despite recessionary pressures and state funding cuts. Moreover, the district retains solid expenditure flexibility to manage well through economic downturns. General fund balances have increased to a high $37.9 million as of fiscal 2015, equaling 30% of spending. Management reports fiscal 2016 will likely break-even given enrollment growth in excess of projections and some one-time spending. The district has a policy target of an unrestricted general fund balance between 60-90 days (16% to 24%) of spending.

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