OREANDA-NEWS. Fitch Ratings has affirmed Burleson Independent School District, Texas' (the district) unlimited tax (ULT) debt at 'AA-' as follows:

--$281 million outstanding ULT bonds series 1995, series 2007, series 2008, series 2009, series 2010, series 2011, series 2015 and series 2016.

In addition, Fitch has affirmed the district's Issuer Default Rating (IDR) at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited ad valorem pledge against all taxable property within the district. The series 2007, 2008, 2010, 2011, 2015 and 2016 bonds are further backed by the PSF bond guaranty 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 Aug. 5, 2015).'

KEY RATING DRIVERS

The 'AA-' IDR reflects the district's high level of operating flexibility and anticipated financial resilience through the economic cycle that is largely the result of its solid budgetary control and manageable carrying costs. The likely continuation of income and population gains should keep the long-term liability burden in the moderate range.

Economic Resource Base

Burleson's affordable land, convenient transportation routes, mineral exploration activity, and proximity to larger Dallas-Fort Worth-Arlington employment base have combined to fuel rapid population growth. Only about half of the district is currently built-out, and planned residential and commercial development suggests growth will continue for the near-to-intermediate term.

Revenue Framework: 'a' factor assessment

Revenues have historically grown comfortably above national GDP, fueled by rapid enrollment growth. Fitch expects revenues increases will moderate somewhat going forward, comparable to tempered enrollment growth trends in recent years. The district's independent legal ability to raise revenues is limited by state law.

Expenditure Framework: 'aa' factor assessment

District expenditures are likely to keep pace with or slightly exceed revenues. Sound expenditure flexibility is a result of moderating carrying costs that benefit from modest employer retiree costs shared with the state and the district's ability to adjust its labor costs, if needed.

Long-Term Liability Burden: 'aa' factor assessment

The long-term liability is a moderate share of resident personal income, and is largely comprised of direct debt. Fitch expects it will remain consistent with an 'aa' assessment as future growth in long-term liabilities should be balanced against additional economic expansion.

Operating Performance: 'aaa' factor assessment

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

RATING SENSITIVITIES

Maintenance of Financial Flexibility: The rating is sensitive to material changes in the district's solid expenditure flexibility and high reserve levels, which Fitch expects it to maintain throughout the economic cycle.

CREDIT PROFILE

The district encompasses an area of approximately 55 square miles in the northern portion of Johnson County and the south central portion of Tarrant County. The district's population is estimated to be about 62,000, with current enrollment at roughly 11,400 students. Management is estimating annual enrollment growth at about 3% over the next several years, slightly lower than the 4% average annual growth rate experienced over the past 10 years.

Improving residential property prices and new residential and commercial development contributed to strengthening of the tax base in fiscal 2015 and 2016. It had been flat-to-modestly declining for the prior four years, largely due to fluctuations in the Barnett Shale mineral values. Management's expectations are that this positive trajectory will continue over the next several years.

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 funding comprised a little over 50% of total general fund revenue in fiscal 2015, a function of the district's lower property wealth levels.

The district's general fund revenues have grown at a compound annual growth rate of 6.2%, above the growth rate for U. S. GDP. Fitch believes revenue growth prospects are favorable but may not match the prior rapid pace as enrollment growth moderates compared to prior years.

The district's independent legal ability to raise revenues is limited, as the current maintenance and operations (M&O) tax rate is at the legal limit of $1.04 per $100 taxable assessed value (TAV) and would need voter authorization to be raised to the statutory limit of $1.17. The district may approach voters in the next couple of years to seek an increase in the M&O tax rate.

The district levies a separate, unlimited debt service tax rate of $0.50 per $100 TAV, equal to statutory cap of $0.50 per $100 TAV that cannot be exceeded for new debt issuances.

Expenditure Framework

The vast majority of district operational spending is comprised of instruction related expenditures, common for school districts.

Fitch expects the natural pace of spending growth to be in line with to marginally above general fund revenues based on its capital needs and the enrollment-based state funding formula.

The district has demonstrated its ability to adjust staffing and class sizes in order to control key expenditure items for unanticipated growth and/or financial hardship without affecting its educational goals. The district labor costs are quite malleable given the lack of group/collective bargaining and one-year employment contracts. Fixed carrying costs for debt, pensions and other post-employment benefits (OPEB) are moderate, at approximately 19% of 2015 governmental expenditures. Carrying costs benefit from state support for the vast majority of school district pension and OPEB costs. Fitch expects the district's carrying costs will remain fairly stable considering the district is constrained in the near term from returning to voters for general obligation (GO) authorization as the district's debt service tax rate is at the $0.50 statutory cap for new debt issuance.

Long-Term Liability Burden

The district's long-term liability burden is estimated by Fitch to be a moderate 15% of personal income. Direct debt constitutes a little over 80% of the district's overall debt portfolio. Recent capital needs have been funded from capital projects reserves. Management is creating a facility planning committee to address future facility capital needs. Fitch expects the district's long-term liabilities to remain within a moderate range; any future debt, although currently not planned by management, should correspond with continued gains in population and income within the district.

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 covered 83.3% of liabilities (using an 8% discount rate) as of fiscal 2015, a ratio that falls to a Fitch-estimated 75% using a more conservative 7% return assumption.

The state assumes the majority of TRS's employer contributions and net pension liability on behalf of school districts expect for small amounts which state statute requires districts to assume. Like all Texas school districts, 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% of salary contribution requirement, effective in fiscal 2015. The proportionate share of the system's net pension liability paid by the district is minimal.

Operating Performance

The district has maintained an ample financial cushion with high reserve funding levels despite recessionary pressures and state funding cuts, garnering an 'aaa' assessment. Fitch believes the district would use a combination of its sound reserves and solid expenditure flexibility to offset the impact of a moderate recessionary revenue decline.

The district has demonstrated a strong commitment to supporting financial flexibility. The district typically budgets conservatively and has a history of building its reserve position in periods of economic recovery.

The district ended fiscal 2015 with a general fund net operating surplus of about $1.3 million (1.6% of spending), with unrestricted general fund reserves equal to about 31% of spending. The fiscal 2016 adopted budget was balanced; however, management anticipates drawing down on general fund reserves of roughly $3 million for capital and other one-time needs. The fiscal 2017 budget is balanced with general fund reserves estimated to remain at approximately $22 million (25% of budgeted spending).