OREANDA-NEWS. Fitch Ratings has affirmed the following ratings for Waxahachie Independent School District, Texas (the district):

--$261 million ULT school building bonds outstanding (accreted basis) at 'AA-';

-- Issuer Default Rating (IDR) at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited property tax levied against all taxable property within the district. The bonds are further backed by the Texas Permanent School Fund bond guaranty program, rated 'AAA' by Fitch. (For more information on the Texas PSF bond guaranty program see 'Fitch Affirms Texas PSF Rating at 'AAA'; Outlook Stable', dated Aug. 5, 2015).

KEY RATING DRIVERS

The 'AA-' IDR reflects the district's proximity to the broad Dallas-Fort Worth economic resource base and solid overall financial position. The district's operating profile is characterized by solid expenditure flexibility, expectations for strong revenue growth, and adequate gap-closing capacity. Steadily growing enrollment is expected to require additional capital spending, funded mainly with debt, in the near term. As a result of this and slow amortization, the district's already elevated long-term liability burden is expected to increase in future years.

Economic Resource Base

The district is located in Ellis County, serving a 2015 population of nearly 44,500. Enrollment in 2015 of approximately 8,000 students has grown modestly in recent years, and is expected to continue to grow at roughly 2% annually. Taxable assessed value (TAV) has exhibited solid growth due to demand for the district's affordable land and proximity to the Dallas-Fort Worth metro area.

Revenue Framework: 'a' factor assessment

A combination of local property taxes and state aid supports district operations. The natural pace of revenue growth is expected to remain strong, given historical performance and continued enrollment growth. The district's legal ability to raise revenues is limited.

Expenditure Framework: 'aa' factor assessment

The natural pace of spending growth is expected to remain in line with or modestly above that of revenues, given recent investments in capital needs and current enrollment trends. Residual bond proceeds from prior issuances, along with pay-go spending, is expected to cover the district's most pressing capital needs. The district's moderate carrying costs reflect state support for retiree benefits, bolstering spending flexibility, but the rate of debt amortization is slow.

Long-Term Liability Burden: 'a' factor assessment

The combined burden of long-term debt and pension liabilities is elevated as a share of local personal income. Fitch expects debt levels to moderately increase, given the district's steady enrollment growth and related capital needs. Retiree benefit obligations do not represent a significant burden.

Operating Performance: 'aaa' factor assessment

The 'aaa' operating performance assessment reflects the district's ample reserve funding levels and adequate level of spending flexibility in the event of revenue declines.

RATING SENSITIVITIES

Maintenance of Financial Flexibility: The rating is sensitive to material changes in the district's expenditure flexibility and healthy reserve levels, which mitigate credit concerns over high debt, slow amortization and operating pressures associated with new facilities and enrollment growth.

CREDIT PROFILE

The district is located 30 miles south of Dallas, along a major transportation route. The advantageous location has fostered a well-established local manufacturing and industrial base. In addition, the availability of affordable land has spurred residential development and accompanying enrollment growth. Healthcare investments and generally positive economic trends have prompted new residential construction in the past three 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).

Approximately 45% of fiscal 2015 district revenues came from state aid, with the remainder generated largely by property tax revenues. Enrollment trends drive revenue performance, as any variations in property tax revenues due to TAV performance will be offset by state aid adjustments. Enrollment has grown steadily recently and is projected to continue at roughly 2% annually over the near to medium term.

District revenues have grown at a compounded annual growth rate of 3.8% over the last decade, performing above both national CPI and GDP growth. Fitch expects the natural pace of district revenue growth in future years to reflect historical performance, given current enrollment trends and the expectation for continued, steady enrollment growth in future years.

The district's independent legal ability to raise revenues is limited, as the current maintenance and operations (M&O) tax rate of $1.17 per $100 TAV is at the statutory limit. Voters approved the increase in the rate from $1.04 in September 2014. The district levies a separate unlimited debt service tax rate of $0.26 per $100 TAV, well below the statutory cap of $0.50 per $100 TAV for new debt issuances.

Expenditure Framework

The district spends the majority of its operating budget on instruction, consistent with most school districts. The district also funds some annual capital outlay from general fund revenues for maintenance and repairs on facilities.

Fitch expects the natural pace of spending growth to remain commensurate with revenues absent policy action, given expected enrollment growth and accompanying capital needs.

The district's solid expenditure flexibility reflects a large degree of control over workforce costs and affordable carrying costs for debt service, pension and other post-employment benefits (OPEB) of 14.4% of fiscal 2015 governmental spending. The district receives no state support for debt service. Carrying costs benefit from state support for district pension and OPEB costs.

Long-Term Liability Burden

The district's long-term liability burden is elevated at 21.9% of total personal income, and is comprised almost entirely of the district's very slowly-amortizing outstanding debt. The district's enrollment-driven capital needs suggest that debt levels will likely moderately increase in future years as the district addressing crowding issues in several of its schools.

The district participates in the Texas Teachers Retirement System (TRS), a cost-sharing multiple employer pension system. Under GASB 67 and 68, TRS' assets covered 83.3% 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 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 year 2015. The proportionate share of the system's net pension liability paid by the district is minimal.

Operating Performance

The district's financial cushion remains at a satisfactory level despite recessionary pressures, recent pay-go capital spending and state funding cuts, contributing to an 'aaa' assessment. Fitch believes the district would use a combination of its solid expenditure flexibility, conservative budgeting and strong reserves to maintain a satisfactory reserve safety margin in a moderate economic decline scenario.

In fiscal 2016, the district budgeted a $1.4 million use of general fund balance for facility upgrades. Better than estimated average daily attendance figures will result in additional state funding, and the district now expects balanced to slightly positive operating results.