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 Clint Independent School District, Texas' (the district) unlimited tax (ULT) bonds:

--\$22.6 million ULT refunding bonds, series 2015.

The bonds are scheduled for negotiated sale the week of March 16. Proceeds from the sale will be used to refund a portion of the district's outstanding ULT debt for savings.

Fitch also affirms the 'AA-' underlying rating on the district's \$105.7 million in outstanding ULT bonds (pre-refunding).

The Rating Outlook is Stable.

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

KEY RATING DRIVERS

STRONG FINANCIAL PERFORMANCE: The district consistently records operating surpluses which has resulted in the steady growth of currently healthy general fund reserves.

TAX BASE GROWTH: New residential construction and commercial expansion have offset valuation losses, contributing to overall tax base growth over the past several years, albeit at a slower pace post-recession. The district is located on the eastern boundary of El Paso County and is positioned to benefit from growth in the region given its proximity to the city of El Paso, large land mass, and low population density.

BELOW AVERAGE SOCIOECONOMIC PROFILE: The region's income levels are well below average but have grown faster than state and national levels over the past five years. Unemployment has improved from a year ago, but continues to exceed state and national averages.

HIGH DEBT RATIOS; SUBSTANTIAL STATE SUPPORT: The district's overall debt is high in relation to market value, although overall fixed costs are low in relation to governmental spending due to state assistance. The district plans to approach voters with a bond referendum this May to address facility upgrades.

RATING SENSITIVITIES

DEBT BURDEN AFFORDABILITY: The rating is sensitive to a significant increase in the district's already elevated debt levels. This risk is somewhat mitigated by the substantial debt service support the district receives from the state, thus keeping the debt burden affordable for taxpayers (assuming consistency in the state funding formula).

CREDIT PROFILE
The district is located approximately 18 miles southeast of the city of El Paso (general obligation bonds rated 'AA' with a Stable Outlook by Fitch). The district serves Horizon City, the town of Clint, and the unincorporated area of East Montana within a large 380 square mile boundary.

LOCAL ECONOMY BENEFITS FROM PROXIMITY TO EL PASO
Growth in the district's primarily residential tax base has moderated in recent years but continued even through the recession. The district's taxable assessed valuation (TAV) grew by a compound annual average of 4% since fiscal 2008. Ease of access to the city of El Paso and the Fort Bliss Air Defense Training Center make the district's affordable housing a primary growth driver. The top 10 taxpayers are represented by a utility, real estate, manufacturing, and construction interests with no taxpayer or sector concentration.

IHS Global Insights points to the El Paso region's younger-than-average population as a key strength, supporting strong service sector growth. However, relatively low skill levels limit high-paying job growth. The city's latest unemployment rate of 5.7% for December 2014 is improved from the prior year but lags the state and national averages of 4.1% and 5.4%, respectively. Wealth as measured by median household income is about two-thirds of national averages.

Enrollment growth averaged 4.4% annually from fiscal 2005 to 2011 but has since been relatively flat at 11,750. The district projects flat enrollment for planning purposes and monitors daily attendance closely to make timely budget adjustments if needed. Longer-term, outward expansion of El Paso and possible staffing increases at Fort Bliss likely will generate additional enrollment gains at the district.

STRONG FINANCIAL PERFORMANCE
Management budgets conservatively and maintains a healthy level of reserves, which Fitch considers prudent in light of recurring state budget uncertainties. State funding contributed more than 75% of the district's operating revenues over the past five years, followed by ad valorem tax revenues and federal monies.

The district's financial profile is characterized by positive operating results and strong reserves. Fiscal 2014 audited results were better than a previously projected deficit due to capital expenditures coming in under budget and higher than expected enrollment. At the close of fiscal 2014, the district's unrestricted fund balance stood at \$27.5 million, or a high 29.3% of spending.

The district's operating budget for fiscal 2015 is balanced and includes the use of \$1 million in reserves for non-recurring capital outlays and a modest 1.5% pay increase to remain competitive with area school districts. Management reports that year-to-date results are substantially in line with the budget.

MANAGEABLE DEBT BURDEN
Metrics for overall debt outstanding are mixed, with moderate debt per capita (\$4,165) and very high debt per market value (14.4%), reflecting the area's low property wealth. The district's debt service payments were a very low 3% of government spending after adjusting for 76% state debt service assistance received in fiscal 2014. The fiscal 2014 debt service payment makes up a higher 9.3% of spending without the state adjustment.

The district is currently conducting a facilities study and updating their demographic projections in anticipation of a bond referendum to be held this May. The district will seek \$80 million in authorization for three-phases of capital projects that will upgrade school facilities district-wide. The affordable debt service tax rate of \$0.295 per \$100 of TAV (comfortably below the statutory new money issuance cap of \$0.50), along with the significant state support of debt service mitigate concerns over a potential increase in debt levels.

The district contributes to the Teacher Retirement System of Texas (TRS), a cost-sharing, multiple-employer defined benefit pension plan. The district's pension contribution, which is set by state law, was \$1.4 million (a nominal 1.2% of governmental spending) in fiscal 2014. Other post-employment benefits are also provided through TRS and district contributions are minimal. However, districts are susceptible to future funding changes by the state as evidenced by a relatively modest 1.5% of salary contribution requirement effective fiscal year 2015.

TEXAS SCHOOL DISTRICT LITIGATION
For the second time in the past two years a Texas district judge ruled in August 2014 that the state's school finance system is unconstitutional. The ruling, which was in response to a consolidation of six lawsuits representing 75% of Texas school children, found the system inefficient, inequitable, and underfunded. The judge also ruled that local school property taxes are effectively a statewide property tax due to lack of local discretion and therefore are unconstitutional.

Following a similar ruling in February 2013, the judge granted a motion to reopen the lawsuit four months later after state legislative action that partially restored state funding levels and made other program changes. The Texas attorney general has appealed the judge's latest ruling to the state supreme court. If the state school finance system is ultimately found unconstitutional, the legislature will be directed to make changes to the system to restore its constitutionality. Fitch would view positively any changes that include additional funding for schools and more local discretion over tax rates.