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 Ennis Independent School District (ISD), Texas (the district) bonds:

--\$70.5 million unlimited tax general obligation (ULTGO) refunding bonds, series 2015.

The bonds are expected to sell via negotiation during the week of April 13, 2015. Proceeds will be used to refund outstanding bonds for debt service savings.

In addition, Fitch affirms the following underlying rating:

--\$203 million (current accreted value) ULTGO bonds at 'AA-'.

The Rating Outlook is Stable.

SECURITY

The bonds are direct and general obligations of the district payable from a continuing direct annual ad valorem tax levied by the district without limit as to rate or amount.

Additionally, all series except for the 2013 refunding bonds bonds are secured by the Texas PSF whose bond guarantee program is rated 'AAA' by Fitch. (For more information on the PSF, see 'Fitch Affirms Texas PSF Rating at 'AAA'; Outlook Stable,' dated Sept. 4, 2014 and available at www.fitchratings.com.)

KEY RATING DRIVERS

SOLID FINANCIAL PERFORMANCE: The district's financial performance is a credit positive, characterized by conservative budgeting, consecutive years of operating surpluses and healthy reserves.

VERY WEAK DEBT PROFILE: Significant debt issuance for new facilities has resulted in high debt metrics. In addition, absent unexpectedly strong taxable assessed value (TAV) growth, sharply escalating debt service will severely limit the district's ability to issue new money bonds for the foreseeable future. Stable enrollment is expected to limit capital needs for at least 10 years to those payable through reserves and grants.

CONCENTRATED TAX BASE: Very modest (TAV) growth in recent years follows two years of modest recessionary declines. Development underway should support continued modest tax base gains over the next couple of years. Top taxpayer concentration remains a weakness, though the risk is somewhat offset by the diversity of companies making up the list.

STABLE LOCAL ECONOMY: District employment metrics remain favorable, with characteristically low unemployment, and strong labor force and employment growth, resulting from the district's proximity to the broader Dallas employment market. Wealth and income levels remain below average, while continuing to exhibit relatively high growth rates.

RATING SENSITIVITIES

I&S TAX RATE IMPACTS:
The district is at the statutory maximum tax rate for new money debt issuance; however, the tax rate could exceed the maximum for existing debt if the rising debt service exceeds TAV growth. The district's constrained borrowing capacity could pressure the rating if capital needs arise, forcing the district to use its O&M taxing capacity or its general fund reserves.

CREDIT PROFILE
The district had a 2013 population of approximately 27,667, and is located approximately 35 miles south of Dallas. The district is located primarily in Ellis County (rated 'AA'; Outlook Stable by Fitch) and includes the city of Ennis, a commercial and industrial center at the intersection of Interstate 45 and Highway 287.

MANUFACTURING-CENTERED ECONOMY
Manufacturing and trade sectors drive the local economy, representing the majority of the district's top taxpayers and employers. Top 10 taxpayers make up a sizable 27% of TAV including energy, utility and manufacturing facilities (plastics, chemicals, automotive parts, envelopes, furniture, and construction products). The top two taxpayers, CVS Distributing and Ennis-Tractabel/Suez Power Company, account for a combined 10% of TAV and have remained among the top taxpayers for over a decade. Product/sector diversity among the top taxpayers alleviates some of the credit concern associated with concentration risk.

The district's tax base has grown modestly in recent years following four years of more robust expansion through fiscal 2009. Management expects modest growth to continue in future years due to existing tax base appreciation as well as the planned expansion of some major taxpayers and the investment by several new firms. City management reported that housing starts for fiscal 2015 have increased significantly to approximately 150, from roughly 50 in fiscal 2014.

County unemployment of 4.2% as of January 2015 is improved from 5.5% a year earlier and has remained below state and national levels in recent years. Top employers include an array of manufacturers, energy, distribution and retail firms. Income metrics in the district remain 15% to 30% below state and national averages.

SOUND FINANCIAL PERFORMANCE
The district has registered consecutive operating surpluses (after transfers) since fiscal 2001. A modest fiscal 2014 operating surplus of \$307,000 (0.7% of general fund spending) resulted from generally conservative expenditure budgeting and the deferral of capital spending. Fiscal 2014 unrestricted fund balance was \$17.5 million, or a high 41.6% of general fund spending.

The fiscal 2015 budget includes a transfer of \$3 million from fund balance to the capital projects fund to be spent over three years for improvements to the district's heating, ventilation, and cooling systems. Fiscal 2015 reserves are expected to remain robust despite the draw at \$14.5 million, or 31% of budgeted general fund spending. Similar to many districts having undergone a period of rapid growth, Ennis ISD's M&O tax rate is at the cap of \$1.04 per \$100, although the district does not report plans to seek a tax ratification election to exceed the maximum statutory rate at this time.

WEAK DEBT PROFILE; MANAGEABLE CAPITAL NEEDS AND RETIREE COSTS
Overall debt on a current accretion basis is high at 11% of market value and \$8,674 per capita in fiscal 2014; amortization is moderate with 40% of debt maturing in 10 years. Debt service costs are also high at 15% of governmental expenditures (net of state support). Using maximum annual debt service of \$16 million starting in fiscal 2024, debt service costs would rise to a very high 28% of fiscal 2014 governmental expenditures. The planned refunding significantly reduces the outstanding CABs debt burden for debt service savings. Most of the \$15 million in net present value savings is being taken in fiscal 2016-2021 to reduce debt service to below the statutory cap at current TAV.

The district's debt service tax rate of \$0.50 per \$100 of TAV represents the statutory maximum rate under the state attorney general's test for new money debt issuance. With the recent completion of major facilities projects and fairly flat enrollment projections, officials report the district will have no facility needs requiring debt issuance for up to 10 years. Infrastructure maintenance costs are expected to be paid from a combination of general fund and grant monies.

The district contributes to the Teacher Retirement System of Texas (TRS), a cost-sharing, multiple employer defined benefit pension plan. Additionally, the district contributes to the Teacher Employee Recruitment and Retention Program (TERRP), a defined contribution plan completely funded by the district. Carrying costs, including debt service and TRS contributions, represent a manageable 16.5% of fiscal 2013 governmental expenditures.

TEXAS SCHOOL FUNDING 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.