OREANDA-NEWS. Fitch Ratings has assigned an 'AAA' rating to the following Comal Independent School District, Texas' (the district) unlimited tax (ULT) bonds:

--\\$136 million ULT refunding bonds, series 2015A.

The bonds are scheduled for sale via negotiation the week of August 24. Proceeds will be used to refund outstanding bonds for interest cost savings.

In addition, Fitch assigns an 'AA' underlying rating to the bonds.

The Rating Outlook is Stable.

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), available at www.fitchratings.com.


SOLID FINANCIAL POSITION: Conservative budgeting and a history of operating surpluses have produced significant general fund reserves and liquidity.

STRONG & GROWING ECONOMY: Assessed valuation has made strong gains post-recession due to continuing residential growth of the greater San Antonio-New Braunfels area.

POSITIVE SOCIOECONOMIC PICTURE: Residents' income levels and tax-base wealth are above average, while employment continues to grow.

CAPITAL NEEDS PERSIST: Enrollment gains have required the addition of significant new facility capacity. Capital needs will continue into the foreseeable future due to current school capacity levels and growth trends.

ELEVATED DEBT BURDEN: Key debt ratios are above average and amortization is slow. Future debt plans will likely keep debt levels high. The district has adequate taxing margin under the state's tax-rate cap for new debt issuance, and retirement benefit liabilities are modest.

ELEVATED DEBT: The rating is sensitive to changes in the district's long-term liability profile. Fitch expects the above-average debt burden to stay elevated, limiting the potential for positive rating action over the near term.


This district is located approximately 20 miles north of San Antonio and serves a predominantly rural 589-square-mile area primarily in Comal County, extending into portions of Kendall, Hays, Guadalupe, and Bexar counties.


Population growth in the district has significantly outpaced the state and nation, almost doubling since 2000. Enrollment reached over 20,000 during the latest academic year, up 4.4% from the prior year, which is in line with the five-year annual average growth rate. The district's most recent demographic study indicates growth at current rates will pressure capacity at several campuses in the near- to mid-term.

The district benefits from its proximity to San Antonio and Austin, as roughly two-thirds of its working population commutes to these labor markets. Comal County's March 2015 unemployment rate improved year-over-year to a low 2.8% from 4%, benefiting from a 2.9% gain in total employment during this period. The unemployment rate is below the state (4.2%) and national (5.6%) averages. Per capita money income is above average at 145% of the state and 141% of national averages. Per capita market value is a high \\$152,000.

Growth in taxable assessed value (TAV) has picked up since a one-year, modest contraction post-recession. TAV increased a cumulative 25% since 2010, and certified values for fiscal 2015 show 12% growth, the strongest year in that period. Preliminary values for fiscal 2016 point to another year of robust expansion.

The average home's taxable value increased from \\$169,233 in fiscal 2014 to \\$184,411 in 2015, and management projects continued TAV growth over the next several years given ongoing residential and commercial construction. Fitch views current projections as reasonable based on review of economic data, and prospects for continued growth are also bolstered by the district's proximity to San Antonio, land availability, and transportation infrastructure.


District finances are soundly managed reflected by strong fund balances and liquidity. The district transitioned from a fiscal year-end of August 31 to June 30 in fiscal 2014. The irregular reporting period marked the fifth consecutive year of positive operating results with an audited \\$12 million surplus (9.4% of spending), about half of which was attributable to the fiscal year change.

Fiscal 2015 operations are expected to close better-than-budgeted with a \\$1.5 million - \\$2 million surplus due to strong tax collections and average daily attendance, paired with cost savings in areas such as transportation. Unrestricted fund balance, already high at almost 40% of spending at the close of fiscal 2014, will likely remain level and well above the stated policy of 25% of spending. The fiscal 2016 adopted budget is balanced and includes an increase in staff and teachers, a flat tax rate, and the continuation of the 20% homestead exemption.


Debt levels are moderate at 4.7% of fiscal 2015 market value, although high at \\$6,882 on a per capital basis. This debt calculation includes the currently accreted value of outstanding capital appreciation bonds (CABs), which make up a moderate portion of the total debt portfolio. Amortization is slow at 36% retired in 10 years.

The debt service tax rate is currently at \\$0.35 per \\$100 TAV and below the state's \\$0.50 test for new money debt issuance. Margin under the new money cap provides the district some flexibility to help manage capacity-related spending pressures going forward.
The district contributes to the Teacher Retirement System of Texas (TRS), a cost-sharing, multiple employer defined benefit pension plan. Other post-employment benefits (OPEB) are also provided through TRS. The combined pension and OPEB contributions, which are set by state law, totaled \\$1.1 million or less than 1% of government spending in fiscal 2014. The district's total carrying costs for debt service and retirement benefits comprised a manageable 14.4% of governmental spending. The district is considered property wealthy by the state and does not receive debt service assistance.

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 would likely follow with changes intended to restore its constitutionality. Any changes that include additional funding for schools and more local discretion over tax rates would be positive credit factors.