Fitch Rates Dallas County Community College District, Texas' $220MM Ltd. GOs 'AAA'

July 18, 2008 6:56 PM EDT

AUSTIN, Texas--(BUSINESS WIRE)--

Fitch Ratings assigns a rating of 'AAA' to Dallas County Community College District (DCCCD, or the district), Texas' $220 million limited general obligation bonds, series 2008. In addition, Fitch affirms the 'AAA' rating on the approximately $30 million in maintenance tax notes and $63 million in outstanding parity bonds. The Rating Outlook is Stable.

Scheduled for a negotiated sale August 5, the bonds are secured by the proceeds of a limited ad valorem tax levied against all taxable property within the district. State statute limits a community college district's debt service tax rate to no more than $0.50 per $100 taxable assessed valuation (TAV).

The 'AAA' rating for the district is based on diversified revenue sources, a substantial population and tax base with steady growth, and a large and consistent enrollment base that is drawn primarily from a limited geographical area. Tuition and property tax rates are low (both of which are among the lowest of community colleges in the state) and provide added financial flexibility, which is important given the possibility of reduced state appropriations in the next biennium. The district continues to maintain good liquidity levels with positive operating performance, which is in part reflective of the strong planning processes in place for operating as well as capital needs. Even with this issuance, DCCD maintains a moderate debt position. Fitch believes the large capital program underway that includes five new campuses may, however, apply some degree of pressure to the district's operating margins and reserves over the near term. The district's ability to manage expenditures and maintain solid reserves consistent with this rating category is integral to maintaining credit quality.

Coterminous with the boundaries of Dallas County, the district encompasses 860 square miles and serves a population of almost 2.4 million. Dallas County is the ninth most populous county in the nation. The district benefits from its central location within the broad and diverse Dallas-Fort Worth metropolitan economy. Fiscal 2008 TAV grew nearly 9% over the prior year's level to a substantial $167.9 billion. Insurance, banking, and finance are prominent sectors of the regional economy, as are health care, education, retail trade, tourism, electronics, and high-technology manufacturing. The region's geographic accessibility and extensive transportation network have led to the development of national and international product distribution facilities. Metropolitan unemployment rates have trended downward since 2003, and are now comparable to state and national averages. County socioeconomic indicators also point to above-average wealth levels, retail sales per capita, and taxable value per capita.

DCCCD was established in 1965. Today, DCCCD has seven colleges located throughout Dallas County and it is the largest community college district in the state. The equivalent of 10% of the Dallas County adult population enrolls at the district each year. Enrollment has historically shown steady growth, trending slightly upwards since Fall 2005, and DCCD projects average annual enrollment growth at rates of 2%-3%. The district currently offers classes to roughly 60,000 credit students per semester. Like most community colleges, tuition rates and open enrollment policies are attractive in recruiting students. Tuition rates are relatively low when compared to public four-year universities in the state. DCCCD is able to keep its tuition affordable since approximately 65% of its revenue is derived from property taxes and state appropriations.

General stability in the three major funding sources has contributed to the positive operating performance of the district. The three major funding sources for the district in fiscal 2007 are state appropriations (31%), local property tax receipts (34%), and student tuition (20%). From fiscal years 2002-2007, the district's operating margins have been positive, ranging from 3.4% to 6.5%. Break-even operations are typical for public colleges and universities. Positive financial performance is aided by the district's conservative fiscal management, which was evidenced in the recently adopted fund balance policy that strengthened reserve levels from a minimum of 3 to 4 months' of spending.

The current offering represents the second phase of borrowing of a $450 million authorization approved by over 70% of voters in May 2004. The bond program will address system-wide improvements as well as the creation of five educational centers located in underserved or rapidly growing areas. The tax effect of the entire authorization is expected to be minimal with a maximum annual debt service tax rate of $0.025 per $100 TAV, assuming modest annual tax base growth and 20-year maturity schedules. Direct debt ratios are extremely low, but overall ratios climb to more moderate levels due to the significant number of overlapping units and the inclusion of large borrowers including the City of Dallas and Dallas Independent School District (underlying GO bond rating is 'AA', by Fitch). With this issuance, payout has slowed to a below-average 41% of outstanding tax-supported debt retired in 10 years.

Recent state legislative changes now allow community colleges to issue commercial paper (CP), and the DCCD Board approved its use up to $150 million as an interim financing tool for its GO authorization in 2007. This issuance will take out the entire $125 million CP outstanding.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Source: Fitch Ratings

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