Fitch Rates Mesquite ISD, Texas' ULT Bonds 'AA'; Outlook Stable

The bonds are direct obligations of the district, payable from and secured by an unlimited ad valorem tax levied against all taxable property within the district. Proceeds will be used for technology improvements, construction of a new wing at an elementary school, energy initiatives, and other capital improvements.

The 'AA' rating is based on the district's strong financial management, sizeable reserves, and moderate debt burden. Enrollment growth has declined from a 1%-2% growth rate between fiscal 2003 and fiscal 2008, to a modest 0.3% for fiscal 2009. The declining enrollment growth has primarily resulted from the slowing housing market in the city of Mesquite, which has been affected by the slowing economy. Slowing enrollment growth could potentially affect state aid revenue trends, making conservative budgeting key to the district's ability to maintain structural balance; however, this trend is not expected to materially affect the district's capital plan, since it relates primarily to school renovations and additions and not new school buildings. Maintenance of strong reserve levels and moderate debt levels will remain important rating drivers for the district.

The district encompasses 60 square miles in eastern Dallas County. Enrollment, currently around 37,000 students, has grown at an annual average of roughly 1.3% over the past five fiscal years. Located in a maturing, middle-class area, the cities of Mesquite and Balch Springs, both of which lie within the district, benefit economically from three interstate highways that traverse the district. The district's economic base includes retail, manufacturing, warehousing, and distribution enterprises. Residential development is strongest in the southern portion of the district near Interstate 20, where the new Achziger Elementary School is located.

Fitch considers the district's financial profile as strong. Management has achieved positive operating results in each of the last six fiscal years. Most recently, the district reported net income of $10.2 million in fiscal 2008, increasing the unreserved, undesignated general fund balance to nearly $56 million or about 23% of spending. The district is expected to maintain these fund balances levels for fiscal 2009. The fiscal 2010 budget does not anticipate any major change to reserve levels as approved pay hikes, totaling about $5 million, will be offset by the state's increase in the district's per student basic allotment.

The current offering represents the second issuance from a $180 million authorization approved by approximately 74% of voters in May 2007. The district will have $105 million in remaining authorization after this issuance. Additional issuances are expected each year of approximately $25 million from the remaining authorization, which will fund the district's capital improvements through 2014. The majority of the authorization will be used for the renovation or expansion of existing facilities plus construction of a new elementary school.

District debt levels are moderate, and are expected to remain so considering planned issuances, after factoring in state support for a portion of existing debt service. The district's debt burden is moderate at 3.75% of taxable assessed value (TAV) and $1,583 per capita, after adjusting for approximately 45% state support of outstanding general obligation debt. Overall debt is manageable on a per capita basis of almost $2,300, or 5.45% of TAV. Amortization is slightly above average with almost 56% of principal retired in 10 years.

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Fitch Ratings
Andy Kaaz, +1-512-215-3730 (Austin)
Rebecca C. Moses, +1-512-215-3739 (Austin)
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