Fitch Rates Alvin Comm. College Dist., Texas GOs Initial `A+'.

AUSTIN, Texas -- Fitch Ratings has assigned an initial 'A+' rating to the Alvin Community College District, Texas, limited tax bonds, series 2005. The bonds are scheduled to be sold via negotiation on or about July 27 through a group led by First Southwest Co. The Rating Outlook is Stable.

The bonds are direct obligations of the district and are payable from a limited annual ad valorem tax levied against all taxable property in the district. Proceeds of the bonds will be used to finance the construction of a new academic building and pay issuance costs.

The 'A+' rating reflects a sound financial profile characterized by increasing operating margins and liquidity, despite recent reductions in state financial support. Positive credit considerations also include increasing tax base growth and a modest debt burden. Offsetting credit factors include above-average tax base concentration and ongoing susceptibility to changes in state funding levels.

District operations benefit from a diverse revenue stream, including state appropriations (37% of revenues), property taxes (26%), tuition and fees (18%), and federal grants and contracts (11%). The district has responded to recent cutbacks in state funding with hikes in tuition and fees, which constitute an increasing share of operating revenues. Despite increases in three of the past five years, district tuition ranks near the bottom of the state's 50 community colleges and remains competitive with other area community colleges.

Taxable assessed valuation (TAV) has increased each of the past two years following a nearly 4% decline in fiscal 2003. The fiscal 2005 TAV of $3.16 billion represents a nearly 20% increase from the prior year and reflects accelerating residential development in the district. District officials anticipate that housing construction activity will be the principal factor in an additional 20% projected gain in TAV for fiscal 2006. Fitch considers the district's tax base concentration a negative rating factor. The top-10 taxpayer list, which includes five petrochemical plants, represents more than 30% of fiscal 2005 TAV.

The recent increases in tax base have enabled the district to reduce its operations and maintenance (O&M) tax rate in each of the past two fiscal years; the current rate is $0.24 per $100 TAV. TAV growth may lessen the impact on the district's tax rate to pay debt service on the series 2005 bonds; district voters had been told of a possible $0.035 increase in the tax rate prior to the May 2005 election at which the bonds were approved. The district's current O&M tax rate, while above average for community college districts in Texas, is well below the $0.50 maximum rate and offers additional financial flexibility.

While break-even operating results are typical for public colleges and universities, the district has reported positive operating margins for each of the past three fiscal years. Fiscal 2004 results include a healthy 7.4% operating margin, up from 2.9% reported the prior year. District officials anticipate a budget residual of approximately $500,000 for the current fiscal year. Liquidity is satisfactory and also is increasing. Available funds represented 34% of expenditures at fiscal 2004 year-end, up from 23% and 14% in fiscal 2002 and 2001, respectively.

The district's tax burden is modest, due to the absence of any outstanding tax-supported debt. Direct debt per capita is $311, and direct debt as a percentage of TAV is 0.64%. The district currently has no plans for either additional revenue debt or for a future general obligation bond election. The district historically has funded a substantial portion of its capital needs, including maintenance and renovations, from available funds. Principal retirement for the proposed series 2005 bonds is below average, with roughly 30% repaid in 10 years.

Fall semester headcount enrollment growth has been erratic over the past decade, registering gains in five years and declines in five years; the past two fall semesters witnessed declines of 0.6% and 2.7%, respectively. District officials are anticipating little change in the fall 2005 headcount from last year. Growth in enrollment hours has followed a generally similar pattern, although hours increased 8% in fall 2003 despite a dip in enrollment. Enrollment hours are a major determinant for state funding levels, and enrollment levels of course determine the amount of tuition and fee revenues generated annually. District officials are projecting enrollment growth to accelerate moderately over the next several years, with annual increases of 3.5%-4.0% anticipated.

Alvin Community College's main campus is located in Alvin, Texas, approximately 20 miles south of Houston in Brazoria County. The district also maintains a satellite campus in nearby Pearland. Fall 2005 enrollment is expected to total 4,060. Brazoria County wealth levels, as measured by median household buying income, exceed state and national averages. The latest county unemployment rate of 5.9% for May 2005 is slightly above both regional and state averages.

Contact: Steve Murray [phone] or Mark Campa [phone], Austin.

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