Fitch Rates Austin Community College Dist., Texas' $23.1MM GO Rfdg Bonds 'AA'; Outlook Stable.

AUSTIN, Texas -- Fitch assigns an 'AA' rating to Austin Community College District, Texas' (ACCD or the district) estimated $23.1 million limited tax refunding bonds, series 2006. In addition, Fitch affirms its 'AA' rating on the district's outstanding $74.8 million outstanding limited tax bonds (post refunding). The bonds are expected to price Oct. 18, 2006 via a syndicate led by Estrada Hinojosa & Co., Inc. The Rating Outlook is Stable.

The bonds are payable from an ad valorem tax levied, within the limits prescribed by law, upon all taxable property within the district. The district is permitted to levy up to $0.50 per $100 valuation for debt service payable from property taxes. Proceeds will be used to refund a portion of the district's outstanding tax supported debt for annual interest savings.

The 'AA' rating and Stable Outlook are based on ACCD's broad and expanding tax base, modest debt load, and strong demographics and anticipated demand. Financial operations have improved, due largely to tax base growth and a recent hike in the district's operations tax rate ceiling. This improvement has occurred despite ongoing growth pressures and reduced state appropriations. Fitch believes the current capital building program, which is addressing much needed campus renovations and expansions, will enable the district to meet current and anticipated demand for classes.

Serving an estimated 1.4 million residents in central Texas, the district was established by voters in 1972. ACCD is a public junior college providing a wide array of course offerings and training. In addition to academic programs for transfer to a senior college or university, the district offers general vocational and technical education, continuing education, and adult literacy programs. ACCD administers education and training at 80 locations throughout the area and operates seven full-time campuses. A new south Austin campus opened in fall 2006 and will address facility needs in one of the fastest growing portions of the district; in addition, construction continues at several other campuses.

Although the Austin metropolitan area experienced strong population gains for most of the past decade, district enrollment growth was modest, reportedly due in part to classroom space constraints. Following solid enrollment increases in 2001 and 2002, student growth as measured by fall headcounts slowed again in 2003 and 2004 during the recession. Enrollment rebounded over the past two years -- registering nearly 5% gains in both 2005 and 2006 -- as the regional economy recovered and population expansion in the Austin metropolitan area resumed a healthy pace.

Given the area's strong prospects for growth as well as the absence of any nearby community college, district officials are projecting enrollment of 40,000 students at ACCD by 2010, up from roughly 33,000 presently. In addition, legislative approval for tuition de-regulation at the state's four year public universities bodes well for community colleges with their lower tuition costs. The district's current tuition rates, while generally affordable, are above average for Texas public community colleges primarily due to the low limit on the district's operations property tax.

The current building program was funded by a $99 million general obligation (GO) bond authorization approved by voters in 2003 and by combined fee revenue bonds, of which $50.9 million are outstanding presently. Officials report that the district expects completion of an updated strategic plan by the end of 2006; this document will guide future decisions regarding expansion of existing campuses and the location of new facilities. The district does not expect to consider another GO bond authorization or the issuance of additional combined fee revenue bonds prior to 2010.

The absence of outstanding general obligation debt prior to 2003 authorization, as well as the size and breadth of the district's tax base, results in extremely modest direct debt ratios. Conversely, payout is very slow, with only about 17% of principal repaid in 10 years, as the district attempts to keep the debt service tax rate for the entire authorization at $0.01 per $100 of taxable assessed valuation (TAV). All bonds mature by 2034.

Voter approval in 2003 of a $0.04 increase in the operations tax rate ceiling (from $0.05), along with a resumption of TAV growth, helped the district reverse weak fiscal 2002 and 2003 results in which the district recorded negative operating margins. Results for the past two fiscal years feature operating surpluses and positive operating margins. Preliminary results for the year that ended Aug. 31, 2006 indicate another positive financial performance. However, the district now levies at the maximum $0.09 per $100 TAV for operations, limiting future financial flexibility. Liquidity remains below average.

District TAV jumped more than 30% for fiscal 2007, aided by an annexation of portions of the City of Austin that added roughly $9 billion to the tax roll. Even without the annexation, the resurgent Austin area economy contributed to tax base growth for the district of 15%. The district continues to explore additional annexation opportunities; likely prospects in the future include areas in Williamson, Hays and Bastrop counties. Voters in the Del Valle Independent School District agreed to join the district in 2004, which added roughly $2 billion in taxable value and more in-district students.

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