Fitch Rates Hays CISD, Texas $60.8MM Rfdg Bonds 'AAA' PSF/'A' Underlying.

AUSTIN, Texas -- Fitch Ratings assigns an 'AAA' rating to the Hays Consolidated Independent School District, Texas (the district) $60.8 million unlimited tax refunding bonds, series 2007-A. The 'AAA' rating is based on the guarantee provided by the Texas Permanent School Fund (PSF), whose insurer financial strength is rated 'AAA' by Fitch. In addition, Fitch assigns an underlying 'A' rating to the series 2007-A bonds, which are expected to price on or about April 10 via a syndicate led by Banc of America Securities LLC. Fitch also affirms the 'A' underlying rating to the districts approximately $191 million unlimited tax school bonds outstanding (net of refunding). The Rating Outlook is Stable.

The bonds are payable from an unlimited ad valorem tax levied against all taxable property within the district. The Series 2007-A bonds are further secured by the Texas Permanent School Fund guarantee. Bond proceeds will be used to refund certain outstanding obligations for an estimated $1.7 million savings and to pay issuance costs.

The 'A' rating reflects the district's conservative fiscal management, healthy financial position despite rapid growth pressures, and solid, diverse tax base with growth benefiting by the district's proximity to the Austin-San Marcos area economy. The urbanization trend south of Austin along Interstate Highway 35 (IH-35) continues to accelerate, and the availability of affordable new housing is projected to continue through the near term. The district's rating also reflects high debt levels, which are expected to remain high for the foreseeable future due to district's growing capital needs, slow principal amortization, and ongoing operating pressures associated with rapid enrollment growth.

The district is centrally located in Hays County along the IH-35 corridor between Austin and San Antonio, a region populated by more than two million people and the state's third largest region of economic activity. As one of the fastest growing school districts in the state, Hays CISD has seen enrollment grow steadily at an average annual rate of 8% since 1996. Currently, more than 11,900 students attend the district's 14 campuses and district projections reflect student enrollment will reach 20,000 by 2013.

The composition of the county tax base is rapidly changing from rural to urban. Residential construction has increased rapidly in recent years, coupled with additional commercial and retail franchises, as housing pressures in Austin have expanded development southward, and growth in San Marcos has expanded development northward. Recent major developments within the district boundaries include: Home Depot, Cabela's, and the formation of a Tax Increment Financing District in the city of Kyle. Future development plans include a large retail center, a medical complex, three hotels and a multifamily apartment complex.

Both district population and student enrollment are growing at an equal pace. However, the district's tax base has expanded well above this level. Recording double digit growth in each of the last five fiscal years and averaging nearly 15.5% annually over the same period, taxable assessed valuation (TAV) is solid at $2.6 billion for fiscal 2007.

Debt ratios remain high, reflecting enrollment growth pressures that require construction of new facilities. Including receipt of state funding (equivalent to about 39% of existing debt service), overall debt totals a high $4,469 per capita, or 7.7% of TAV. Direct debt is also high at $3,877 per capita and 6.7% of TAV. The district's amortization is slow, typical of fast growth school districts and reflecting the use of capital appreciation bonds. The district recently sold $46.3 million of bonds approved by voters in November of 2006 and has no remaining bond authorization. However, given the rate of enrollment growth, the district anticipates returning to the voters with two propositions totaling between $110-130 million as early as November 2007.

District financial operations are sound. The district reported an operating surplus in three of the last five fiscal years. Ending fiscal 2006 with a $1.8 million net surplus, the district reported an unrestricted general fund balance of $12.8 million, or 17.8% of expenditures. The fiscal 2007 budget was adopted with a modest use of fund balance of about $780,000. However, management expects actual results to be better than anticipated with increased revenues adding between $1 million and $1.5 million to fund balance reserves by fiscal-year end. The district's fund balance goal is to maintain an unreserved and undesignated general fund balance level greater than 10% of expenditures and transfers out.

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