Fitch Rates Howard County Junior College District, Texas $21.6MM GO Bonds 'A'.

AUSTIN, Texas -- Fitch Ratings initially assigns an 'A' rating to Howard County Junior College District, Texas' (the district, or HCJCD) $21.6 million general obligation (GO) bonds, series 2007. The series 2007 bonds are scheduled to price on a negotiated basis July 19 via a syndicate co-managed by Morgan Keegan & Company, Inc. and First Albany Capital. The Rating Outlook is Stable.

The bonds constitute direct and voted obligations of the district, payable from and secured by an ad valorem tax levied against all taxable property, subject to a $0.50 per $100 assessed valuation limit. Bond proceeds will be used to renovate existing facilities, construct and equip buildings, and pay costs of issuance.

The 'A' rating is based on HCJCD's sound financial performance, low debt levels, and increasing tax base growth. Offsetting credit factors include above-average tax base concentration, a somewhat limited area economy, and ongoing susceptibility to changes in state funding levels. The district maintains ample operations and maintenance taxing margin, providing additional financial flexibility. Current financial performance and expected tax base growth suggest the district will be able to maintain its financial profile satisfactorily over the near term.

HCJCD serves both Howard County and 12 other primarily rural counties in the surrounding West Texas area. The district has four campus locations: Big Spring and the Southwest Collegiate Institute for the Deaf are both located in the city of Big Spring, county seat of Howard County, with an estimated population of roughly 24,000, the Lamesa campus in Dawson County, and the San Angelo campus in Tom Green County. Some of the district's most notable academic programs include nursing, dental hygiene, business, and agriculture. The district also offers workforce training programs at local prison facilities as well as dual credit courses in area high schools. Fall semester headcount enrollment growth has been erratic over the past five years, although registering only modest fluctuations. District officials anticipate little change in the fall 2007 headcount from last year.

Taxable assessed valuation (TAV) has increased in each of the past three years, and the fiscal 2007 TAV of almost $1.4 billion represents a gain of roughly 13% from the prior year, reflecting primarily increased oil and gas valuations. Most of the top 10 taxpayers are oil and gas industries, and comprise an above-average concentration of the tax base. Howard County wealth levels as measured by per capita personal income are lower than state and national averages.

Typically, public colleges and universities record break-even operating results. Operating margins for the district have consistently been positive since fiscal 2002, although slimming since fiscal 2005. Audited fiscal 2006 results show an approximately $27,000 change in net assets and an operating margin of 0.1%. State funding is the district's primary revenue source, and district officials report that the last Texas Legislative session left community college district funding essentially flat for the next biennium.

The district's debt burden is minimal due to the absence of any outstanding tax-supported debt. The district last issued GO bonds in 1975. Many capital needs since then have been met due to strong donor support. Principal retirement for the proposed series 2007 bonds is below average at roughly 35% repaid in 10 years. This issuance will use the entire authorization approved by 62% of voters in May 2007, purposed primarily for renovation to existing facilities on the Big Spring campus. Voters were promised no more than a $0.086 impact to the currently non-existent interest and sinking tax rate. The district expects to issue revenue bonds later in the year for their resident halls, but has no plans to seek additional debt authorization from voters over the near term.

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