Fitch Rates Mansfield ISD, Texas' $47.3MM 2006 Rfdg Bonds 'AAA' PSF/'AA-' Underlying.

AUSTIN, Texas -- Fitch Ratings assigns an 'AAA' rating to $47.35 million of Mansfield Independent School District (the district), TX's unlimited tax refunding bonds, series 2006, based on a guarantee from the Texas Permanent School Fund (PSF), whose financial insurer strength (IFS) is rated 'AAA' by Fitch. Additionally, Fitch assigns an underlying 'AA-' rating on the series 2006 bonds and affirms the 'AA-' rating on the district's $583 million outstanding unlimited tax bonds. The Rating Outlook is Stable.

The bonds are scheduled to sell today via negotiation to a syndicate led by Morgan Keegan & Company, Inc. The bonds are direct obligations of the district and are payable from unlimited ad valorem taxes and further secured by the PSF guarantee. Bond proceeds will be used to refund certain outstanding maturities for interest savings.

The 'AA-' underlying rating and Stable Outlook reflect the district's strong financial position, sound management practices, diverse and rapid growth of taxable assessed valuation (TAV), and consistent community support for growth-related capital programs. The rating also acknowledges the impact of sustained enrollment growth and related capital needs on the district's debt ratios, which are high, but manageable and above-average wealth levels, and favorable prospects for continued rapid tax base expansion. State support for a portion of the district's debt also lessens the debt burden. Strong growth in the district's industrial base continues to attract jobs and investment to this Dallas-Ft. Worth metroplex community. As one of the state's fastest-growing school districts, it is the district's goal to continue expanding its financial margins.

Located southeast of Ft. Worth, the majority of the district lies in southeastern Tarrant County, with a smaller portion overlapping into Johnson County and includes the city of Mansfield and portions of Arlington and Grand Prairie. The district is the second fastest growing in the state growing an average of 10%-13% annually for the past five fiscal years, reaching an enrollment of 25,000 students in fiscal 2006. Demographic projections for the next ten years, updated annually to assist facility planning, predict enrollment will exceed 33,000 by fiscal 2010.

In May 2006, district voters approved a record high $241.5 million bond package for the construction of six new schools, renovation of existing schools, and construction of an additional transportation facility. The district issued $100 million unlimited tax school building bonds, series 2006 earlier this year and has $207.6 million remaining authorization. The current refunding was originally planned to be issued with the district's prior bond sale, but market conditions were not conducive to achieving the district's target savings. At nearly $3,500 per capita and 7.1% of taxable assessed value (TAV), direct debt ratios are moderately high even after adjusting for state support of outstanding debt totaling about 30% of annual debt service. The overall debt burden is high at just over $4,100 per capita, or 8.5% of TAV. The district's high debt levels are a result of sustained double-digit enrollment growth brought about by explosive residential development. Principal amortization is below average at 30% for ten years and designed to minimize the debt service tax impact for the current authorization which is projected to peak at $0.45 per $100 of TAV, up $0.085 from its current level.

The district's financial position remains strong as management works to find savings, to achieve consistent surpluses ranging from nearly $1 million to $4.8 million since fiscal 1997 despite the fast growth. In fiscal 2005, the district was able to minimize operating costs by increasing the student-to-teacher ratio in the higher grades and reassigning existing staff, opening six new schools with only 200 additional positions district-wide. The district ended the 2005 fiscal year with a net income in excess of $2.1 million increasing its unreserved, undesignated fund balance to nearly 24% of expenditures and transfers out. The fiscal 2006 budget was adopted with an estimated $2.1 million operating deficit with the inclusion of 191 new growth related positions and modest salary increases and officials now anticipate a surplus of nearly $5 million.

The Texas legislature recently passed property tax relief measures that were subsequently signed by the governor. The legislation provides for mandatory reductions in the local operations and maintenance (O&M) property tax rate of 11% for fiscal 2007 and a cumulative 33% for fiscal 2008, based on the fiscal 2006 O&M tax rate. To offset the loss of local revenue, the state will increase its share of funding to local school districts, including the district, so that the measures are expected to be revenue-neutral.

Fiscal 2007 will be the first year for Texas school districts to operate under the new state school finance structure. To comply with the new funding program, Mansfield ISD will 'compress' its operations tax rate from its 2006 tax rate of $1.41 per $100 TAV to $1.25 and is authorized to levy an additional $0.04 for operations. District officials have made no decision yet regarding the tax rate.

The district's fast growing economy is marked by the continuing expansion of its industrial base, substantial residential construction, new retail sector growth, and more recently, the healthcare sector with the addition of two hospitals and several medical centers. TAV has grown by a compound annual average of over 16% since fiscal 1999. Single family home starts in the district totaled 2,870 in fiscal 2005, and for the first quarter of 2006, exceeded last year's first quarter starts by 17%. There are more than 12,000 single-family homes in various stages of development in over 45 different subdivisions, most of which are located in the cities of Mansfield and Grand Prairie, with a smaller portion in Arlington.

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