Fitch Ratings affirms its underlying 'AA-' rating on the following Beeville Independent School District (ISD), Texas' (Beeville ISD) outstanding unlimited tax (ULT) bonds:

--$10.4 million ULT school building bonds, series 2008.

The Rating Outlook is Stable.

SECURITY

The bonds are payable from an unlimited property tax levy and are further secured by the PSF bond guarantee program (for more information on the Texas PSF see Fitch Affirms Texas PSF Rating at 'AAA'; Outlook Stable, dated Sept. 4, 2014).

KEY RATING DRIVERS

STRONG FINANCIAL POSITION MAINTAINED: General fund reserves levels remain high despite declining state support as a result of increasing property wealth and variability in enrollment.

LIMITED, CONCENTRATED TAX BASE: The rating recognizes the potential tax base volatility driven by economic activity surrounding the Eagle Ford Shale oil/natural gas formation. While taxable assessed valuation (TAV) growth has been strong in recent years, ongoing oil price declines are likely to affect its future direction. State funding mechanisms should offset the potential impact on district operating revenue.

STAGNANT ENROLLMENT TRENDS: The small enrollment base is typically flat to moderately declining.

DEBT AND OTHER LONG-TERM LIABILITIES MODERATE: The debt profile remains moderate, characterized by low debt levels, average principal amortization, and manageable future capital needs. Substantial taxing capacity for debt service exists, although no new debt is currently planned.

RATING SENSITIVITIES

MAINTENANCE OF RESERVES: The district's sound fiscal cushion mitigates the risks related to the impact of tax base volatility on local and state funding. The Stable Outlook is based on expected maintenance of sufficient reserves.

CREDIT PROFILE

Beeville Independent School District is located approximately 50 miles northwest of Corpus Christi, the closest metropolitan area. District population (estimated at approximately 27,000) has remained relatively flat since 2000 with median household income roughly 25 percentage points below the state and U.S. averages. Annual enrollment trends as measured by average daily attendance (ADA) generally mirrors the population, but has declined moderately by about 5% since 2008.

ECONOMIC & TAX BASE EXPANSION IN RURAL SOUTH TEXAS AT RISK

The area economy is limited, based on agriculture, oil and gas production, and related commercial activities. Government and retail trade are the largest non-agricultural employment sectors. County unemployment levels were generally higher than those of the state and nation pre-recession but have improved in recent years despite healthy growth in the labor force. Unemployment in October 2014 stood at 5.6% in Bee County, compared to the state (5.4%) and national (6.3%) averages for that same period.

Since 2007, the district has typically realized solid annual TAV gains. Recent improvement in employment levels and strong, cumulative TAV gains of more than 30% over fiscal years 2011-2015 that brought TAV up to approximately $800 million are due largely to the expanded economic activity spurred by the Eagle Ford Shale, a portion of which underlies the county. Future TAV changes related to the Eagle Ford Shale will likely be affected over the near term by price declines in oil. Fitch's rating assumes some tax base variability due to the district's participation in this volatile economic sector, and will monitor the effect of changes in the local tax base on revenues.

About one-third of the district's TAV comes from residential values, with the next largest portion (roughly 30%) consisting of acreage. Tax base concentration is moderately high at 15% with a majority of the top taxpayers in the energy sector.

HEALTHY RESERVES

Historically solid financial reserves of no less than 26% of spending have characterized the district's financial position since fiscal 2006, providing the district's financial flexibility. The district typically maintains reserves well above its informal floor of $6 million-$7 million or about three months of spending.

Management's conservative budgeting and spending practices historically have generated healthy annual operating surpluses, adding between $1 and $3 million annual to fund balance in the last five audited fiscal years. Fiscal 2014 unaudited results point to an underspending of the budget by $800,000 and the use of $3.2 million in fund balance for paygo. Unrestricted fund balance at year-end is estimated at almost 50% of spending, or $13.6 million.

The district historically received substantial state support for operations as a property-poor district, but recent increases in TAV have reduced this revenue stream. The reduction is not fully offset by the additional revenue from property taxes, and accordingly the district has adjusted the fiscal 2015 budget. The fiscal 2015 operating budget was adopted as balanced and includes a $1 million decrease from the prior year's budget, with reductions made possible through attrition. Year-to-date operations are running in line with budget according to management. Fitch expects that any TAV drops related to oil price or production declines would be largely or fully offset by increased state formula funding.

LOW DEBT BURDEN

Overall debt levels are below average at about $1,000 per capita and 2% of market value. The debt burden is additionally assisted by a sizeable amount (typically just under 50%) of state support for the district's debt service, but this support declined to below 40% support in 2014 given the recent improvement in property wealth per student. Amortization is rapid with two-thirds of principal repaid in 10 years. In addition to its outstanding ULT bonds, the district has previously issued $1.6 million in maintenance tax notes (not rated by Fitch) that do not receive state support primarily for equipment and stadium renovations.

Capital needs are manageable; the district does not have immediate plans to access the capital markets, but there is at least one aging elementary school that will eventually need to be replaced. Given the low debt levels and tax rate, the district has sufficient capacity to take on additional debt if approved by taxpayers even if TAV falters to some extent.

OTHER LONG-TERM LIABILITIES MANAGEABLE

The district's pension liabilities are limited to its participation in the state pension plan administered by the Teachers Retirement System of Texas (TRS), a cost-sharing multiple employer plan. The district's annual contribution to TRS is determined by state law, as is the contribution for the state-run postemployment benefit healthcare plan. The district's cost for pension and other postemployment benefits (OPEB) represented 1% of governmental fund expenditures in fiscal 2013, as plan contribution amounts are principally paid by the state and district employees.

The state's payment of district pension costs is an important credit strength, as it keeps overall carrying costs manageable in the face of an elevated and growing debt burden. Carrying costs for the district (debt service, pension, and OPEB costs net of state support) remain low, consuming 5.5% of governmental fund spending in fiscal 2013.

Fitch will continue to monitor the level of state support for school district pension payments, noting district pension contributions statewide increased modestly to 1.5% on the statutory minimum portion of payroll from 0% in fiscal 2015.

TEXAS SCHOOL FUNDING LITIGATION

For the second time in the past 18 months a Texas district judge ruled in August that the state's school finance system is unconstitutional. The ruling, which was in response to a consolidation of six lawsuits representing 75% of Texas school children, found the system inefficient, inequitable, and underfunded. The judge also ruled that local school property taxes are effectively a statewide property tax due to lack of local discretion and therefore are unconstitutional.

Following a similar ruling in February 2013, the judge granted a motion to reopen the lawsuit four months later after state legislative action that partially restored state funding levels and made other program changes. Fitch expects the state will appeal the latest ruling to the state supreme court. If the state school finance system is ultimately found unconstitutional, the legislature will be directed to make changes to the system to restore its constitutionality. Fitch would view positively any changes that include additional funding for schools and more local discretion over tax rates.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and the National Association of Realtors.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria' (Aug. 14, 2012);

--'U.S. Local Government Tax-Supported Rating Criteria' (Aug. 14, 2012).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=966275

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