Summary:

Austin Community College District Public Facility Corp., Texas Austin Community College District; Appropriations; General Obligation Primary Credit Analyst: Calix Sholander, Centennial (1) 303.721.4255; [email protected] Secondary Contact: Joshua Travis, Dallas 972-367-3340; [email protected]

Table Of Contents Rationale Outlook

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JANUARY 3, 2018 1

Summary:

Austin Community College District Public Facility Corp., Texas Austin Community College District; Appropriations; General Obligation Credit Profile US$40.0 mil lse rev bnds (Austin CCD) (Highland Campus Bldg 3000 Proj) ser 2018A dtd 02/01/2018 due 08/01/2042 Long Term Rating

AA/Stable

New

US$15.0 mil lse rev bnds taxable (Austin CCD) (Highland Campus Bldg 3000 Proj) ser 2018B dtd 02/01/2018 due 08/01/2042 Long Term Rating

AA/Stable

New

Unenhanced Rating

AA+(SPUR)/Stable

Affirmed

Long Term Rating

AA+/Stable

Affirmed

Austin Comnty Coll Dist GO

Austin Comnty Coll Dist Pub Fac Corp, Texas Austin Comnty Coll Dist, Texas Austin Comnty Coll Dist Pub Fac Corp (Austin Comnty Coll Dist) APPROP Long Term Rating

AA/Stable

Affirmed

Austin Comnty Coll Dist Pub Fac Corp (Austin Comnty Coll Dist) (Hays New Campus Proj) Long Term Rating

AA/Stable

Affirmed

Austin Comnty Coll Dist Pub Fac Corp (Austin Comnty Coll Dist) approp Long Term Rating

AA/Stable

Affirmed

Many issues are enhanced by bond insurance.

Rationale S&P Global Ratings assigned its 'AA' rating to Austin Community College District Public Facility Corp. (PFC), Texas' series 2018A and 2018B lease revenue bonds. At the same time, we affirmed our 'AA' rating on the PFC's lease revenue debt outstanding. In addition, we affirmed our 'AA+' rating on Austin Community College District's limited-tax debt outstanding. The outlook on all ratings is stable. The lease revenue bonds are secured by rental payments made by the district to the public facility corporation pursuant to the lease and third supplemental trust indenture, under the master trust indenture. The rental payments are subject to annual appropriation from the district's lawfully available funds. We notch the rating on the lease revenue bonds off the limited-tax rating on the district, due to the appropriation risk. Bond proceeds will be used to fund the construction of Building 3000 and supporting buildings and facilities, as part of the district's master plan for its Highland Campus.

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Summary: Austin Community College District Public Facility Corp., Texas Austin Community College District; Appropriations; General Obligation

The limited tax bonds are payable from an ad valorem tax that cannot exceed 50 cents per $100 of assessed value (AV), which is levied on all taxable property within the district's boundaries. The district's current tax levy dedicated to repay these bonds is 1.08 cents, which is significantly below the maximum rate. Although the tax is limited, we do not consider this a credit constraint. Instead, we view it equal to a general obligation (GO) pledge due to the significant tax levy flexibility under the current state cap. The 'AA+' rating reflects our view of the district's: • Deep and diverse economic base encompassing the Austin-Round Rock-San Marcos metropolitan statistical area (MSA); • A large and expanding property tax base; and • A strong financial position that is supported by a diverse revenue stream. Partly offsetting the above credit strengths, in our opinion, is the district's moderate overall net debt burden, and slower than average amortization. Founded in 1973, Austin Community College is an independently governed, fully accredited two-year community college in central east Texas. The district currently operates eight full-time campuses and two administrative facilities in and around the state capital of Austin. The district, with an estimated 1.9 million residents, encompasses about 1,250 square miles in central Texas and includes much of the Austin-Round Rock-San Marcos MSA. The region's population has more than doubled since the 2000 U.S. Census, which makes it one of the fastest-growing large MSAs in the nation. Reflecting the nature of employment opportunities available to residents, per capita income is a strong 128% of the national level. Market value per capita, a wealth indicator, is very strong at $101,859. The district's property tax base has experienced healthy growth over the last five years, increasing an aggregate of 60% (including a 9.6% increase in fiscal 2018) to $197.9 billion in fiscal 2018. This growth reflects the region's rapid economic expansion. The tax base is very diverse, with the 10 leading taxpayers accounting for 2.7% of fiscal 2018 assessed value (AV). While management conservatively budgets for 5% annual growth, we expect actual AV growth to exceed that budgeted estimate over the next two to three years. The district's enrollment has been steady at about 41,000 due to robust economic growth in the regional economy. Officials expect enrollment will remain relatively flat, until some of the district's new facilities open up, which will allow for greater enrollment in popular programs. Realizing consecutive operating surpluses in fiscals 2015 and 2016, the district's financial position remains strong, with unrestricted net assets (UNA) of $36.2 million, or 11% of expenditures, after adjusting for the district's net pension liability (per GASB 67 and 68 reporting). District officials expect fiscal 2017 results to show a $10 million operating surplus and a $20 million increase in net position, due to tax base growth and higher debt principal payments than in recent years. For fiscal 2018, the district has budgeted for a $3 million operating surplus, but expects year-end results to show a surplus closer to $6 million, as a result of better than budgeted tax base growth. Given the district's strong performance in recent years, and expectations for positive operating results in fiscals 2017 and 2018, we expect the district's financial position to remain strong over the next two years. The district's operating revenue mix is diverse, with property taxes accounting for 45.7% percent of fiscal 2016

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Summary: Austin Community College District Public Facility Corp., Texas Austin Community College District; Appropriations; General Obligation

revenue, followed by tuition and fees at 18.5%, and state appropriations at 17.9%. The district levies a fiscal 2016 property tax rate of 10.08 cents per $100 of AV with nine cents dedicated to operations and the remainder to debt service on the limited-tax bonds. The district is currently levying its maximum allowable operating property tax rate, and does not anticipate seeking voter authorization to increase the operating tax rate over the next two to three years. We consider Austin Community College District's management practices good under our financial management assessment methodology, which indicates our view that practices exist in most areas, but not all may be formalized or regularly monitored by governance officials. Key practices include: • • • • •

Conservative revenue and expenditure projections when compiling the annual budget; A long-term financial plan that is updated annually and forecasts revenue as well as expenses over 10 years; Monthly financial reports (available online) that include budget-to-actual results; A formally adopted investment policy, with quarterly investment updates available online; and A formal policy to maintain cash at no less than 16.7% of expenditures.

The district currently lacks a formal debt management policy. The district's direct debt burden, including limited-tax debt and lease-revenue bonds, is what we consider low at less than 1% of AV. However, including all overlapping entities, its overall debt burden is moderate, in our view, at 4.4% of AV and $4,470 per capita. The district also has about $348 million of outstanding tuition and fee revenue bonds that we do not include in our debt-to-AV calculations because they are supported by dedicated tuition and fees. Amortization is slower than average, with 38% of principal due over the next 10 years. The district expects to issue $135 million of limited-tax debt and about $65 million in PFC lease revenue debt over the next two years. Given our expectation for continued strong AV growth, we do not anticipate our characterization of the district's debt burden to change. The district contributes to the Teacher Retirement System of Texas (TRS), a cost-sharing, multiemployer, defined-benefit plan. Employees can choose to participate in an optional retirement program in lieu of participation in the TRS. Contribution requirements for both plans are not actuarially determined, but are established as well as amended by the state legislature. The state system also manages other postemployment benefits (OPEB), primarily retiree health care. In fiscal 2016, total pension and OPEB contributions totaled 1.2% of expenditures. According to its 2016 audit, which adhered to Governmental Accounting Standards Board Statement No. 68 reporting standards, the district's proportionate share of the plan's net pension liability was $47 million. The plan's fiduciary net position was 78.4% of the total pension liability.

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Summary: Austin Community College District Public Facility Corp., Texas Austin Community College District; Appropriations; General Obligation

Outlook The stable outlook on the lease revenue bonds, as well as, the district's limited-tax debt, reflects our view of the ongoing economic growth in the district, and our expectation that the district will maintain its strong financial position. Therefore, we do not expect to change the outlook over the two-year outlook horizon.

Upside scenario If the district's financial position continues to improve, and its overall net debt burden moderates over time, we could consider raising the rating.

Downside scenario If the district were to experience significant deterioration in its tax base or financials, we may consider lowering the rating.

Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information. Complete ratings information is available to subscribers of RatingsDirect at www.capitaliq.com. All ratings affected by this rating action can be found on the S&P Global Ratings' public website at www.standardandpoors.com. Use the Ratings search box located in the left column.

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Austin Community College District Public Facility ...

New. US$15.0 mil lse rev bnds taxable (Austin CCD) (Highland Campus Bldg 3000 Proj) ser 2018B dtd 02/01/2018 due 08/01/2042. Long Term Rating .... The district's operating revenue mix is diverse, with property taxes accounting for 45.7% percent of fiscal 2016 .... SOFTWARE OR HARDWARE CONFIGURATION.

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