KBRA Assigns AAA Rating with Stable Outlook to Round Rock Independent School District’s Unlimited Tax School Building Bonds
28 Jan 2025 | New York
KBRA assigns a long-term underlying rating of AAA with a Stable Outlook to the Round Rock Independent School District’s (TX) (the “District” or "RRISD:) Series 2025B Unlimited Tax School Building Bonds (the "Bonds"). The credit rating reflects the unlimited nature of the District’s ad valorem property tax pledge and the very strong, diverse economic base that continues to experience rapid growth in its property tax base. The District further maintains strong reserves and a moderate debt profile, aided by accelerated debt paydown in recent years, lowering debt burden in advance of a large capital plan over the upcoming 5-year horizon.
District reserves have trended lower since FY2020 coinciding with changes in the State’s school funding system and enrollment decline post-pandemic, but the unassigned fund balance remains relatively strong at 13.9% of general fund expenditures as of FYE 2024. Substantial recapture payments to the State, or remittances of local tax revenues under the State’s education funding construct, and recent legislative tax reforms that curtailed property tax revenues in FY2024, have presented budgetary challenges for RRISD and other school districts in the State. However, for FY2025, the District has exhibited a concerted effort to return to operational GF balance, implementing cost-cutting measures and two budget amendments to date to maintain budget balance and sustain the unassigned GF reserves.
The Stable Outlook reflects KBRA’s expectation that management will effectively guide the District’s finances toward a balanced budget prospectively, with continued strong growth in the property tax base, maintenance of healthy GF unassigned reserves and a manageable debt profile as the District addresses capital needs of the school system.
Key Credit Considerations
The rating was assigned because of the following key credit considerations:
Credit Positives
- A diverse and growing tax base provides reliable source of payment for the unlimited tax bonds.
- Plan to balance the GF budget going forward via cost reductions as needed, rather than rely on GF reserves.
- Strong financial management, policies, and procedures have historically sustained large unassigned reserves and liquidity.
Credit Challenges
- A trend of declining enrollment through FY2023, combined with statutory changes to the State’s school funding system have limited prospects for growth in operating resources.
Rating Sensitivities
For Upgrade
- Not applicable at the AAA rating level.
For Downgrade
- A trend of decline in the ad valorem tax base could negatively impact the rating.
- A decline in the unassigned fund balance to a level below 10% of GF expenditures could exert downward pressure on the rating.
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