Fitch Ratings has assigned an 'A' rating to Rio Grande City Consolidated Independent School District, Texas' (the district) approximately $23.3 million of unlimited tax school building bonds, series 2004 (the bonds). Fitch also upgrades the district's $50.1 million of outstanding unlimited tax bonds to 'A' from 'A-'. In addition, Fitch upgrades the Rio Grande City Consolidated Independent School District Public Facilities Corporation, Texas $3.9 million of outstanding lease revenue bonds to 'A-' from 'BBB+'. The Rating Outlook is Stable.

The bonds are scheduled to sell Dec. 9 via negotiations with RBC Dain Rauscher Inc. The bonds are voted obligations of the district, payable from a direct and continuing unlimited ad valorem tax assessed on all taxable property within the district.

The upgrade to 'A' on the district's unlimited tax bonds reflects the district's continued sound financial management, modest debt burden, and substantial state support for operations and debt service; the level of state funding as well as financial reserves offsets some concerns of tax base concentration. The rating also reflects the district's slow principal amortization and limited but growing tax base. Conservative budget assumptions for state aid, student enrollment, and tax base growth have produced annual surpluses in four of the last six years. State support for the great majority of the current offering and outstanding debt has allowed the district to fund major capital needs with only moderate impact on its tax base.

The large and sparsely populated district is located in Starr County and includes the county seat of Rio Grande City. Both the city and county have experienced rapid population growth since 1990. Average daily attendance has increased moderately over the last five years after exhibiting modest growth during the mid to latter 1990s. Starr County's economy is based on agriculture and mineral production, including oil and natural gas, whose growing valuations have resulted in considerable concentration among the district's top 10 taxpayers. Characterized by very low wealth, portions of Rio Grande City have been designated an economic empowerment zone in an attempt to bring private-sector jobs to the community, whose unemployment rate equaled 12.5% in September 2004, a decrease from the 2003 annual average of 18.9%.

Because of very low wealth per average daily attendance, the district receives substantial state aid for operations, equal to almost 77% of general fund revenues in fiscal 2004. Sound financial management has enabled the district to increase its financial reserves almost annually from fiscal 1995-2004, with only modest drawdowns in fiscal 2000 and 2001 for planned pay-as-you-go capital outlays. Recent one-time revenue infusions have also enabled the district to further maintain its solid financial reserves. Strong state funding coupled with reasonable expenditure increases increased the total general fund balance to over $22 million, or 33% of expenditures, transfers out, and other uses in fiscal 2004. The fiscal 2005 budget points to an additional slight increase to fund balance while funding additional teaching positions and teacher pay raises.

Bond proceeds will finance construction of a new middle school (the district's third) and a new ninth-grade campus. Expected state support for the current offering as well as existing debt, equal to 82% of debt service, will keep the overall debt burden to moderate levels of $506 per capita and 2.3% of taxable assessed value. Principal amortization of lease revenue bonds and unlimited tax debt, including the current offering, is below average at 36% in 10 years.