Fitch Affirms San Benito, Texas' GOs & COs at 'A-'; Outlook Stable

NEW YORK--(BUSINESS WIRE)--As part of routine surveillance, Fitch Ratings has affirmed the 'A-' rating on $580,000 in outstanding general obligation (GO) bonds and $30.26 million in outstanding combination tax and revenue certificates of obligation (COs) issued by the city of San Benito, Texas (the city). The Rating Outlook is Stable.

The bonds and certificates are direct obligations of the city, payable from a levy and collection of a continuing ad valorem tax limited to $2.50 per $100 of taxable assessed valuation (TAV) on all taxable property within the city. The certificates are additionally secured by a subordinate lien on and pledge of a limited amount of the net revenues derived from the city's combined waterworks and sewer system. The city currently levies $0.100 per $100 of TAV for debt service and $0.588 per $100 for operations.

The 'A-' rating reflects the city's stable financial history and adequate fund balances, its modest but diversified economic base and a moderate debt burden with no immediate debt plans. The rating further incorporates the general fund's dependence on economically sensitive sales tax revenues, which have declined in the last two fiscal years, and a socio-economic profile typical of border communities with below-average income indicators and high poverty levels. Fitch considers the maintenance of healthy reserves and stable enterprise fund operations key rating drivers, given the city's exposure to volatile sales activity and reliance on the water and wastewater funds for debt service support.

The city is located in Cameron County at the southern tip of Texas in the Lower Rio Grande Valley between the cities of Harlingen and Brownsville. With an estimated 2009 population of 25,000, the city's economy is based on agriculture, retail/service industries, manufacturing, and tourism. Typical of most Texas border communities, wealth levels in the city are substantially below state and national levels. The city's TAV has increased by an average annual 4.6% over the past five fiscal years as a result of new residential home construction and commercial development over the period. Although new development efforts have slowed, the city's TAV for fiscal 2009 was $568 million, a 3.1% increase over fiscal 2008 levels. The top 10 taxpayers represent an average 10.1% for 2008 TAV with AEP Texas Central (Public Utility) the largest at 3%.

Financial performance has historically been sound with unreserved fund balances averaging 21% of general fund expenses over the last four years. In fiscal 2008, the city had another year of surplus operations adding $175,000 to its fund balance which ended the year at $2.1 million. This total represents 78 days of expenditures which is in between the formal policy of 45 days and the city's target of 90 days. The city has projected a surplus of $100,000 for fiscal 2009. The general fund received 29% of its revenues from sales tax in fiscal 2008. Sales tax revenues declined by 5.5% in fiscal 2009, after declining by 3.5% in 2008 following three periods of growth. Property taxes account for approximately 30% of revenues. The fiscal 2010 budget is balanced and assumes an 8.4% decline in sales tax revenues, a conservative 93% property tax collection rate and a reduction in departmental expenses.

The city completed construction of its water treatment plant in February 2009 and the second and final phase of its new wastewater treatment plant which came on line in September 2009. The city received transition assistance from the North American Development Bank (NADB) in connection with the new facilities. No additional transition assistance is budgeted to be received in fiscal 2010. Water and sewer utility operations have been favorable with recent expenditures higher than in previous years due to the new plant construction, general utility system improvements and higher supply costs. The city expects expenses to level out now that the new systems are on line. System revenues may increase due to implementation of the final NADB required rate increase effective Oct. 1, 2009 and the potential for new customers as a result of an increase in capacity.

Direct debt levels are low at $447 per capita and 2% of taxable value aided by enterprise and special revenue fund support for more than 63% of outstanding debt. Overall debt levels are moderate at $1,162 per capita and 5.3% of taxable value after adjusting overlapping local school district debt for a sizable amount of state support. Principal amortization of all tax-supported debt is above average with 65% of all debt retiring within 10 years. The city does not anticipate issuance of additional debt until three to five years.

Additional information is available at www.fitchratings.com.

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