Fitch Rates Plano Texas' GO Bonds 'AAA'; Outlook Stable

AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns an 'AAA' rating to the following Plano, Texas' (the city) general obligation (GO) bonds:

--$21.4 million GO bonds, series 2011.

The bonds are expected to sell competitively as early as Jan. 24, 2011.

In addition, Fitch takes the following actions:

--$300.3 million in outstanding GO bonds affirmed at 'AAA';

--$12.9 million in outstanding certificates of obligation (COs) affirmed at 'AAA';

--$24 million in outstanding maintenance tax notes affirmed at 'AAA'.

The Rating Outlook is Stable.

RATING RATIONALE:

--The city of Plano maintains its historically strong financial profile with sound management practices and policies. City officials have addressed revenue declines with necessary cuts that closed significant, projected annual budget gaps in order to preserve solid reserve levels while sustaining the city's proactive approach to funding operational, economic development, and capital needs.

--Substantial capital reserves provide the city with additional financial flexibility.

--The local and regional economies remain fairly stable and continue to exhibit significant diversity. Local wealth levels are well above average.

--Direct debt levels are expected to remain modest given manageable capital plans and a rapid repayment schedule, although overall debt levels are high.

--Modest declines in the city's taxable values reverse previously healthy rates of tax base growth.

KEY RATING DRIVERS:

--As Plano approaches residential build-out, city officials look to additional development and tax base expansion from the commercial/retail sectors, which has been somewhat delayed in light of the economic downturn. Fitch views additional commercial and retail development in the city as important to maintaining long-term credit quality.

--While budgetary pressures are expected to continue over the near term and management will be challenged to make deeper spending cuts after three years of sizeable operating reductions, the flexibility provided through existing reserves and the city's management practices should enable Plano to maintain its strong financial profile.

SECURITY:

The GO bonds are secured by an ad valorem tax levied on all taxable property within the city, limited to $2.50 per $100 taxable assessed valuation. The certificates of obligation have an additional limited pledge (not to exceed $1,000) of surplus net revenues from the city's waterworks and sewer system.

CREDIT SUMMARY:

Conservative budgeting, interim reporting, and forecasting practices have been a hallmark of the city's financial management, and this approach has led to results that typically outperform budget projections. Similar to fiscal 2009, city management closed an initial budget gap of roughly $14 million in fiscal 2010 due to projected revenue declines with expenditure cuts that included workforce reductions, which led to fiscal 2010 results comparable to prior years. In addition, sales tax revenues (the second largest general fund revenue source behind property taxes) came in better than previous mid-year projections at $58.6 million, not quite 5% higher than fiscal 2009's historically low level. Reserve levels remained solid and comfortably exceeded the city's formal fund balance goal (30-day minimum), ending the year slightly above its internal target (12%-15%) with an unreserved general fund balance of $34.4 million or 16.5% of expenditures, despite the year's usual, modest drawdown for pay-go capital spending. Liquidity was favorable, with cash and investments representing more than two months of operating expenses.

For fiscal 2011, city officials adopted a balanced operating budget after closing another, initial $15.4 million budget gap (primarily with additional staffing cuts) while meeting its formal fund balance goal and maintaining its typical large transfer out to capital reserves at $10.5 million as well as a dedicated portion ($0.02) of its operating tax levy for specific economic development purposes, equivalent to roughly $5 million. Four months into the fiscal year, management reports actual revenues and expenditures remain generally on track with budget and year-to-date sales tax revenues are now roughly $800,000 above budget. Presently, management is beginning work on the fiscal 2012 budget with plans to close a $10 million budget gap (equivalent to roughly 5% of fiscal 2010 general fund spending) that is not as steep as in prior fiscal years due to ongoing budgetary savings from earlier expenditure cuts.

Taxable values declined again modestly by 3% in fiscal 2011, due primarily to commercial value declines, but not as steeply as previously projected. At almost $31 billion, the city's market value remains substantial with minimal taxpayer concentration. In light of recent, increased development activity, management reports prior estimates of $400 million in new property value coming online for fiscal 2012 remain fairly accurate, however, this tax base growth is expected to be offset by a 1% decline in commercial values and flat residential values. While the city is nearing residential build-out, officials estimate about 15% of the city's land is still vacant, primarily available for commercial purposes.

Fitch views the direct debt burden of the city as modest and its rapid amortization pace favorably. All tax-supported debt (including this issuance) is retired within 20 years. However, overall debt levels are high at approximately 4.7% of market value or nearly $5,400 on a per capita basis, primarily due to local school district debt. The city actively maintains a comprehensive but manageable capital improvement program. After this issuance, most of the city's $128.6 million GO bond authorization from 2009 remains available for a variety of projects to be completed over the next few years.

Plano is located 20 miles north of Dallas. It is the largest city and principal commercial center in Collin County, which led all Texas counties in population growth throughout the 1990s. Now at approximately 274,000 residents, the city's population growth rate has slowed and is below those of the county and Dallas-Fort Worth-Arlington metropolitan statistical area (MSA) due to its mature status and limited land remaining for residential development. Local wealth levels exceed both state and national averages. In addition to being a component of the extensive Dallas-Fort Worth economic and employment base, Plano's own economy is extensive and diverse. The city actively engages in economic development efforts and attracts new businesses to the area as one of the premier commercial centers in the area that serves as corporate and regional headquarters for a number of companies. The roster includes HP Enterprise Services, JCPenney, PepsiCo's Frito-Lay North America division, Alcatel-Lucent, Capital One Auto Finance, and Dr. Pepper Snapple Group. At 7% in October 2010, the city's unemployment rate has remained stable on a year-to-year basis and below those of the MSA, state, and nation.

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

In addition to the sources of information identified in Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from Creditscope, University Financial Associates, LoanPerformance, Inc, and IHS Global Insight.

Applicable Criteria and Related Research:

--'Tax-Supported Rating Criteria', (Aug. 16, 2010);

--'U.S. Local Government Tax Supported Rating Criteria', (Oct. 8, 2010).

Applicable Criteria and Related Research:

Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=548605

U.S. Local Government Tax-Supported Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=564566

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