AUSTIN, Texas--()--Fitch Ratings has affirmed the following ratings on Robstown, Texas (city) general obligation (GO) bonds and certificates of obligation (COs):
--$335,000 GO refunding bonds, series 1999, at 'BBB+';
--$505,000 GO refunding bonds, series 2003, at 'BBB+'; and
--$1.2 million combination tax and limited pledge revenue COs, series 2003, at 'BBB+'.
The Rating Outlook is Stable.
The GO and CO's are secured by annual property tax levy limited to $2.50 per $100 taxable assessed valuation. The CO's are additionally payable by net revenues of the city's utility system.
KEY RATING DRIVERS
SALES TAX DEPENDENCE: The general fund relies heavily on economically volatile sales taxes. Year to date sales tax receipts have rebounded but their pronounced cyclicality accentuates the importance of maintaining solid financial reserves which the city is still working towards.
LIMITED TAX BASE: The property tax base is small and concentrated, but notable for its steady growth. The city's strategic location at the intersection of two major highways has helped fuel some commercial development within the city's limited economy. Such steady growth has enabled the city to reduce its total tax rate although it remains above average.
FINANCIAL RECOVERY PLAN: The city's previously uneven financial performance has stabilized, aided by a multi-year financial recovery plan that is supported by utility system transfers. The recovery plan has enabled the city to maintain structural balance despite recent erratic sales tax revenue trends.
HIGH DEBT BURDEN: The city's debt profile is characterized by a high overall burden relative to its tax base. This ratio will remain elevated given the city's future debt plans for a new city hall replacement.
LOW WEALTH LEVELS: The wealth levels of city residents are well below average.
IMPROVED FINANCIAL POSITION WITH CONTINUED OPERATING PRESSURES
The city's past financial performance has been characterized by sporadic general fund balance depletions and deficit positions, followed by multi-year recoveries. The city's current stabilized financial position has been aided by an ongoing financial recovery plan and utility system agreements for increased general fund transfers that enabled the city to rebound from a deficit fund balance position in fiscal 2006. Although markedly improved, the city has yet to achieve its goal of accumulating reserves equal to two to three months of spending due to erratic sales tax receipts. As its largest revenue source, sales tax receipts declined by a large one-quarter in fiscal 2010, then quickly rebounded in fiscal 2011 with a 37% increase that was probably the result of accelerated oil & gas pipeline and equipment purchases.
Despite the sales tax revenue decline in fiscal 2010, the city posted only a modest operating deficit for the year. For fiscal 2011, unaudited results point to a modest surplus of $45,000 or 0.5% of spending. At the close of the year, total fund balance of 10.9% of spending remains well below the city's target and a level Fitch believes provides a sound cushion given the volatility of the revenue base. The fiscal 2012 adopted budget is balanced.
HIGH DEBT BURDEN
Inclusive of the city's plan to secure a $5 million federal loan for a new city hall this summer, the city's overall debt levels are high at 6.9% of market value and are expected to remain elevated relative to its tax base. Additionally, the payout rate is below average. The city's pension plan, provided through the Texas Municipal Retirement System, recorded an adequate funded position of 75.2% as of Dec. 31, 2009. Other post-employment benefits are limited to supplemental death benefits in the form of one-year salary.
FINANCIAL RECOVERY PLAN DEPENDENT ON UTILITY OPERATIONS
As the provider of additional transfers for the city's financial recovery, the city's combined electric, water, and gas utility has ample capacity for such assistance due to its limited utility debt obligations. Adjusted to include $2.9 million in a low-cost loan from the state for the rehabilitation of its sanitary sewer lines, the utility still provides ample capacity to provide annual transfers to the city's general fund.
ECONOMY REMAINS LIMITED, BUT STABLE
Robstown is located in Nueces County about 15 miles northwest of downtown Corpus Christi. The estimated 2011 population of 12,866 has changed little in the last two decades. Wealth indicators trail national and state averages significantly; median household income as of 2009 was 63% of the state's and 59% of the nation's.
Due to its proximity to the area's petroleum and chemical refineries, many Robstown residents commute to Corpus Christi (GO bonds rated 'AA' by Fitch) for employment. In order to offset the city's limited economy, Robstown has promoted its strategic location at the intersection of two major gulf coast surface, port, and rail corridors.
The city's small property tax base is notable for its steady growth which has averaged 8.9% annually since fiscal 2006. Planned commercial projects include several small to medium manufacturing concerns. A proposed 83-store outlet mall within city limits (with an approximate project value of $60 million) appears to be progressing after being delayed due to a difficult financing environment.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
In addition to the sources of information identified in the 'Tax Supported Rating Criteria', this action was informed by information from Credit Scope and Texas Municipal Advisory Council.
Applicable Criteria and Related Research:
'Tax-Supported Rating Criteria', dated Aug. 15, 2011;
'U.S. Local Government Tax Supported Rating Criteria', dated Aug. 15, 2011.
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria