AUSTIN, Texas--()--Fitch Ratings assigns an 'AA' rating to the following Parker County, Texas (the county) unlimited tax (ULT) bonds:
-- $20 million ULT road bonds, series 2013.
Fitch also affirms its 'AA' rating on the county's $58.3 million outstanding ULT road bonds.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax levied against all property within the county.
KEY RATING DRIVERS
STABLE FINANCIAL PROFILE: The county maintains a stable financial position, and management projects adding to reserves by fiscal 2012 year-end due largely to better than budgeted revenue performance. Operations are balanced for fiscal 2013.
FAVORABLE ECONOMY: Parker County benefits from its proximity to the larger Fort Worth economy and employment base as well as its location on a portion of the Barnett Shale, one of the largest natural gas fields in the U.S. At 5.6% as of September 2012, county unemployment has declined from 7% on a year-over-year basis with employment gains outpacing labor force growth.
IMPROVING SOCIOECONOMIC INDICATORS: Local income and wealth levels are generally above average.
MODERATED TAV GROWTH; INDUSTRY CONCENTRATION: In contrast to prior double-digit TAV growth trends, fiscal 2013 reflect the third consecutive year of moderated taxable assessed valuation (TAV) performance. The county realized a 2% TAV gain in fiscal 2013 after the prior year's 4% decline largely from reduced mineral valuations. Top taxpayers include predominately oil/gas business concerns.
MODERATELY HIGH DEBT BURDEN: Overall debt levels are moderately high and are anticipated to remain so given the area's potential for further growth. Amortization of the county's direct debt is slow. The direct debt service burden was moderately high at 11% in fiscal 2011 and projected to remain elevated as the county approaches maximum annual debt service (MADS) in 2025.
Parker County encompasses a geographically large 900 square miles and has a population of approximately 122,000 residents. While still fairly rural in nature, the county is within commuting distance to the larger Dallas-Fort Worth-Arlington metropolitan statistical area (MSA) economy and employment base.
PROXIMITY TO FORT WORTH AND LOCATION ON BARNETT SHALE
Major transportation corridors traverse the county's boundaries; Interstate Highway 20 bisects the county from east to west. Area population growth has been rapid, exceeding that of the state. The county has averaged a nearly 3% annual gain in population since 2000 due to residential development pushing west from the Fort Worth area. A healthy pace of growth is expected to continue over the intermediate term in line with expansion of the local housing market. Local income and wealth levels have also grown at a strong pace and are above average, exceeding those of the MSA by roughly 10% as measured by median household income. Unemployment fell to 5.6% in September 2012 on a year-over-year basis, which was below the state and nation's unemployment rates of 6.3% and 7.6%, respectively, comparable to historical trends.
MODEST TAV GROWTH REALIZED IN FISCAL 2013
Rapid residential development drove much of the county's previously very strong tax base growth (the tax base grew on average 14% annually in fiscal years 2005-2010). The county also benefited to a lesser extent from its location over a portion of the Barnett Shale, one of the largest natural gas fields in the United States, with expanded exploration activity resulting in rising mineral valuations.
However, tax base growth has slowed notably since fiscal 2010 given weaker economic conditions that include minimal housing activity, lower natural gas prices, and reduced exploration activity. A 1.5% TAV gain was realized in fiscal 2013 that brought market value to $12.5 billion, up from the prior year's 4% decline largely from reduced mineral valuations. Mineral values contributed about 5% of TAV in fiscal 2013. Top taxpayer concentration as a percentage of TAV in fiscal 2013 remains modest at 7% and industry concentration has stayed high as oil/gas businesses dominate the top taxpayer list. Fitch believes it is likely the county will realize stronger TAV gains over the intermediate term given its proximity to Fort Worth and improved, expanded roadways favorable to further residential development, although such gains remain largely subject to the pace of the housing market.
STABLE FINANCES; IMPROVED RESERVES PROJECTED BY FISCAL 2012 YEAR-END
Property taxes are the county's primary operating revenue source, accounting for about 65% of total general fund sources in fiscal 2011. The county's total property tax rate remains moderate and compares favorably to other Texas counties table at $0.41 per $100 of TAV. The county also levies a 1/2-cent sales tax for property tax relief that contributes about 17% of general fund revenues. At $5.8 million, sales tax revenues evidenced a rebound in fiscal 2011 in line with a modestly improving economy and exceeded budgeted expectations. In conjunction with conservative spending throughout the year, sales tax performance allowed management to add modestly to general fund reserves, bringing the unrestricted general fund balance (the sum of committed, assigned, and unassigned per GASB 54) to $1.9 million or an adequate 5.5% of spending.
To form a more comprehensive picture of financial reserves and the county's financial flexibility, Fitch also considers reserves in the major road fund, which is supported by property taxes and incorporates expenditures typically found in the general fund. For fiscal 2011, the county ended the year with a reduced but healthy $3.4 million in reserves. In total, combined reserves totaled $5.3 million or 11.4% of spending at fiscal 2011 year-end.
Management currently projects adding a solid $2.4 million to general fund balance in fiscal 2012, boosted largely by another year of strong sales tax performance that reached $6.7 million, exceeding conservative estimates by about $1 million. An additional $700,000 in contract revenue was generated from housing additional federal prisoners. The county projects year-end general fund reserves will reach $4.3 million or a strengthened 12.3% of spending, reflective of management's commitment to reach a previously stated general fund balance target of two months. Reserves in the major road fund are projected to increase as well by a more modest $685,000 to $4.1 million or about 40% of spending at fiscal 2012 year-end.
Although there is presently no formal fund balance policy for the major road fund, Fitch derives comfort from management's historically conservative financial approach which has maintained solid reserve levels in this fund. Fitch views favorably management's efforts to build and maintain reserves according to its internal targets as this will provide the county with added financial flexibility and help to offset operating pressures associated with the likely return of higher levels of residential development.
A $37.8 million balanced general fund operating budget was adopted for fiscal 2013, up about $2 million or a moderate 6% from the fiscal 2012 budget due to incorporating stronger sales tax and inmate housing revenue estimates that still remain below actual fiscal 2012 year-end results. The general fund budget also allocates a modest set-aside (about $330,000) in order to further build reserves. A balanced budget was adopted for the major road fund as well. Management projects break-even results in the major road fund while adding approximately $500,000 to general fund reserves by year's end.
MODERATELY HIGH DEBT BURDEN AND OTHER LONG-TERM LIABILITIES
Overall debt levels are moderately high, approximating 4.7% of market value and $4,800 per capita. Fitch anticipates that overall debt levels will stay elevated given expectations for further residential development in the county over the intermediate term, but manageable for the rating category. The county is a fairly infrequent borrower that generally has met most of its capital needs with available resources; management has no further, near-term debt plans.
This issuance completes the county's $80 million bond authorization approved by voters in 2008 for roads. Principal amortization of the county's direct debt is slow with roughly 32% repaid in 10 years. The county's debt profile consists of current interest bonds and some capital appreciation bonds with no exposure to variable-rate debt or derivatives. The debt service burden is moderately high at 11% of spending (general, road, and debt service) in fiscal 2011. Annual debt service for the county's outstanding, tax-supported debt and the 2013 ULT bonds is projected to rise moderately from $5.8 million in fiscal 2012, reaching $7.4 million by 2021, which is sustained through most of the amortization schedule through 2034.
The county's pension plan, as well as disability and death benefits, is thru the Texas County and District Retirement System (TCDRS), an agent multiple-employer plan. The county has made 100% of its annual pension cost (APC) for fiscal years 2009-2011. The county's actuarially required contribution to the plan consumed an affordable 5% of fiscal 2011 spending; the unfunded liability was a minimal 1% of TAV. The county's funded position held relatively steady for both fiscal 2011 and 2012 at roughly 74% after adjusting for a 7% investment rate of return.
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 Fitch's report 'Tax-Supported Rating Criteria', this action was additionally informed by information from Creditscope, National Association of Realtors, and IHS Global Insight.
Applicable Criteria and Related Research:
-- 'Tax-Supported Rating Criteria' (Aug. 14, 2012);
-- 'U.S. Local Government Tax Supported Rating Criteria' (Aug. 14, 2012).
Applicable Criteria and Related Research:
Tax-Supported Rating Criteria
U.S. Local Government Tax-Supported Rating Criteria