AUSTIN, Texas--()--Fitch Ratings assigns an 'AA' rating to the following Corpus Christi, Texas (the city) bonds:
--$31.2 million general improvement refunding bonds, series 2012C;
--$107.6 million general improvement refunding bonds, taxable series 2012.
In addition, Fitch affirms its ratings on the following city GO debt at 'AA':
--Approximately $268.4 million (pre-refunding) in outstanding general improvement bonds (excluding series 2007, which is not rated by Fitch);
--Approximately $89.8 million (pre-refunding) in outstanding COs (excluding series 2007 not rated by Fitch);
--Approximately $7.4 million in PPFCOs, series 2012.
The series 2012C and taxable series 2012 bonds are scheduled to sell December 13 via negotiation. Proceeds will be used for refunding certain outstanding obligations for debt service savings and to pay related costs of issuance.
The Rating Outlook is Stable.
The bonds are secured by a limited ad valorem tax pledge, subject to the city's $0.68 per $100 of taxable assessed value (TAV) tax rate limit for combined operations and non-voter-approved debt service. Given the availability of taxing margin within the $0.68 limit, no rating distinction is made between voter-approved and non-voter-approved tax supported debt.
KEY RATING DRIVERS
STABLE FINANCIAL PROFILE: Management projects strengthened year-end results for fiscal 2012, bolstered by strong sales tax trends and enabled by management's conservative and prudent financial practices. General fund reserves have historically remained comfortably above the city's minimum 10% fund balance policy. General fund liquidity is sufficient.
ECONOMIC SECTORS EXPANDING: Much of the current commercial/industrial development underway or planned revolves around the large petrochemical industries, refineries, associated oil/gas support industries, and shipping/port activity that have traditionally anchored the Corpus Christi economy. The city serves as a regional employment center.
DIVERSE TAX BASE: The city's tax base is diverse, generally stable, and has historically experienced healthy rates of growth. Taxpayer concentration is minimal.
BELOW-AVERAGE SOCIO-ECONOMIC INDICATORS: Area population growth trends are modest and below those of the state; income and wealth levels are below state and national levels.
MODERATE OVERALL DEBT: Overall debt levels remain moderate, aided by the city's direct debt profile that includes considerable self-supporting debt. The actuarially determined annual pension cost (APC) has not been fully funded over fiscal years 2009 - 2011.
STRONG YEAR-END RESULTS PROJECTED FOR FISCAL 2012
Fitch expects financial performance in fiscal 2012 to be strong, led by sales tax revenue growth. Sales tax collections (on an unaudited basis) exceeded fiscal 2011 actual levels by about $6.2 million or 14% for a total of nearly $51 million. This sizeable gain was due largely to the uptick of economic activity stemming from the nearby Eagle-Ford Shale (a relatively recent oil/gas reserve discovery) and the city's key role in oil/gas shipping, processing, and support industries. Sales tax trends are favorably running nearly 10% above budget in fiscal 2013 for the first three months reported (August thru October 2012).
Given this positive trend, management currently projects the net addition of nearly $9 million to general fund reserves by fiscal 2012 year-end, which is in notable contrast to previous, conservative estimates of a modest operating surplus at year-end. The unrestricted general fund balance (the sum of the committed, assigned, and unassigned fund balance under GASB 54) is projected to increase to about $38 million or a solid 19.5% of spending, up from $28.4 million or 14% in fiscal 2011.
Operating performance for fiscal 2013 is reportedly running in line with budget; revenues reflect the continued, positive trend of sales taxes. Year-over-year building permits and associated revenues are also up, about 20% for the first three months of the fiscal year. The adopted general fund budget totals $205.2 million, reflecting a 4.5% year-over-year increase. The city's multi-year forecast through fiscal 2015 anticipates balanced operations that are supported by projected moderate revenue growth in property and sales taxes; a total of $31.1 million is anticipated to be minimally maintained in general fund reserves. Although some expansion to operational spending is projected, Fitch anticipates strengthened reserve levels in the near-term (further above the minimum 10% of the next year's appropriation according to policy) given expectations of continued strong sales tax performance and management's goal to boost contingency funds.
MODEST TAX BASE GAINS
Taxpayer concentration is minimal with the top 10 taxpayers representing 5.7% of TAV for fiscal 2013 and moderate industry concentration in the energy sector. Tax base gains have historically been solid, averaging about 8.5% annually from fiscal years 2006 - 2010. TAV declined a modest 4% in fiscal 2011, but realized modest gains over the last two fiscal years. A 2% TAV gain was realized in fiscal 2013, bringing TAV to $14.3 billion. Fitch expects further, at least modest, TAV gains over the near-term, consistent with the improving levels of economic activity in the area reported.
ECONOMIC EXPANSION EVIDENT
Situated on the Gulf Coast, Corpus Christi is the eighth largest city in Texas and serves as the regional economic center for a 12-county area. With unemployment registering 5.4% as of October 2012 from 6.8% a year ago, the city has experienced healthy gains in employment on a year-over-year basis. Local wealth levels are below average, although area cost of living is relatively low.
The city's economic base consists primarily of petrochemical and shipping, tourism, agriculture, higher education and the military. Management reports various commercial/industrial projects underway or planned, which generally will capitalize upon the area's traditional economic strength in the energy sector and associated industries.
Of note is the $2 billion Tianjin Pipe project (a steel pipe mill) located adjacent to the Port of Corpus Christi (the port) that has recently broken ground. It is expected to be one of the largest Chinese investments in the U.S., adding 600 permanent jobs to the area. In addition, city officials report another large industrial development project, a plastics company facility, (M&G Corporation) that is projected to be fully built-out over the next few years.
The port ranks as the sixth largest in the nation and 44th in the world based on tonnage. The Corpus Christi Army Depot is the largest industrial employer in South Texas and is reported to be adding up to 1,000 employees over the near term; several U.S. Navy installations are also located in the area. Tourism is also an important component of the economy, with Padre Island National Seashore and Mustang Island State Park as leading area tourist attractions.
MODERATE OVERALL DEBT
Overall debt levels are moderate at about 4.6% of market value and $2,850 on a per capita basis, primarily due to debt of the large number of school districts and the local community college. Including this issuance, payout of tax-supported debt is above average with about 64% of principal retired in 10 years. Near-term debt plans include issuance in early 2013 to fund street projects from the $88 million GO authorization approved by voters in November 2012. This authorization is expected to fund the city's tax-backed capital program over the next three to four years with a maximum tax rate impact of just under $0.02 per $100 TAV.
The city participates in the statewide, agent multiple-employer Texas Municipal Retirement System (TMRS) for the majority of its employees. Recent structural and actuarial changes to TMRS approved at the state level have allowed for the restructuring of the system's funds that boosted most participants' funded positions and reduced contribution rates, including those of Corpus Christi.
The city's funded position was low at 53% as of Dec. 31, 2009, but has since improved largely due to the aforementioned change to a funded ratio of 74.5% as of Dec. 31, 2010 (using a 7% investment rate of return for both years). The city also reduced its pension liability somewhat with modifications to various built-in assumptions (such as an annual COLA for retirees).
APC represented a sizeable 15% of fiscal 2011 general operations, but the city has not fully funded its TMRS APC over the last three audited fiscal years. In fiscal 2011, the TMRS APC totaled $25.3 million to which the city contributed $16.8 million or 66.5%. Management reports that the city contributed at a higher than required funding level in plan year 2012 that if continued, will further improve its funded position over time. The unfunded liability was a moderate 2% of fiscal 2012 TAV. The cost of other post-employment benefits (primarily retiree healthcare) is funded by the city on a pay-go basis, which comprised less than 1% of fiscal 2011 spending.
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, Case-Shiller, LoanPerformance, Inc., 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