AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings assigns the following rating for Marble Falls, Texas' (the city) limited tax general obligation (LTGO) refunding bonds:
--$3.35 million LTGO refunding bonds, series 2013 'A'.
The bonds are scheduled to sell on April 1 via negotiation.
Proceeds will be used to refund certain outstanding bonds for interest cost savings.
In addition, Fitch affirms the 'A' rating on $30.2 million of outstanding combination tax and revenue certificates of obligation (COs) series 2004, 2007, and 2008.
The Rating Outlook is Stable.
SECURITY:
The bonds are secured by an ad valorem tax pledge levied against all taxable property in the city, limited to $2.50 per $100 of taxable assessed valuation (TAV).
KEY RATING DRIVERS
WEAK FINANCIAL POSITION: Fiscal performance and reserve levels are improved but still marginal following multiple years of unbudgeted deficits from which the city has been slow to recover. Operations are reliant on enterprise fund transfers that may be fiscally unsustainable.
SALES TAX CONCENTRATION: Economically sensitive sales taxes are the dominant revenue stream and have shown steady, modest annual improvement following recessionary declines.
STABLE, LIMITED RESOURCE BASE: The local economy, population, and tax base are limited but stable. Residents' income levels are below average but market value per capita is high due to the presence of second homes in the city.
FAVORABLE ECONOMIC OUTLOOK: Long-term economic growth prospects are positive given the city's relative proximity to the strong economy of the Austin metropolitan statistical area (MSA). Development presently underway and the stable housing market are contributing to near term growth.
ABOVE AVERAGE DEBT BURDEN: Key debt ratios are high though the payout rate is above average. Pension liabilities are well-funded.
RATING SENSITIVITIES
REVERSAL OF FINANCIAL IMPROVEMENT: Deterioration in the currently modest fiscal cushion would apply downward rating pressure, particularly given the limited economy and reliance on economically sensitive sales taxes.
CREDIT PROFILE:
The city of Marble Falls is located in central Texas about 45 miles northwest of Austin (GOs rated 'AAA' with Stable Outlook by Fitch) in the center of the Highland Lakes chain. The city's population has climbed rapidly in the past decade but is still small at 7,200 in 2012.
FINANCIAL PERFORMANCE IMPROVED BUT FLEXIBILITY IS STILL QUITE LIMITED
General fund performance has been balanced to marginally positive, after utility fund transfers, for three consecutive fiscal years (2010 - 2012) following large deficits from fiscal years 2006 to 2009, during which time operating reserves fell sharply. The deficits were a result of planned capital outlays, unplanned costs for recovery efforts from a major flood event in 2008, and revenue declines. The city ended fiscal 2009 with a general fund balance of $337,000 or a low 3.6% of spending compared to fiscal 2006 reserves at $2.9 million.
The city has above average exposure to economically sensitive sales taxes, given the low property tax rate, which make up a high 60% of general fund revenues. Declines in this revenue stream also contributed to past fiscal pressure but sales tax receipts have increased steadily beginning in fiscal 2011.
Officials have cut spending to return to budget balance. General fund expenditures were reduced by 13.5% from fiscal years 2010 to 2012 through personnel reductions, a hiring and salary freeze, and departmental spending cuts. The reduced spending, in addition to continued enterprise fund transfers totaling 11% -15% of revenues, were sufficient to offset lower sales tax (and missed budget targets for this revenue stream), grants, and fine revenue and yield small operating surpluses of between 0.3% and 3% of spending during this period. Unrestricted general fund balanced increased slightly to $670,000 or 8.2% of spending to close fiscal 2012. Year-end general fund cash/investment balances remain anemic, totaling only $13,000 in fiscal 2012, down slightly from $49,000 in fiscal 2011 due to an uptick in tax receivables.
To date, the cashflow from operating revenues and quarterly enterprise fund transfers has been sufficient to cover disbursements without short-term or other inter-fund borrowing. However, Fitch is concerned that the reliance on utility fund transfers may not be sustainable given the need to issue additional utility-supported debt for system improvements. The enterprise fund closed fiscal years 2011 and 2012 with no cash-on-hand and has benefitted in prior years from large capital (cash) contributions from a medical complex development. The availability of net revenues for continued general fund support will likely hinge on management's willingness to increase rates; rates were increased in fiscal 2011 and in fiscal 2013, and may increase again in fiscal 2014.
SURPLUS EXPECTED IN FISCAL 2013 BUT RESERVES TO REMAIN BELOW THE CITY'S POLICY FLOOR FOR SOME TIME
The modestly improved general fund position is a credit positive but the city's timeline for restoring fund balance to its 25% policy floor remains undefined. Management adopted a fiscal 2013 deficit budget (1% of spending) that shifts a portion of the operating tax rate to debt service, absorbs new capital lease costs and a 3% pay raise to staff, and assumes sales taxes rise 4% above unaudited 2012 receipts. The budget also includes a lower enterprise fund transfer ($650,000) than in prior years. Year-to-date sales taxes are trending well above prior year receipts and officials presently expect to achieve a modest operating surplus after transfers, which would be added to general fund cash reserves.
LIMITED ECONOMIC BASE; DEVELOPMENT PROJECTS UNDERWAY
The local economy is limited and anchored in tourism and retail given the city's popular location near several lakes in the Texas hill country. In addition, there are a number of small to mid-sized manufacturers and a nearby granite quarry is a major employer. The city benefits from a stable housing market that was not as severely impacted by the recession compared to the nation. Proximity to the Austin MSA provides more abundant employment opportunities for residents.
Some economic diversification is occurring with the multi-phase construction of a medical complex that commenced June 2011. The facility is expected to add over 400 jobs at build-out in 2017, and the taxable portions of the complex (excluding the nonprofit hospital) will add value to the city's tax roll as early as fiscal 2014. In addition, infrastructure work to support a large 1,000 acre mixed-use development has begun. This project is currently slated to be completed in phases over the next 10-20 years but has been subject to past delays.
The city's $626.8 million taxable assessed value (TAV) has grown marginally since fiscal 2011, when voter-approved homestead and senior citizen tax exemptions took effect to reduce net TAV by 4% from fiscal 2010. Fitch views management's forecasts for modest TAV growth in the near term as reasonable given the development mentioned above and stable area housing market.
MIXED DEMOGRAPHIC INDICATORS
The unemployment rate (available for Burnet County) has consistently been below state and national levels. However, a decline to 4.8% for the 12-month period ending December 2012 from 5.7% in 2011 was due to labor force contraction. Income levels are slightly below state and national averages but market value per capita is a strong $96,000, aided by the presence of second homes.
HIGH DEBT BURDEN
Key debt ratios are high at 6.7% of full market value and $6,458 per capita after taking into account 32% of debt repaid from net utility revenues. Fitch also considers the debt burden on the budget high at 25% of governmental expenditures (excluding the general improvements fund and debt service paid by net utility fund revenues). The rate of amortization is above average at 62.5% in 10 years. Future capital needs are mainly to expand the city's water plant and utility infrastructure and would require roughly $2 million of revenue bonds as early as fiscal 2014. The city may also sell GO tax notes or use other available revenues to support street improvements.
PENSION AND OPEB LIABILITIES NOT A CREDIT PRESSURE
Marble Falls' pension plan is administered through the Texas Municipal Retirement System (TMRS) and is fully-funded at 104.5% as of Dec. 31, 2011, based on the TMRS investment rate assumption of 7%. Other post-employment benefits (OPEB) for health care are also provided by the city through a single-employer self-funded plan. The unfunded actuarial accrued liability (UAAL) is a small at $140,000 as of fiscal 2012 or a nominal 0.02% of the city's market value. Total carrying costs for debt service, pension ARC, and OPEB pay-go were 28% of fiscal 2012 governmental fund (net of capital projects fund) 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 Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, and National Association of Realtors.
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
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S.
Local Government Tax-Supported Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
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