AUSTIN--(BUSINESS WIRE)--Fitch Ratings has affirmed Midland County, Texas' (the county) outstanding obligations as follows:
--$7 million certificates of obligation (COs), series 2004 at 'AAA';
--$20.8 million general obligation (GO) bonds, series 2009 at 'AAA'.
The Rating Outlook is Stable.
SECURITY
The GO bonds and COs are secured by an annual property tax levy limited to $0.80 per $100 of taxable assessed valuation (TAV). The COs are additionally secured by a limited tax and a subordinate lien on the surplus revenues of the multi-purpose center system.
KEY RATING DRIVERS
SUBSTANTIAL FINANCIAL RESERVES: The county has prudently managed costs amidst rapid revenue growth, enabling it to build healthy general fund balances.
TAX BASE CONCENTRATION/GROWTH: A high oil and gas tax base concentration reflects the county's role as the commercial hub and corporate headquarters for Permian Basin energy activity. Increased drilling and exploration has doubled the county's taxable assessed valuation (TAV) over the past six years, spurring notable gains across all property sectors.
ECONOMICALLY SENSITIVE REVENUE EXPOSURE: Inherently volatile sales tax revenues represent the largest general government funding source, allowing the county to maintain a very low ad valorem tax rate. Sales tax exposure is accentuated by the dominant role of oil and gas in the county, also sensitive to price swings. Although this represents a credit concern, Fitch derives comfort from stability of top energy concerns operating in the county as well as the county's high reserves which provide a buffer against revenue cyclicality.
LOW DEBT PROFILE: The county is an infrequent borrower with low overall debt levels, reflecting a history of paygo capital spending. Fitch expects the county's debt burden to remain low based on the lack of debt issuance plans.
FAVORABLE ECONOMIC METRICS: The county's income and wealth measures are above average while unemployment is low.
RATING SENSITIVITIES
WEAKENED FINANCIAL PROFILE: The rating is sensitive to shifts in fundamental credit characteristics, including the county's strong reserves which help to mitigate exposure to oil and gas price fluctuations and the inherent cyclicality of sales tax revenues. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
CREDIT PROFILE
Midland County is located in the Permian Basin region of west Texas and includes the city of Midland.
STRONG FINANCIAL PERFORMANCE
The county's financial performance remains strong, enabling the accumulation of large unrestricted fund balances of $55.2 million, representing 130% of fiscal 2011 expenditures and transfers out. Fiscal 2011 performance benefited from a 41% surge in sales tax revenues to $26.5 million. This follows a year of sluggish growth in fiscal 2010 and the first sales tax decline (of 8.8%) that the county realized in seven years during fiscal 2009. Management conservatively projects sales tax receipts at levels below current actuals, which Fitch views favorably.
Management reports further additions to reserves based on a fiscal 2012 (unaudited) net surplus of $10.5 million. Fiscal 2012 results reflect another year of strong sales tax performance which the county used in part to fund capital. Officials project fiscal 2013 performance favorable to the county's $1.8 million budget net surplus based on year-to-date performance, conservative budget assumptions and cost monitoring.
ENERGY-BASED ECONOMY
The Permian Basin is one of the country's largest oil and gas reservoirs whose exploration and drilling has fueled strong economic activity. The county's fiscal 2013 TAV of $16.3 billion represents a doubling of value since fiscal 2007, during which time fiscal 2013 market value per capita also doubled to a high $126,000.
Real oil, gas and other mineral values comprise 29% of the fiscal 2013 tax base, with the top 10 taxpayers making up 16%. Accounting for approximately 6% of TAV, Pioneer Natural Resources has remained the county's top taxpayer for over 10 years. Other area industrial and business operations in the county include semi-conductor products, telecommunications, dairy products, plastics, and household goods.
Lending stability to the local economy, the top five employers are Midland Independent School District, Midland Memorial Hospital, Midland College, the city of Midland and the county. The city of Midland serves as the county seat and as the financial and transportation center of the county. The December 2012 unemployment rate of 3.1% reflects several years of solid employment base growth.
LOW OVERALL DEBT
The county's overall debt burden remains low, with no immediate debt issuance plans on the horizon. Principal amortization is about average. The county anticipates funding near-term capital needs largely with cash.
The county's agent multiple-employer pension plan is adequately funded. The county's fiscal 2011 audit received a qualified opinion for the exclusion of its other post employment benefit (OPEB) expense and liability from its statement of governmental activities. However, the county did include the required OPEB disclosure in the audit notes. An additional opinion on financial reporting at the fund level was unqualified.
The fiscal 2012 audit will include the same presentation, so another qualified opinion is expected. Fitch's concern is somewhat offset by the modest size of its disclosed unfunded liability and large financial reserves. But Fitch will monitor the growth of the liability and assess the county's approach to reporting it.
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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