AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has affirmed the following rating for Avery Ranch Road District No. 1, Texas (the district) outstanding unlimited tax (ULT) bonds as follows:
--$4.8 million unlimited tax bonds (ULTs) (excluding series 2012 not rated by Fitch) at 'AA-'.
The Rating Outlook is Stable.
The bonds are secured by an unlimited ad valorem tax pledge levied against all taxable property within the district.
KEY RATING DRIVERS
LIMITED OPERATIONAL RISK: The district has a limited geographic area and financial resources, though this risk is tempered by the financial oversight provided by Williamson County (limited tax bonds rated 'AAA' by Fitch) and the district's single-purpose that excludes any operating responsibilities.
MODERATE GROWTH IN MATURE TAX BASE: The district's tax base is primarily residential and nearing full build-out. Taxable assessed valuation (TAV) trends since the recession reflect steady growth, contributing to a declining tax rate. The district's ability to levy an unlimited tax for debt service provides flexibility in the event TAV trends reverse.
STABLE REGIONAL ECONOMY: Economic indicators for the Austin-Round Rock metropolitan statistical area (MSA) indicate a generally sound service area with unemployment levels that remain below state and national levels despite solid labor force growth. Income and wealth metrics are above the state and nation. Educational attainment levels equal or exceed those of the U.S.
MANAGEABLE LONG-TERM LIABILITIES: Overall debt levels are high due to the large amount of overlapping school district and county debt, but this is somewhat mitigated by the district's lack of new money debt authorization and future capital needs, level debt service, and rapid principal amortization. Fitch also notes the district does not have any exposure to costs associated with pension or other post-employment benefits.
SIGNIFICANT TAX BASE, REVENUE DETERIORATION: A trend resulting in material deterioration of the district's TAV and/or tax collections could signal a fundamental shift in its credit profile, leading to negative rating action. The Stable Outlook reflects Fitch's expectation that such near-term shifts are unlikely.
The district was created by Williamson County in 2001 for the purpose of reimbursing developers for the cost of constructing a four-lane divided road that provides accessibility to other major thoroughfares through a 1,547 acre golf course community known as Avery Ranch. The district is located approximately 20 miles north of downtown Austin.
DISTRICT LOCATED IN AUSTIN-ROUND ROCK MSA
Avery Ranch is a successful development approaching full build-out (currently estimated at about 93% developed) with approximately 3,500 homes, some mixed retail, fully developed commercial property, and about 250 remaining developed lots. The district's tax base grew dramatically from 2003 through 2009 as development occurred fairly rapidly. Recent TAV performance has strengthened after a cumulative, moderate 2.4% decline was realized over the recession in fiscals 2010-2011.
Management currently expects a TAV gain of about 6% in fiscal 2014 that would increase the district's valuation to roughly $1 billion following two years of more modest 3% annual TAV gains. Taxpayer concentration is minimal with the 10 largest accounting for 4% of TAV. Over the intermediate term, Fitch believes stable to modest taxable assessed valuation (TAV) growth is minimally feasible given ongoing housing demand from the area's ongoing population expansion and rising home values.
DEBT REPAYMENT SOLE FUNCTION OF DISTRICT
The district's sole responsibility is essentially limited to the servicing of debt. The district is not authorized to levy an O&M tax, the district does not have any employees, and road maintenance responsibilities lie with the City of Austin, to which title in the road was conveyed following completion in 2003. The district's debt service levy is billed along with county property taxes on a single bill. The county tax collector collects the taxes and pays those taxes to the county treasurer who is the custodian of all taxes collected on behalf of the district.
The tax rate necessary to meet the district's debt service obligations has been sharply reduced over time given the fairly steady pattern of TAV growth since the district's inception. Management anticipates the fiscal 2014 debt service tax rate will again be reduced to just under $0.12 per $100 TAV, which is less than half of the 27.5 cents per $100 TAV levied in fiscal 2006. Moderate reduction of debt service fund balance has also been utilized in support of further reducing the tax rate.
The district no longer maintains a general fund balance, but its debt service fund balance totaled $769,000 at fiscal 2012 year-end, equivalent to about 60% of maximum annual debt service. Management anticipates continued use of debt service reserves in the amount of about $100,000 annually going forward through fiscal 2016 unless TAV growth trends reverse. Debt service fund balance is subsequently expected to be maintained at a reduced but adequate floor of $300,000 or about 25% of annual debt service. This level of liquidity mitigates a modest portion of the risk associated with delinquent tax collections. Fitch also notes that management budgets annual tax collections somewhat conservatively in comparison to actual performance that has historically been strong at slightly over 100%.
OVERALL DEBT HIGH; OTHER LONG-TERM LIABILITIES MINIMAL
The overall debt burden is high due largely to the debt loads of overlapping entities (primarily Leander ISD and Williamson County) and approximates 7.7% of full market value or nearly $7,000 on a per capita basis. Debt service for the district's direct debt is level at $1.3 million annually and principal is repaid rapidly with roughly 88% retired within 10 years. Other long-term liabilities such as pension obligations do not exist. The district does not have any remaining unissued new money bond authorization after the developer for the road project was paid in full.
UNEMPLOYMENT FALLS FURTHER DESPITE LABOR FORCE GAINS
While not immune to recessionary forces, the MSA economy historically has been buffered by the large and stabilizing presence of state government as well as seven colleges and universities, including the University of Texas (the University of Texas System is rated 'AAA' by Fitch with a Stable Outlook), one of the largest public universities in the country. High-technology manufacturing is also a major employer, attracted to the area by a well-educated workforce and the availability of major research facilities. Year-over-year unemployment trends reflect further economic improvement as unemployment levels have continued to fall despite a 3% labor force gain. Unemployment in the MSA declined to 5.4% in May 2013, which was down from 5.8% in May 2012 and below the state and U.S. rates of 6.5% and 7.3% respectively. Income and wealth levels as measured by median household income are roughly 15% above the state and U.S.
Additional information is available at 'www.fitchratings.com'.
In addition to the sources of information identified in Fitch's Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, IHS Global Insight, Zillow.com, and Texas Municipal Advisory Council.
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