AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings takes the following rating actions on Grand Prairie, Texas (the city):
--$2.245 million limited tax general obligation (LTGO) bonds, series 2013A rated 'AA+';
--$12.165 million combination tax and revenue certificates of obligation (COs), series 2013A rated 'AA+';
The bonds are scheduled to sell competitively on October 15.
Proceeds of the LTGOs and COs will be used for capital improvements, including street and drainage improvements, public safety and facility improvements, park and recreation facilities, and bond issuance costs.
In addition, Fitch affirms its 'AA+' rating on $166.9 of outstanding LTGOs and COs.
The Rating Outlook is Stable.
The LTGOs and COs are secured by and payable from a limited ad valorem tax levied against all taxable property within the city. The COs are further secured by a limited, de minimus pledge ($2,500) of the net revenues of the city's water and wastewater system.
KEY RATING DRIVERS
STRONG, RESILIENT ECONOMY: The city of Grand Prairie is located in the heart of the broad and resilient Dallas-Fort Worth (DFW) metropolitan area. Residents benefit from easy access to an expansive employment market via the major transportation corridors that run through the city.
DIVERSE RESOURCE BASE: The city's tax base is diverse with average wealth metrics. Prospects for continuing economic development and tax base growth are favorable given the city's central location in a strong regional economy, some ongoing development, and highway expansion projects.
SOUND FISCAL PROFILE: Sound management practices, including adherence to prudent fiscal policies and timely spending adjustments, have preserved the city's strong financial profile. General fund reserves and liquidity are robust and the city has prudently continued its pay-go approach to capital spending.
ELEVATED DEBT BURDEN: Overall debt levels are high, due primarily to the debt of various overlapping school districts. Future capital needs will require debt funding but the budget impact should be tempered by the rapid amortization of existing debt.
GOOD PENSION FUNDING: Unfunded pension liabilities are manageable, having declined due to the city's full funding of its required annual contribution as well as system-wide structural and actuarial changes.
The rating is sensitive to shifts in fundamental credit characteristics, including the city's strong financial management practices and healthy economy. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.
The city of Grand Prairie encompasses a narrow, 80 square mile stretch of land in the center of the DFW metroplex, directly between the two major cities and just south of DFW International Airport. Population growth is continuing and is currently estimated at over 179,000, up 40% from 2000.
STABLE ECONOMIC BASE CENTRALLY LOCATED IN DFW METROPLEX
Defense, manufacturing, aerospace, and distribution are major components of Grand Prairie's economy and are complemented by a retail and entertainment presence. The city's economy is buoyed by its location in the heart of the DFW metroplex and easy access to major air and ground transportation routes.
The city's employment picture is positive, with both employment and labor force growth in the last 12 months improving the unemployment rate to 6.5% in July 2013 from 7.2% in July 2012. The unemployment rate is slightly below both the state (6.7%) and the national average (7.7%). Residents also benefit from access to the broad and diverse employment market of the greater DFW MSA, which has outpaced the nation in job growth since 2009.
City wealth indices are mixed. Median household income approximates the state and nation but per capita income is only 80% of the national norm. Market value per capita ticked up to $66,000 in fiscal 2014 but remains below-median for the 'AA' rating category.
ECONOMIC GROWTH SPARKS TAV GAINS IN FISCAL 2014
Taxable assessed value (TAV) performance was lackluster from fiscal years 2010 to 2013, declining by an average of 1% annually during this four-year period. The TAV weakness reflected slightly lower residential and flat commercial/industrial valuations, as well as a decline in new development activity. However, commercial development along recently completed highway connections has been anticipated for some time, and the first major facility, a Restoration Hardware distribution center, recently opened. In addition, permitting activity has gradually strengthened. The positive growth sparked a 5% increase in TAV for fiscal 2014 to $9.8 billion. Other commercial projects are queued up and officials also expect development along new highway access roads as well as positive reappraisals to support some growth in TAV over the near term. Management actively promotes economic development and has spurred investment through the city's three diverse tax increment financing (TIF) districts.
STABLE FINANCIAL PROFILE BENEFITS FROM GOOD MANAGEMENT PRACTICES
The city's finances are well-managed. Property and sales taxes are the leading sources of general fund revenue at 42% and 22%, respectively, in fiscal 2012. Management prudently managed sluggish performance in revenue from fiscal years 2009 to 2011 with spending adjustments. Recent modest fund-balance declines reflect continued general fund transfers for capital and other non-recurring expenditures, including early defeasance of debt with cash. Management considers unassigned fund balance in excess of the city's formal policy floor of 50-60 days of expenditures (15%) as available for non-recurring budget items. Fund balances have tracked at between 25% and 33% of spending over the past five fiscal years.
The general fund concluded fiscal 2012 with a modest drawdown on fund balance of $2.7 million (2.6% of spending). Year-end results were better than the originally budgeted drawdown of $7.5 million. The positive variance was largely due to growth in property and sales tax revenues and under-spending of the operating budget. Unrestricted fund balance declined but remains very strong at 28% of spending ($19.7 million).
City officials anticipate a nominal net general fund deficit (after transfers) in fiscal 2013 of $0.4 million (0.3% of spending). As expected by Fitch, the city substantially narrowed the originally budgeted drawdown of $5.7 million. Sales taxes are trending 6% above the budget and estimated appropriations are slightly below budgeted amounts. Fiscal 2013 appropriations also include another contribution to capital funds of $3.2 million.
The fiscal 2014 general fund budget of $111.4 million increases total appropriations by $9 million or 8.8% from 2013 spending estimates. Key line-item spending changes include an increase in contributions for capital outlays to $7.6 million (6.8% of the budget) and a $5.6 million increase in personnel costs for additional staff and pay raises. Revenue assumptions appear reasonable. An $8.9 million fund balance drawdown is budgeted, but residual fund balance would remain in compliance with the city's fund balance policy.
ELEVATED DEBT BURDEN
Overall debt levels are moderate to high at $4,899 per capita and 7.8% of full market value. The elevated debt levels are primarily attributable to the debt of various overlapping school districts. Outstanding direct debt of the city consists of GO bonds, COs repaid from general property tax and tax increment district revenues, and sales tax bonds. The city has above-average variable-rate exposure totaling what Fitch considers to be a high 28% of outstanding debt. Early retirement of some of the variable-rate obligations should reduce the presence of this risk over time.
Tax-supported debt service (property-tax and sales-tax bonds) consumed 15% of governmental fund spending in fiscal 2012. This calculation excludes a portion of debt prudently retired early with cash. The higher carrying cost also reflects the rapid pace of amortization (81% retired in 10 years).
The city's five-year capital improvement plan (CIP; 2014-2018) calls for $128 million of tax-supported debt issuance. Total CIP spending is slightly higher than prior-year plans due to the addition of street projects that the city will fund to support an economic development opportunity. The city's debt ratios will likely remain elevated. However, Fitch believes the debt burden will remain manageable given the city's prudent fiscal management, favorable prospects for tax base growth, and rapid debt retirement.
Pensions are provided through the Texas Municipal Retirement System (TMRS), an agent-multiple-employer plan. The city has consistently made 100% of the annual required contribution (ARC). Recent legislative restructuring to system-wide actuarial assumptions and fund balance reporting produced improvement in the vast majority of TMRS' participating entities, and for Grand Prairie, reduced its unfunded liability by 33% from 2009 to 2010. Fitch views the city's pension funded position as sound at 84.1% using the system's 7% investment return.
Other post-employment benefits (OPEB) are funded on a pay-go basis. The unfunded liability for the city' OPEB totaled a nominal 0.25% of full market value. Combined fixed costs for debt service (excluding cash defeasances), pension ARC, and OPEB pay-go totaled 20% of governmental fund spending in fiscal 2012.
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, University Financial Associates, S&P/Case-Shiller Home Price Index, IHS Global Insight, 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
U.S. Local Government Tax-Supported Rating Criteria