Fitch Rates Cameron County, TX LT Bonds 'AA-'; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings assigns an 'AA-' rating to the following Cameron County, TX's bonds:

--$16.4 million certificates of obligation (COs), series 2014;

--$5 million revenue and tax bonds, series 2014 (state highway 550 project).

The COs and bonds are scheduled for a negotiated sale during the week of March 12. CO proceeds will be used for various county facility improvements. Bond proceeds will be used to complete the construction of the state highway (SH) 550 project.

Fitch also affirms its 'AA-' rating on the county's outstanding debt comprised of:

--$3.5 million unlimited tax bonds;

--$75.7 million limited tax bonds and COs.

The Rating Outlook is Stable.

SECURITY

Unlimited tax bonds are secured by an unlimited annual property tax levy. Limited tax bonds and COs are secured by the county's annual property tax levy, limited to $0.80 per $100 of taxable assessed valuation (TAV) for operations and maintenance (O&M) and debt service. The COs are additionally secured by a limited pledge of surplus revenues of the county's toll bridge system.

The series 2014 bonds are additionally secured by Cameron County Regional Mobility Authority (CCRMA) toll revenues and vehicle registration fees as well as certain Texas Department of Transportation payments. No rating distinction is made between the unlimited tax secured bonds and the limited tax bonds and COs due to the substantial margin remaining under the tax cap.

KEY RATING DRIVERS

STABILIZED FINANCIAL PERFORMANCE: Improved cost controls and revenue enhancements have stabilized Cameron County's financial position following weakening driven by declines in certain non-property tax revenues and growing public safety expenditures.

WILLINGNESS TO RAISE REVENUE: Management has shown a willingness to take advantage of its substantial taxing flexibility by increasing its operations and maintenance (O&M) levy in recent years to help balance financial operations and add to reserves.

MIXED DEBT PROFILE: The elevated overall debt levels relative to market value and below average principal amortization is balanced against moderate debt on a per capita basis, limited debt plans, and low carrying costs.

SERVICE AREA LINK TO INTERNATIONAL TRADE: The service area relies on international trade activity due to its proximity to Mexico and an extensive and expanding transportation network. Numerous completed or planned major mobility projects should strengthen the county's multi-modal transportation network, aiding trade activity, local commerce, and tourism.

LOW WEALTH LEVELS; ELEVATED UNEMPLOYMENT: The county's wealth levels remain well below average although are improving at rates that far exceed state and national averages. Employment and labor force continue to grow but the unemployment rate remains well above the state and national average.

RATING SENSITIVITIES

RETURN TO STRUCTURAL IMBALANCE: Failure to maintain structural balance and adequate financial reserves could lead to negative rating action.

CREDIT PROFILE

Cameron County is the southernmost county in Texas, and its largest cities include Brownsville, Harlingen, and San Benito.

IMPROVING FINANCIAL PERFORMANCE

The county's revenue base is supported 60% by property taxes. The county also benefits from toll bridge activity and fees from housing federal inmates. The county's aggressive budgeting of these volatile revenues in part, led to structural imbalances pre fiscal 2011. While Fitch believes the county is taking a more conservative approach, Fitch views cautiously the budgeted increases in related revenues.

The county posted another year of positive financial results since restoring structural balance in fiscal 2011. Fiscal 2012 yielded a large $5.1 million general fund surplus, equal to 6.8% of spending, aided by a 1.7 cent hike in the county's O&M tax rate and prudent budgeting of toll bridge revenues, reduced 11% to 7.4% of revenues. As a result, the unrestricted fund balance increased to a solid $11.6 million or 15.3% of spending, modestly below the county's 16% fund balance goal.

Unaudited fiscal 2013 results are also positive with a projected operating surplus of $4.4 million, equal to almost 6% of spending. These results would increase the county's unrestricted fund balance to a large $16 million or 21.9% of spending.

The adopted fiscal 2014 budget is balanced. The budget's 6.2% increase in revenues is due partly to a large 42% increase in the approved per diem rate (now $51) for housing inmates from the U.S. Marshall's Office. Such revenues account for a modest 8% of budgeted revenues. Average daily federal inmate population has exceeded budget, benefiting the county's year to date revenues. Budgeted fiscal 2014 revenues are also up due to an 8% hike in the international toll bridge rate for autos although the budgeted toll bridge transfer remains modest at 7.6% of revenues.

SERVICE AREA LINK TO INTERATIONAL TRADE

The county's population continues to grow rapidly. Estimated 2014 population of 423,868 represents a 4.3% increase over the 2000 census level. Trade, manufacturing, and tourism are all major components of the local economy.

Manufacturing plants are a significant factor on both sides of the U.S.-Mexico border, with a major presence of maquiladoras, or twin-plant manufacturers, in Matamoros, Mexico. The Port of Brownsville is an important link with Mexico and affords the only entry point on the border accessible by the four modes of transportation. Prominent tourist attractions include South Padre Island (SPI) among others.

Income levels remain significantly below those of the state and U.S. Unemployment remains elevated largely due to labor force growth (averaging 1.6% per year since 2004) outpacing employment increases (1.4%). The county's annual unemployment rate for 2013 was 10.2%; above the state's 6.3% and the nation's 7.4%.

Previously solid taxable assessed valuation (TAV) growth flattened in recent years as a result of the reduced building activity during the economic slowdown, although the county has not experienced any declines in TAV. After declining notably in recent years, home building permit activity is stirring again. Future plans by the county's regional mobile authority (RMA) for a second causeway bridge to SPI would likely lead to a development boon on the northern end of SPI.

Other RMA projects include a major railroad relocation project and construction of a rail bridge into Mexico, currently in progress. The recent conversion of a local highway into an interstate highway is designed to facilitate international commercial traffic. The University of Texas was recently authorized to build south Texas' first medical school which will open in 2015 within the county, boosting its growing higher education sector.

MIXED DEBT PROFILE

The county's debt profile is mixed. The overall debt burden relative to market value is elevated at 5.9% and principal amortization is modestly below average at 47% in 10 years. Offsetting debt factors include moderate overall debt on a per capita basis at $2,481 and limited debt plans.

The current CO offering will finance road and county facility improvements and is not projected to have a tax rate impact. The current bond offering will finance the completion of a $71.6 million toll road project undertaken by the CCRMA. The CCRMA was created in 2004 and is required to have six of its seven board members appointed by the commissioners' court. The 10 mile toll road will connect Interstate Highway 69 and the Port of Brownsville.

The tax and revenue bonds are secured by the county's limited tax levy but are also payable from revenues of the CCRMA via an interlocal agreement. The agreement pledges toll revenues, vehicle registration fees, and payments from the Texas Department of Transportation via a pass-through agreement. Although Fitch stress tests suggest property tax support won't be needed to meet annual debt service, Fitch notes that the full amount of debt service could be serviced with a modest 1.9 cent or 4.9% increase in the county's current 38.3 cent limited tax levy.

The county provides retirement benefits through the Texas County and District Retirement System, a statewide agent multiple employer defined benefit pension plan. The Fitch-adjusted funded ratio for the plan is adequate at 81% as of Dec. 31, 2011. Fitch notes that the county typically exceeds its annual required contribution. Total carrying costs, including debt service, pension ARC, and other post-employment benefits (OPEB) pay-go, is modest at 8.8% of spending in fiscal 2012.

Additional information is available at 'www.fitchratings.com'.

In addition to the sources of information identified in the Tax-Supported Rating Criteria, this action was additionally informed by information from Creditscope, University Financial Associates, 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

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

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=822433

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Contacts

Fitch Ratings
Primary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
111 Congress Avenue, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Shane Sellstrom
Analyst
+1-512-215-3741
or
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
111 Congress Avenue, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Shane Sellstrom
Analyst
+1-512-215-3741
or
Committee Chairperson
Jessalynn Moro
Managing Director
+1-212-908-0608
or
Media Relations:
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com