Fitch Affirms El Paso Co., TX GOs, COs at 'AA'; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has affirmed the rating of 'AA' on the following general obligation bonds (GOs) and certifications of obligation (COs) of El Paso, County, Texas (the county):

--$50.0 million outstanding GOs;

--$170.3 million outstanding COs.

The Rating Outlook is Stable.

SECURITY

The COs and limited tax bonds are secured by an annual property tax levy, limited to $0.80 per $100 of taxable assessed valuation (TAV). Additionally, the COs are secured by surplus revenues from the county's parking garage facility, not to exceed $1,000.

KEY RATING DRIVERS

SOUND FINANCIAL PROFILE: The county has a history of conservative budgeting, prudent cost management and maintenance of adequate reserves.

GROWING DIVERSIFIED ECONOMY: The economy of El Paso County includes international trade, manufacturing and distribution, Fort Bliss, the U.S. Army's second largest installation, and the stabilizing presence of medical, education, and government sectors. Growth prospects are strong. The tax base has realized solid growth and is without concentration.

MANAGEABLE DEBT: Overall debt per market value is above-average due to high overlapping school district debt, without regard to state support. However, Fitch expects the debt service burden on the county's budget to remain affordable based on its current level and the lack of issuance plans.

BELOW AVERAGE ECONOMIC METRICS: Income levels remain weak but continue to grow at a faster pace than the state and nation over the past five years. Below average income is somewhat offset by a relatively low cost of living. Unemployment rates continue to exceed those of the state and nation.

RATING SENSITIVITIES

SOUND FINANCIAL MANAGEMENT: The rating is sensitive to shifts in fundamental credit characteristics including the county's financial stewardship and adequate reserve levels. The Stable Outlook reflects Fitch's expectation that such shifts are unlikely.

CREDIT PROFILE

El Paso County and Juarez, Mexico comprise the largest Mexican bi-national metroplex, with a combined population of more than 2.5 million. The county includes the City of El Paso (GO bonds rated 'AA' by Fitch), the sixth largest city in Texas.

DIVERSIFIED ECONOMIC GROWTH

The county's location midway between the U.S. coasts has made it a significant gateway between the U.S. and Mexico. The county currently has four ports of entry and the soon-to-be-completed Tornillo-Guadalupe International Port is widely anticipated to further boost trade by easing downtown congestion and improving east-bound commercial traffic flows.

Ongoing expansion of Fort Bliss' military facilities continues to boost the local economy. Subsequent to the federal government's $5 billion investment over the recent past, the full economic impact of the expansion is still unfolding as evidenced by the recent announcement of an 8,000 to 10,000 member air force deployment to the base for annual training.

An expanding medical sector also contributes to the region's employment base, with additional recent announcements for a second military hospital and the Sierra Providence Eastside Hospital slated to open in the fall of 2014. These additions supplement recent expansion of the downtown Medical Center of the Americas, consisting of the El Paso County Hospital district, including the University Medical Center, the El Paso Children's Hospital, Texas Tech University Health Sciences Center and Paul L. Foster Medical School.

The county's 8% unemployment rate as of Dec. 2013 continues to trend above average but officials anticipate the potential for modest improvement over the next several years based on economic development underway. Fitch believes that trends in the county's trade, military, and medical sectors, combined with new downtown redevelopment and wide spread commercial and retail development bode well for near term gains in the county's population and resource base.

STRONG FINANCIAL PERFORMANCE HISTORY

The county has maintained sound finances throughout the recession by implementing a variety of cost cutting measures, including a hiring freeze and across-the-board budget cuts. More recently, revenue gains associated with an expanding local economy have allowed the county to soften austerity measures, although officials continue to carefully manage and monitor cost growth.

Break-even fiscal 2013 operations allowed the county to maintain sound unrestricted reserves of $49.9 million representing 22.7% of spending, in excess of the county's target equal to between 10% and 15% of the general fund budget. Based on balanced operations and appropriation of reserves for nonrecurring applications, the county estimates ending the current year with a sound unrestricted general fund balance of between $37 and $39 million.

MANAGEABLE BUDGET GROWTH

An approximate 6% increase in the county's fiscal 2014 budget results largely from increasing personnel costs and funding of a contingency. Although the budget includes a modest application of reserves, Fitch anticipates the county to outperform the budget based on its history of conservative cost management.

An expanding El Paso County economy bodes well for near term revenue growth, although officials anticipate collective bargaining and new facility operations to pressure the budget in the next couple of years. Although the county maintains significant taxing capacity, officials are evaluating an array of cost saving and efficiency measures to reduce the tax burden on the county.

AFFORDABLE DEBT; ADEQUATELY-FUNDED PENSION PLAN

Overall debt is moderate in relation to the county's population (about $3,350 per capita), but above average in relation to market value at 6.6%, reflecting the significant debt issued by overlapping area municipalities and school districts, not adjusted for state support. Debt service as a percentage of spending is very affordable, at 6.4% of governmental spending and reflects a moderate amortization rate.

The county has no immediate new debt issuance plans. Notably, beginning in fiscal 2013, the county's maintenance and operations (M&O) tax rate of .379 per $100 of TAV includes an additional penny, estimated to provide about $3.7 million dedicated to the county's capital project fund.

The county's pension plan is provided through the Texas County and District Retirement System (TCDRS), with a funded position of 80.8% in fiscal 2013, or an adequate 72.8% based on Fitch's more conservative 7% investment rate assumptions. The county also provides other post-employment health care benefits (OPEB) to retirees, currently funded on a pay-as-you-go basis. The unfunded actuarial accrued liability (UAAL) for the county's OPEB is $59.8 million, but represents just 1/10th of 1% of the county's market value.

The county's carrying cost burden on its budget, measured by the total of debt service payments, pension and healthcare contributions, is an affordable 13.8% of fiscal 2013 governmental spending.

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

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

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Contacts

Fitch Ratings
Primary Analyst
Rebecca Meyer
Director
+1 512-215-3733
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, Texas 78734
or
Secondary Analyst
Rebecca Moses
Director
+1 512-215-3739
or
Committee Chairperson
Arlene Bohner
Senior Director
+1 212-908-0554
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908 0526
elizabeth.fogerty@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst
Rebecca Meyer
Director
+1 512-215-3733
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, Texas 78734
or
Secondary Analyst
Rebecca Moses
Director
+1 512-215-3739
or
Committee Chairperson
Arlene Bohner
Senior Director
+1 212-908-0554
or
Media Relations
Elizabeth Fogerty, New York, +1 212-908 0526
elizabeth.fogerty@fitchratings.com