AUSTIN, Texas--(BUSINESS WIRE)--Fitch Ratings has taken the following rating action on Johnson County, Texas' (the county) limited tax general obligation (GO) bonds:
--$9 million GO refunding bonds, series 2007, affirmed at 'AA+'.
The Rating Outlook is Stable.
SECURITY
The bonds are general obligations of the county, payable from an ad valorem tax levied against all taxable property within the county, limited by state law to $0.80 per $100 assessed valuation.
KEY RATING DRIVERS
STRONG FINANCIAL PROFILE: The high rating reflects the county's continued positive fiscal performance, high fund and cash balances, and conservative budgeting and cost management practices. Fund balance in excess of prudent policy targets is used for non-recurring items.
HEALTHY ECONOMY: The county is situated near the broad labor market of the Dallas-Fort Worth (DFW) metropolitan statistical area (MSA), access to which has been enhanced by a major highway project. Job growth coming out of the recession is strong, and unemployment and poverty rates are low.
TAX BASE IMPROVEMENT: The district's tax base has returned to growth after a period of contraction due to exposure to the Barnett Shale natural gas formation. Some oil and gas industry concentration remains with the top 10 largest taxpayers, but mineral values now make up a smaller portion of total taxable assessed valuation (TAV).
POSITIVE DEBT PROFILE: Debt levels are moderate and amortization is rapid. Carrying costs are low, aided by affordable retiree benefits.
RATING SENSITIVITIES
FISCAL PERFORMANCE: The maintenance of a balanced operating profile and high fund balance is necessary to offset the concentrated taxpayer base and volatility in taxable values.
CREDIT PROFILE
Johnson County is located directly south of Fort Worth (GO bonds rated 'AA+', Outlook Stable). The county spans 740 square miles and has an estimated population of nearly 160,000. The city of Cleburne (GOs rated 'AA-', Outlook Stable) is the county seat and principal commercial center. Other municipalities within the county include Burleson, Alvarado, Joshua, Keene, and Venus.
GROWING ECONOMY REFLECTS PROXIMITY TO DFW
The county's local employment base is diverse and residents benefit from the close proximity to the Dallas-Fort Worth (DFW) metro area. The DFW regional employment base is extensive and diversified in manufacturing, wholesale trade, defense, technology, business services, education, retail, and oil and gas. The proximity to DFW and the availability of affordable land has continued to attract significant development to the county. Interstate 35 along with the recent completion of a tollway provides direct access to downtown Fort Worth and supports additional prospects for development.
The regional economy is experiencing good post-recession job growth. Johnson County's unemployment rate of 4.4% in June 2015 is down over a percentage point from one year prior, reflecting job gains in excess of labor force growth. Income levels are average when compared to the state and nation.
DIMINISHED NATURAL GAS CONCENTRATION
The Barnett Shale play is one of the largest natural gas fields in the U.S., over which most of the county lies. Recent declines in TAV were due to weakness in mineral values, which made up 25% of fiscal 2010 TAV but fell to less than 17% of fiscal 2015 TAV due to decreased drilling activity and lower natural gas prices. The tax base contraction occurred in fiscals 2011-2014, with a cumulative decline of 20%. Modest gains in fiscals 2015 and 2016 of 3% and 2.2%, respectively, show some recovery in the tax base, with further gains likely given the new accessibility to the MSA. Importantly, management has raised tax rates over the last several years to mitigate the revenue impact of the declines.
Several consecutive years of low gas prices have reduced the top taxpayers' share of the tax base, but industry concentration remains a concern. The top 10 taxpayers comprised 14.6% of fiscal 2015 TAV, and eight of the top 10 are directly engaged in the oil and gas industry.
SOLID FISCAL PERFORMANCE AND POSITION
County officials have prudently managed losses in property tax revenues through tax rate adjustments and conservative assumptions to maintain reserves above the formal policy of 25%. Fund balance in excess of this policy is used for one-time spending, including infrastructure and vehicle/equipment purchases. Audited fiscal 2014 results beat the $4.5 million budgeted deficit, ending the year after transfers with a $2.6 million draw down of fund balance. Unrestricted general fund reserves remained healthy at 33.4% of general fund spending. Fitch views this level of fiscal cushion as important to the high 'AA+' rating given the TAV concentration and volatility, and also views positively the county's conservative budgeting practices.
Management reports the fiscal year ending Sept. 30, 2015 will experience a surplus as a result of strong tax collections and underspending the budget. Preliminary plans for fiscal 2016 include a balanced budget with a slight decline in spending and a flat tax rate of $0.405 per $100 TAV.
MODERATE DEBT BURDEN WITH RAPID AMORTIZATION
Debt levels are moderate at $3,733 per capita and 4.6% of market value. Principal amortization is rapid with 100% of debt retired within 10 years. Annual debt service relative to governmental spending is very low at 2.9%. County officials report the potential for a debt issuance later this calendar year for jail renovations. The county's preference to use pay-go for capital in place of debt provides the county with sufficient capacity to issue bonds.
County employees participate in the Texas County and District Retirement System, a cost-sharing multiple employer plan that is funded at 85.9% as of Dec. 31, 2013. Adjusted by Fitch for a 7% rate of return, the pension plan is funded at an estimated 77%. The county made changes to its other post-employment benefits (OPEB) retiree health care program in 2010 that reduced the unfunded obligation from $5.2 million to $1.8 million, a nominal 0.01% of market value. OPEB is funded on a pay-go basis. Combined carrying costs for debt service, pension, and OPEB were low at 6.2% of fiscal 2014 fund 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, the National Association of Realtors, and the Municipal Advisory Council of Texas.
Applicable Criteria
Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=686015
U.S. Local Government Tax-Supported Rating Criteria (pub. 14 Aug 2012)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685314
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https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990028
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https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31
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