Fitch Affirms Burleson TX GOs and COs at 'AA-'; Outlook to Positive

AUSTIN, Texas--()--Fitch Ratings affirms the ratings on the following Burleson, Texas (the city) obligations:

--$11.5 million general obligation (GO) bonds at 'AA-';

--$20.5 million combination tax and surplus revenue certificates of obligation (COs) at 'AA-'.

The Rating Outlook is revised to Positive from Stable.

SECURITY

The bonds and COs are direct obligations of the city payable from ad valorem taxes limited to $2.50 per $100 of taxable assessed valuation (TAV). The COs are further payable from a pledge of surplus net revenues of the city's water and sewer system.

KEY RATING DRIVERS

POSITIVE OUTLOOK: The revision in Outlook to Positive from Stable reflects consistent financial performance, a moderating debt burden, and strong growth prospects. Strong reserve levels remain a key mitigant to economically sensitive sales tax exposure.

CONSISTENT ECONOMIC GROWTH: Solid tax base growth reflects the city's availability of developable property and prime location adjacent to the city of Fort Worth. New development and appreciation of housing stock have offset declines in mineral values.

ELEVATED DEBT BURDEN: Improvement in the city's debt burden reflects rapid amortization and expanding market values. Fitch expects debt to remain elevated based on regional growth projections, and carrying costs (debt service, pension and other post-employment benefits [OPEB]) to remain manageable based on rapid amortization, offsetting moderate new debt issuance plans.

ABOVE-AVERAGE ECONOMIC METRICS: The city's income and wealth levels trend above average. Strong employment growth reflects both a maturing employment base within the city and access to the strong regional job market.

RATING SENSITIVITIES

MODERATING DEBT; ECONOMIC EXPANSION: Further moderation of the debt burden and continuing economic growth position the city for an upgrade.

CREDIT PROFILE

Burleson is located just south of Fort Worth (GOs rated 'AA+', Stable Outlook by Fitch), with a 2015 population of about 41,000.

AGRICULTURAL CENTER GROWS INTO BEDROOM COMMUNITY

Burleson historically was a local agricultural center, transformed into a bedroom community of nearby Fort Worth by a doubling of the population since the 2000 census. Ready access to regional job markets and a growing commercial and light industrial base are reflected in the city's low unemployment rate (3.6% as of March 2015). Big box retail, grocers, manufacturers, the local school district, and the city top the list of large employers.

EXPANDING TAX BASE; LONG-TERM GROWTH PROSPECTS

The city's $2.7 billion tax base has tripled in the past dozen years, with steady growth throughout the residential and commercial/industrial sectors, representing 63% and 23%, respectively, of fiscal 2015 market value. There is no concentration among the city's top 10 taxpayers.

Fiscal 2015 mineral values of $169.2 million (6% of market value) are vulnerable to commodity price fluctuations. However, the city's strong growth has muted this exposure to date. Fitch anticipates ongoing tax base growth based on development underway and the city's location in the Dallas-Fort Worth metroplex, but will continue to monitor the impact of low energy prices on mineral reserves.

SOUND FINANCES REFLECT GROWTH AND COST MANAGEMENT

Local economic growth and conservative fiscal management have afforded the city a strong financial position coming out of the recession. Property tax revenues contribute 44% to the city's operating budget, followed by sales tax receipts at 27%. Total tax revenues realized six-year compound annual growth of 4.7% through fiscal 2014.

The city maintained expenditures below revenue growth by instituting a variety of cost savings, including a multi-year salary freeze and elimination of positions through attrition during the recession. Fiscal 2014 unrestricted reserves of $12.1 million are 43.3% of spending. Projected fiscal 2015 unrestricted reserves of $10 million (31% of spending) reflect the application of reserves for capital and one-time projects. Reserves are projected to remain above the city's 20% of spending minimum.

ELEVATED DEBT PROFILE

High overall debt equal to 9.2% of market value reflects improvement as a result of rapid amortization and tax base growth. Fitch anticipates further moderation of the debt burden in the near term as scheduled principal exceeds new debt issuance plans.

Burleson participates in the Texas Municipal Retirement System. The plan's 2014 funded ratio is 75% based on a 7% investment rate assumption. The plan's unfunded actuarial accrued liability (UAAL) is modest at less than 1% of market value. The city also offers a defined benefit retiree health plan with an UAAL of less than 1/2 of 1% of market value. The city's OPEB obligation is de minimis in relation to market value. The city's carrying costs are moderate at 19.7% of fiscal 2015 governmental spending.

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

Fitch recently published an exposure draft of state and local government tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating Criteria, dated Sept. 10, 2015). The draft includes a number of proposed revisions to existing criteria. If applied in the proposed form, Fitch estimates the revised criteria would result in changes to fewer than 10% of existing tax-supported ratings. Fitch expects that final criteria will be approved and published by Jan. 20, 2016. Once approved, the criteria will be applied immediately to any new issue and surveillance rating review. Fitch anticipates the criteria to be applied to all ratings that fall under the criteria within a 12-month period from the final approval date.

In addition to the sources of information identified in the applicable criteria specified below, this action was informed by information from CreditScope, IHS Global Insight, and Zillow Group.

Applicable Criteria

Exposure Draft: U.S. Tax-Supported Rating Criteria (pub. 10 Sep 2015)
https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869942

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

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form
https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=990888

Solicitation Status
https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=990888

Endorsement Policy
https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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Contacts

Fitch Ratings
Primary Analyst:
Rebecca Meyer, +1-512-215-3733
Director
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, Texas 78701
or
Secondary Analyst:
Nicole Wood, +1-212-908-0735
Assistant Director
or
Committee Chairperson:
Doug Scott, +1-512-215-3725
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst:
Rebecca Meyer, +1-512-215-3733
Director
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, Texas 78701
or
Secondary Analyst:
Nicole Wood, +1-212-908-0735
Assistant Director
or
Committee Chairperson:
Doug Scott, +1-512-215-3725
Managing Director
or
Media Relations:
Sandro Scenga, +1-212-908-0278
New York
sandro.scenga@fitchratings.com