Fitch Rates Fort Bend County, TX GOs 'AA+'; Outlook Stable

AUSTIN, Texas--()--Fitch Ratings has assigned an 'AA+' rating to the following Fort Bend County, TX bonds:

--$77.9 million unlimited tax road and refunding bonds, series 2016A;

--$94.3 million limited tax and refunding bonds, series 2016B.

The bonds are scheduled for negotiated sale during the week of April 25. Bond proceeds will be used to finance mobility projects and various facility improvements, and to refund outstanding debt for interest costs savings.

In addition, Fitch affirms the following ratings:

--$132.1 million unlimited tax road bonds (pre-refunding) at 'AA+';

--$112.6 million unlimited tax toll road bonds at 'AA+';

--$104 million limited tax bonds (pre-refunding) at 'AA+';

--$155.1 million contract tax and subordinate lien toll revenue bonds (issued by the Fort Bend Grand Parkway Toll Road Authority) at 'AA+'.

Fitch has also affirmed the county's Issuer Default Rating of 'AA+'(IDR) based on the application of Fitch's revised criteria for U.S., state, and local government credits, which was released on April 18, 2016.

The Rating Outlook is Stable.

SECURITY

The unlimited tax bonds are payable from an unlimited property tax levy. The limited tax bonds are payable form a property tax levy limited to $0.80 per $100 AV for general operations and limited tax bond debt service. The limited contract tax and subordinate lien toll revenue bonds (issued by the Fort Bend Grand Parkway Toll Road Authority) are payable from payments received from the county pursuant to a joint project agreement and a subordinate lien on toll revenues.

KEY RATING DRIVERS

The 'AA+' rating reflects the county's prudent management and ample revenue and expenditure flexibility, which should allow it to maintain healthy reserve levels throughout economic cycles. Despite growth pressures to fund the county's mobility needs and general capital improvements, the long-term liability burden should remain manageable. Carrying costs are moderate and the pension's assets to liabilities are favorable.

Economic Resource Base

The county is a rapidly growing part of the Houston MSA. Sugarland (GOs rated 'AAA') is the largest city within the county. Major employment sectors include engineering, oil services and exploration, education, manufacturing, and healthcare. Large residential developments in the unincorporated areas of the county and commercial projects throughout the county are fueling steady tax base gains. Easy access to Houston's employment base and the county's own growing economy has helped mitigate the impact of energy sector contraction. Much of the population gains have occurred within large master-planned communities. Wealth levels are above average.

Revenue Framework: 'aaa' factor assessment

Property tax revenues are likely to continue a favorable trajectory due to ongoing rapid expansion of the residential and commercial sectors despite the contraction of the energy sector. Ample property tax rate margin remains under the county's $0.80 limit for operations and debt service.

Expenditure Framework: 'aa' factor assessment

The county's solid expenditure flexibility is derived from management's prudent budgeting practices, absence of labor contracts, and moderate carrying costs. These factors help offset spending pressure to provide basic services, typically provided by cities, to unincorporated areas of the county where most population gains are taking place.

Long-Term Liability Burden: 'aa' factor assessment

Debt financed capital needs, fueled by rapid population growth, may cause an increase in the liability burden but Fitch expects it to remain manageable. The county's unfunded pension liability is low and consistent funding of pensions at actuarially determined levels should keep it at this level.

Operating Performance: 'aaa' factor assessment

The combination of the county's expenditure cutting flexibility, revenue raising authority, and solid reserve levels leaves it well positioned to address cyclical downturns. The county has demonstrated a commitment to prudent fiscal practices.

RATING SENSITIVITIES

Economic Resiliency: Sustained stagnation or reversal of the county's economic trends, due to continued contraction of the energy sector, could result in negative rating pressure.

CREDIT PROFILE

Fort Bend continues to benefit from growth, which it is managing prudently. A solid one-third of the 17% AV gain posted in fiscal 2016 is attributed to new construction. The fiscal 2016 budget is projected to add $6 million to fund balance due to a planned decline in pay-go capital outlays. Several overlapping county assistance districts were approved by voters to impose a 1% sales tax (for 22 years) to fund infrastructure improvements, public safety and other services, tourism and economic development. Management plans to leverage these revenues for mobility projects through inter-local agreements.

Revenue Framework

The county relies on property taxes for the bulk of its revenues. Steady and healthy tax base gains (except for a single year of modest recessionary AV losses in fiscal 2012) have allowed the county to post general fund revenue gains well above U.S. GDP and CPI growth averages over the last 10 years. Currently positive trends in AV may level off in the medium term if the energy sector does not stabilize.

Taxing margin underneath the $0.80 per $100 AV cap for O&M and debt service is ample given the current rate of $0.43.

Expenditure Framework

Public safety and administration of justice comprise about half of general fund spending.

The pace of spending is likely to remain in line with revenue growth. Growing costs for basic services in unincorporated areas of the county should be more than offset by a planned reduction in annual pay-go capital outlays.

Solid expenditure flexibility is derived by management's full control over headcount, lack of collective bargaining agreements, and moderate carrying costs (14.4% of spending).

Long-Term Liability Burden

The county issues voter-approved debt primarily for mobility projects and facility improvements. Pensions are provided through the Texas County and District Retirement System, a multiple employer agent defined benefit plan, and the unfunded liability totals less than 1% of personal income.

Fitch expects the county's debt burden to remain elevated but affordable despite the capital pressures of a rapidly growing area. The combined burden of debt and pensions, at 17% of personal income, is a moderate burden on resources.

Operating Performance

The county's exceptional financial resilience comes from its inherent budget flexibility, in the form of strong control over revenues and spending, and its explicit reserves. The county has maintained reserves at high levels (18.5% of spending at fiscal 2015 year-end), and Fitch expects it to maintain a solid financial position throughout an economic downturn.

Large annual pay-go capital outlays served as a source of flexibility during the most recent period of economic recovery.

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

Applicable Criteria

U.S. Tax-Supported Rating Criteria (pub. 18 Apr 2016)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879478

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr_id=1003180

Solicitation Status

https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1003180

Endorsement Policy

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

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Contacts

Fitch Ratings
Primary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Rebecca Moses
Director
+1-512-215-3739
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com

Contacts

Fitch Ratings
Primary Analyst
Jose Acosta
Senior Director
+1-512-215-3726
Fitch Ratings, Inc.
111 Congress Avenue, Suite 2010
Austin, TX 78701
or
Secondary Analyst
Rebecca Moses
Director
+1-512-215-3739
or
Committee Chairperson
Laura Porter
Managing Director
+1-212-908-0575
or
Media Relations:
Elizabeth Fogerty, +1 212-908-0526
elizabeth.fogerty@fitchratings.com